As one of the measures to build stability in Nigeria’s banking sector, the Central Bank of Nigeria (CBN) revealed that a closely defined subset of banks under regulatory forbearance are now under heightened supervisory scrutiny.Â
It is part of a comprehensive recapitalization plan to improve financial solidity in the banking sector and steer long-term economic transformation.
The move was taken on Tuesday in a formal statement by the Acting Director, Corporate Communications, Mrs. Hakama Sidi Ali of the CBN. The statement says the forbearance banks initially received a temporary regulatory reprieve due to the economic distortions created by the COVID-19 pandemic. The steps were a palliative measure to shield financial institutions from shock while giving them minimal relief to stabilise sustainably.
The recapitalization plan, launched formally in 2023, is central to this venture. It has already pumped real capital into the sector and placed the books of several financial institutions in line. It also aligns with Nigeria’s bigger economic agenda: to stimulate long-term growth, improve investor confidence, and increase competitiveness globally.
A Small Number of Banks Affected
The CBN also clarified that the recent regulatory restrictions apply only to a specific list of banks. Among the most significant constraints currently in place are short-term forbearals on executive bonuses and dividend payments. These are intended to compel the focus banks to retain their internally generated capital, thus enhancing their capital adequacy and financing deeper financial cushions.
“These measures are designed to help banks reach capital adequacy and adopt best practice in risk management,” the release added. The measures are not punitive but are meant as a flexible compliance strategy for transition policy with a relaxed compliance deadline, which should lead to minimal disruption of banking business.
Nigeria’s capital levels remain significantly higher than such global minima as Basel III, expressing the CBN’s unflinching resolve to maintain a strong and well-capitalized banking sector. The central bank also aligned itself with what the United States and European regulatory bodies had otherwise done in other periods, i.e., in the wake of financial crises, to register less stringent recovery and stability.
Active Engagement with Stakeholders
The CBN reiterated that it was eager to work with the Bankers’ Committee and the Body of Bank CEOs in concert with other stakeholders. These partnerships, the central bank promised, were instrumental in making the regulation regime transparent and making reforms understandable and effectually implemented in a mannered way.
The bank stated that the supervisory actions involved are not surprising but are part of an ongoing and intentional reform process to deepen the sector. “Nigeria’s banking system remains fundamentally strong,” the bank asserted.
Key Insights and Data on Forbearance Exposure
Earlier, Nairametrics quoted the CBN as having instructed the suspension of dividend payments, the denial of bonuses to management, and the prohibition of foreign investment by under-capitalized banks. The instructions are to stem the flight of capital and make banks build buffers sufficient to weather potential economic shocks.
A new Renaissance Capital research note has highlighted the fact that some of Nigeria’s largest commercial banks have significant exposure to forbearance loans. According to the report, Zenith Bank has the widest exposure, with 23 percent of its loan book as forbearance loans, while FirstBank is at 14 percent and Access Bank at 4 percent. Tier-II banks are not out of place, with Fidelity Bank and FCMB exposing themselves to 10 and 8 percent, respectively.
In contrast, GTCO and Stanbic IBTC have been said to have de-risked their books with exposure to zero forbearance loans. GTCO took it a step further and actively provided for the abovementioned assets and shut them down as of December 2024, showing a conservative and proactive risk management culture.
With CBN going on to implement these reforms, its stance is bullish and defensive. It sells banks as well-capitalized but assures the public of the financial system’s stability. The drive for sectoral recovery and transformation remains a work in progress, but indications of success are more evident.
