CBN Nigeria: New Risk-Based Capital Framework Implemented

• The Central Bank of Nigeria introduced a risk-based capital requirement framework in March 2026 to strengthen the banking sector.
• This framework mandates higher capital buffers for banks with greater risk exposures, moving away from industry-wide minimums.
• The CBN is intensifying enforcement of existing prudential rules, including restrictions on insider lending and single-obligor limits.
• Directors of banks face potential removal from their positions if insider lending persists, as some owners and board members have already exited due to stricter rules.
• Banks' investments in offshore subsidiaries are now strictly limited to 10 percent of shareholders' funds under BOFIA provisions.

The Central Bank of Nigeria's new framework represents a fundamental shift from uniform capital adequacy thresholds to a system where each bank's specific risk profile dictates its required capital reserves.

The Central Bank of Nigeria (CBN) has implemented a new risk-based capital requirement framework, detailed in guidelines issued in March 2026, aimed at bolstering the resilience of the nation's banking sector. This initiative mandates that financial institutions with elevated risk exposures must maintain larger capital buffers. The framework signifies a departure from the previous approach, which largely relied on industry-wide minimum capital adequacy thresholds, towards a system where the specific risk profile of individual banks determines their required capital adequacy ratio (CAR).

This strategic shift is designed to ensure that banks possess sufficient capital commensurate with the nature, scale, complexity, and inherent risks of their operations. According to Dr. Olubukola Akinnwunmi, the CBN Director of Banking Supervision, the policy's primary objective is to guarantee that banks remain robust following the recent recapitalisation efforts. He emphasized that the focus extends beyond merely meeting a minimum capital requirement, instead prioritizing a capital level that directly reflects a bank's chosen business model and its associated risk-taking activities.

Under these new directives, banks exhibiting significant concentration risks, substantial foreign exchange exposures, identified governance weaknesses, or complex business activities are now expected to hold greater capital buffers compared to those with lower risk profiles. The CBN's overarching goal is to preempt a recurrence of the financial distress that necessitated past banking sector recapitalisation, thereby ensuring that lenders have adequate reserves to absorb potential losses and sustain operations during periods of economic or financial turbulence.

To effectively implement its strengthened supervisory approach, the Central Bank of Nigeria will deploy forward-looking stress tests. These assessments are designed to evaluate banks' capacity to withstand potential losses stemming from various factors, including deteriorating loan quality, sector-specific shocks, broader macroeconomic disruptions, and governance-related risks. The scope of these stress tests encompasses both on-balance-sheet and off-balance-sheet credit exposures, projected over a 12-month horizon.

Key metrics considered during these evaluations include exposure at default, credit classification, provisions, collateral values, and risk-weighted assets. Dr. Akinnwunmi highlighted that the purpose of these rigorous tests is to ensure that capital requirements are more responsive to the actual risk exposures faced by banks, thereby fortifying their ability to navigate adverse economic conditions. This proactive stance underscores the CBN's commitment to a more dynamic and risk-sensitive regulatory environment.

Beyond capital requirements, the CBN is also intensifying its enforcement of existing prudential rules, particularly targeting areas that have historically posed systemic risks. This includes a renewed focus on insider lending, single-obligor limits, and restrictions on investments in offshore subsidiaries, signaling a comprehensive tightening of regulatory oversight across the Nigerian banking sector.

Insider lending remains a significant concern for the Central Bank of Nigeria, which views it as a practice capable of undermining corporate governance and exposing depositors' funds to undue risk. The CBN has already observed the impact of stricter enforcement of insider credit rules, which were introduced in February 2025, leading to the exit of some bank owners, shareholders, and board members from the industry. Dr. Akinnwunmi issued a stern warning that bank directors could face removal from their positions if insider lending continues to persist, emphasizing that pervasive insider credit and weak corporate governance could precipitate a return to the financial problems previously addressed through recapitalisation.

Furthermore, the CBN has ended previous forbearances related to single-obligor limits, which are designed to restrict the maximum amount banks can lend to individual borrowers or groups of connected entities. The regulator is now strictly enforcing these existing prudential rules to prevent excessive concentration of lending to particular borrowers, which could otherwise expose banks to substantial losses. This move aims to diversify credit risk and enhance the stability of lending portfolios across the banking system.

In addition to these measures, the Central Bank of Nigeria is enforcing stricter restrictions on banks' investments in offshore subsidiaries. Such investments are now capped at 10 percent of shareholders' funds, in accordance with the applicable provisions of the Banks and Other Financial Institutions Act (BOFIA). This limitation is intended to manage foreign exchange exposure and ensure that banks prioritize domestic capital deployment while maintaining prudent international investment practices.

The Central Bank of Nigeria's comprehensive reforms, encompassing the new risk-based capital framework and intensified enforcement of prudential guidelines, are fundamentally aimed at fostering greater stability and resilience within the Nigerian banking sector. By aligning capital requirements directly with a bank's unique risk profile and rigorously addressing issues like insider lending and single-obligor limits, the CBN seeks to create a more robust financial system capable of withstanding economic shocks.

The emphasis on strong corporate governance, coupled with the threat of director removal for non-compliance with insider lending rules, underscores the regulator's commitment to ethical banking practices. This proactive regulatory stance is crucial for preventing systemic vulnerabilities and protecting depositors' interests. The measures collectively reinforce the CBN's determination to ensure that individual banks, and by extension the entire financial system, are well-capitalized and prudently managed, thereby averting future financial crises.

Lawyers and compliance officers in Nigerian banks must immediately review and update their capital adequacy calculations, internal lending policies, and corporate governance frameworks to align with the CBN's new risk-based capital requirements and stricter enforcement of prudential rules, particularly regarding insider lending and single-obligor limits, to avoid regulatory penalties and potential director liabilities.

Source: Original reporting via industry financial news