Recapitalisation: CBN tightens regulatory framework for banks
Fresh insights into Nigeria’s banking sector recapitalisation have revealed that the next phase of reforms will focus on tightening supervision and strengthening regulatory frameworks, as authorities move to sustain the
- From Nduka Chiejina, Assistant Editor
Fresh insights into Nigeria’s banking sector recapitalisation have revealed that the next phase of reforms will focus on tightening supervision and strengthening regulatory frameworks, as authorities move to sustain the gains already recorded.
Director, Banking Supervision, Central Bank of Nigeria (CBN), Dr. Olubukola Akinwumi, made this revelation in an interview he granted TV Continental (TVC).
He said the apex bank would “soon review key prudential and supervisory frameworks guiding the operations of banks in the country.”
According to him, this step is necessary to reflect current economic realities and ensure that banks continue to operate in a safe and responsible manner.
Prudential guidelines are the rules that determine how banks manage risks, such as how much they can lend, how they classify bad loans, and how much capital they must keep as a safety buffer. Supervisory frameworks, on the other hand, refer to how regulators monitor banks to ensure they follow these rules.
Akinwumi said updating these frameworks will help ensure that Nigerian banks remain stable and accountable as the economy evolves. “The developments in the economy require that prudential guidelines are tweaked to address the current business environment,” he said.
He added that the review will strengthen oversight and ensure that banks continue to uphold global best practices in risk management.
He also reiterated that new measures have already been introduced, including risk-based capital requirements supported by stress-testing frameworks. These tools require banks to regularly test their financial strength under different economic scenarios to ensure they can withstand shocks.
He said: “It is necessary that banks periodically stress test their loan books and the regulator will also do likewise to determine if banks have adequate capital relative to the risks they are taking”.
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He explained that where any weaknesses are identified, banks would be required to take corrective action quickly to avoid future instability.
In addition, Akinwumi said the apex bank is placing stronger focus on corporate governance, particularly in the area of insider lending, where bank executives or related parties may access credit. “No matter how capitalised a bank may be, if governance is poor, the bank may not survive into the future,” he said.
He assured Nigerians that these reforms are aimed at building a banking system that is resilient enough to support the economy under all conditions. “We want to ensure that the Nigerian banking system now and into the foreseeable future will be resilient enough to support the Nigerian economy,” he added.
On the broader impact of recapitalisation, Akinwumi said stronger banks would improve confidence, encourage savings, and expand access to credit for businesses and individuals.
“If Nigerians are confident about their banking system, they are able to save their monies and transact with peace of mind,” Akinwumi said.
He noted that improved access to credit would support business expansion, job creation, and increased productivity across the economy.
He however maintained that access to loans would still depend on the viability of projects presented by borrowers.
“Our banks are ready to finance a bankable project,” he said, advising businesses to carry out proper feasibility studies before approaching lenders.
Also speaking on the recapitalisation, Professor of Capital Market, Uche Uwaleke, described the exercise as a major success, noting that most banks were able to meet the new capital requirements within the stipulated timeframe.
He said: “To know that 33 out of 36 banks met the requirement by the deadline of March 31, by all standards, it is a huge success”.
He explained that the current exercise stands out when compared to the 2005 banking consolidation, which involved widespread mergers among distressed banks.
“In 2005, we had as many as 89 banks, many of them in distress. What we have now is different. Banks raised fresh capital mainly from the stock market,” Uwaleke said.
He noted that unlike the earlier reform, banks were not allowed to count retained earnings as part of their capital this time, making the achievement more significant.
“Despite all these constraints, banks were able to meet the recapitalisation requirement,” Uwaleke said.
He added that the over N4.6 trillion raised, largely from domestic investors, shows strong confidence in Nigeria’s financial system.
He said: “There is really money in Nigeria, and I am excited that the banks were able to meet that deadline”.
According to him, stronger capital positions will enable banks to perform their primary role of financial intermediation more effectively, including financing large projects and supporting economic growth.
He said: “Our banks are now in a stronger position to finance big-ticket projects and also compete in the international space”.
Uwaleke also explained the importance of capital adequacy in simple terms, noting that it measures the strength of a bank relative to the risks it takes.
He said: “When you have adequate capital, it puts you in a stronger position to lend”.
However, he raised concerns about what he described as a disconnect between the banking sector and the real sector of the economy, particularly industries such as manufacturing and agriculture.
“You find the banking sector growing, but the real sector is not growing at the same pace. That shows there is a disconnect,” Uwaleke said.
He explained that while banks are performing well financially, sectors that have the capacity to create jobs are not receiving enough funding.
To address this gap, Uwaleke called on the Central Bank of Nigeria to adopt targeted policies that would encourage banks to lend more to productive sectors.
He said: “It is not going to happen by moral suasion. The Central Bank should use incentives to encourage banks to lend to the real sector”.
He suggested measures such as reducing regulatory requirements for banks that support key sectors, noting that similar approaches have been used in other countries.
Uwaleke also pointed to improvements in the broader economy, including progress in controlling inflation and stabilising the exchange rate, as signs that recent policies by the apex bank are yielding results. In his words, “The Central Bank has largely succeeded in ensuring macroeconomic stability and strengthening the banking sector.”
