CBN to Banks: Stress-Test for Economic Shocks or Face Fresh Capital Requirements

 CBN to Banks: Stress-Test for Economic Shocks or Face Fresh Capital Requirements

​Worried by the quality of bank assets, the Central Bank of Nigeria (CBN) has issued a matching order to banks regarding the de-risking of insider lending. Tight new regulations on provisioning, indemnity, guarantees, and fresh approvals are currently underway.

​The new directive requires banks to treat insider credits as bad loans and make 100 per cent provision for the self-declared sums within an 18-month window beginning at the end of April. This strict rule will see some banks making fresh impairment provisions totaling multiple billions of naira, potentially halting dividend payments for many operators over the next two years.

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​Multiple sources told Okenenews hub yesterday that in some banks, insider lending could account for over 30 per cent of total loans and advances. Poor transparency and under-disclosure may currently be masking the true volume of insider debt held by various institutions.

​The CBN assumes that extreme market conditions could lead to lenders losing capital that is often inadequately secured. Consequently, the regulator is moving to enforce these new prudential requirements.
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​The CBN had previously ended its years of forbearance, forcing many banks to make provisions worth hundreds of billions of naira in their 2025 financial statements, which led several to declare losses. This latest rule could extend the "dividend drought." These charges—triggered by previous executive recklessness and weak board oversight—have become a significant burden on small shareholders who must sacrifice dividends and capital gains.
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​These regulations arrive just three weeks before the March 31 deadline for the two-year recapitalization exercise, during which banks are reported to have raised over N4 trillion.
​30 banks have been fully recapitalized according to the CBN.
​The sector is generally perceived to have "weathered the storm," despite the apex bank withholding details on three outstanding operators.
​However, the regulator remains “unsatisfied” with the quality of several operators, citing rising insider abuse as a primary concern.
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​Okenenews hub was informed last night that the apex bank is working on further regulations to tighten fresh insider lending conditions, including strict guarantees and indemnities.
​Beginning April 1, a new regulation will require banks to stress-test their operations. Banks must simulate deterioration in:
​Asset quality
​Governance risk
​Industry dynamics (e.g., commodity price falls, FX movement)

​Okenenews hub confirmed that a circular regarding these changes has already been issued to bank CEOs. Sources indicate that CBN Governor Yemi Cardoso has warned he will not allow insider-related abuses to threaten the stability of the financial sector.
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​This move aims to prevent a repeat of the post-2005 recapitalization crisis, where insider abuses spiked Non-Performing Loans (NPLs) and led to the creation of AMCON, which purchased assets for N1.8 trillion from 22 banks. Currently, the industry NPL ratio sits at about 7 per cent, slightly above the 5 per cent regulatory threshold, though experts suggest some figures may be "cooked."
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​Godwin Owoh, a professor of applied economics, hailed the decision:
​"Shareholders cannot continue to bear the brunt of weak risk management... banks would pursue options of recalling existing loans advanced to related persons."

​Chiwuike Uba, another professor of economics, noted that the timing suggests a focus on balance sheet resilience:
​"By requiring banks to treat insider and politically exposed loans as default in severe stress conditions, the CBN is signaling ongoing vigilance over governance risks."

​He added that this could lead to another round of capital raises for mid-tier or smaller institutions with higher risk exposures. Banks will be required to raise 100 per cent of their reported stressed capital shortfall within 18 months.
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