Stricter lending looms as CBN’s capital restoration deadline ends

According to expert projections, the Central Bank of Nigeria's capital restoration strategy, which was intended to assist banks in leaving the forbearance regime, would tighten credit in the short term but promote stability over time.

In a circular signed by Olubukola Akinwunmi, the CBN Director of Banking Supervision, last Monday, the apex bank stated that the Capital Restoration Plan would supplement its other measures, which include stopping the payment of dividends and bonuses, investing in foreign subsidiaries for affected banks, and terminating forbearance exposure and waivers of the Single Obligor Limits.

"With effect from June 30, 2025, all impacted banks must draft and submit a thorough Capital Restoration Plan to the CBN by the tenth working day after the end of the quarter," the CBN said.

“The plan should detail the management’s proposed strategies to restore full regulatory compliance, including (but not limited to) cost optimisation initiatives, risk asset reduction, significant risk transfers, and necessary business model adaptations. The plan must cover the entire period until full normalisation of capital and asset quality indicators is achieved.”

The Capital Restoration Plan must be submitted by Monday (today).

Furthermore, as of June 30, 2025, all banks must provide quarterly disclosures about the following topics: a thorough disclosure of Additional Tier-1 instruments, including issuance terms, usage, and related conditions; CAR calculations with and without transitional reliefs; a detailed provisioning status and reconciliation of affected credit exposures; and classification migration data for restructured or impacted loan facilities. The Central Bank stated that the goal of this is to improve regulatory monitoring and transparency.

Additionally, from June 30, 2025, to March 31, 2026, the apex bank temporarily removed the existing regulatory restrictions on the recognition of Additional Tier 1 capital in the calculation of the Capital Adequacy Ratio.

The goal of this modification is to strengthen banks' capital buffers without sacrificing long-term capital planning. According to the circular, the temporary removal of regulatory restrictions on AT1 recognition is only intended to promote capital sufficiency and should not be used in place of the continuing recapitalization campaign.

In their weekly market report, Meristem's analysts predicted that banks might take a more cautious approach to lending as a result of the new regulations.

“In the near term, banks may adopt more conservative lending practices, tighten risk management frameworks, and intensify cost efficiency efforts. While this could slow credit expansion initially, the broader objective is expected to promote long-term sector resilience and financial well-being.

“Going forward, these improved disclosures and more disciplined governance could foster greater investor confidence, repricing Nigerian financial stocks positively and supporting market valuations.”

Commenting on the development, the Chief Executive Officer of CFG Advisory, Tilewa Adebajo, said there was cause for alarm.

“Banking operates not only at a regional level but also at a global level, and from time to time there is a review of banking standards and practices, which has to do with capital adequacy and capital ratios. In the banking system in Nigeria, there’s an organised recapitalisation programme that is in place. Some banks have already gone to the markets on their first stage and have met all their first-stage capital-raising requirements. Everybody is going, each bank is adopting its unique strategy, and this is an ongoing process, but with the circular, the Central Bank is taking a different step in terms of moving the process along,” he said.

He noted that banks had enjoyed relaxed regulations during the pandemic, which needed to be brought under control now: “During COVID, there was a lot of forbearance not only in Nigeria but globally within the banking systems to be able to help banks cushion the effect of that very unique phenomenon. One of the biggest items was the issue of the single obligor. Banks are supposed to be able to lend to companies based on their capital; some banks have exceeded that, and right now, what the Central Bank is saying is COVID is over now, and we’re cleaning up the books, and we’re going through a recapitalisation process.

“As part of this recapitalisation, we’re moving things back to normal. So, they’ve announced that the forbearance on single obligor limits no longer exists, and banks have to regularise that going forward.”

Adebajo maintained, “This is a process that is in place; there’s no cause for panic, there’s no cause for alarm, and it’s just a process that will end when the banks complete their recapitalisation plan. So, the plan is that by the time the banks have concluded their capital-raising exercises, all these legacy issues within the system should have disappeared.

“The exercise will strengthen the system. Banks are raising more capital, and I’ve said that eventually, banks have to continuously raise capital. Do you remember when we started with the N25bn? Now we’re a long way off the N25bn. It’s a continuous process, and I think this will only help to strengthen the banking system.”