As one of the steps toward improving the stability of Nigeria’s banking sector, the Central Bank of Nigeria (CBN) has announced relief of short-term regulatory requirement for sponsorship of Additional Tier 1 (AT1) capital. The circular takes effect from June 30, 2025, to March 31, 2026.
The CBN intervention, in the form of a signed notice by a director of banking supervision, is one of the typical transition plan for banks to exit the COVID-19 period emergency support program. The supervisor’s rationale is that the short-term solution does not preclude the normal recapitalisation process. Rather, it is a strategy cushion approach to allow banks to enhance their strategy cushion without pre-empting long-term capital plans or diluted capital requirements.
The bank argued that although such a waiver will allow banks to include additional AT1 capital in Capital Adequacy Ratio (CAR) calculations, there remains a floor capital requirement for the March 28, 2024 recapitalisation requirements. Dropping the cap will be able to allow banks to become in a position to be able to absorb future risks as they transition from pandemic dispensations and create healthy financial cushions.
But the CBN also makes conditions on banks in using these transition facilities. These include a six-month prohibition from dividend payment, director’s fees, and investing in a foreign subsidiary until capital and provisioning is being sought. These were inserted in a standalone circular dated June 13, 2025.
In line with the pursuit of transparency and accountability, the banks will be compelled to report quarterly in detail to the CBN not later than June 30, 2025. The disclosure shall be appended to their CAR levels, loan reclassifications, provisioning levels, and full details of their AT1 instruments, terms of issue and use. Aside from that, all banks will also submit a Capital Restoration Plan during every quarter-end 10th working day. That plan would have to include provisions to restore regulatory capital in relation to risk aversion, cost control, and business model change warranted.
The CBN continued adamant that the banks’ negotiation with its Banking Supervision Department should still continue in ensuring ease of implementation and observance of all the guidelines. The reforms, the regulator added, is one huge bold step to put the financial system into a new height of macroeconomic stability, good risk management, and convergence with global standards in banking.
Finally, policy convenience which was a by-product of the crisis is a temporary condition of support accommodation mechanism which enables Nigerian banks to recover and establish to expand after the crisis while exercising regulatory restraint.
