CBN moves to avert fresh banking crisis with tougher rules

•Clamps down on insider abuse, regulatory breaches

The Central Bank of Nigeria (CBN) has stepped up enforcement of banking regulations, with banks now required to hold capital that reflects the level of risks they take.

This comes as the regulator tightened its scrutiny of insider lending, corporate governance and large exposures.

Director, Banking Supervision, CBN, Dr Olubukola Akinwunmi, disclosed this at the 37th edition of the Finance Correspondents Association of Nigeria (FICAN) Conference held recently in Abuja.

According to him, the new risk-based capital requirement framework issued by the CBN in March 2026, was designed to ensure that banks remain resilient after the recent recapitalisation exercise and prevent a situation where another industry-wide recapitalisation would become necessary.

Akinwunmi explained that the new framework goes beyond requiring all banks to maintain a uniform minimum capital level, as it takes into account the different business models and risk exposures of individual banks.

He said a bank with higher exposure to risks would be required to maintain more capital to absorb potential losses.

“It’s not just about maintaining a minimum capital requirement. It’s about maintaining a capital requirement that speaks to the level of risk exposure or risk-taking that a bank has decided to embark on based on its business model,” he said.

According to him, the framework, anchored on Sections 13 and 63 of the Banks and Other Financial Institutions Act (BOFIA), requires banks to undergo stress tests to determine whether their capital is sufficient to withstand adverse conditions.

He said the exercise would take into account risks such as concentration of loans, foreign exchange exposure, governance weaknesses and complex business activities.

The CBN director said banks would also be subjected to stress scenarios involving deterioration in asset quality, sector-specific shocks, macroeconomic disruptions and governance-related risks.

He added that insider-related facilities would receive particularly severe treatment under the framework because of the potential risks they pose to banks.

Akinwunmi explained the approach was aimed at ensuring that banks maintain the right level of capital for the risks they assume, rather than simply accumulating capital without considering the quality and nature of their exposures.

“This is a key thing that is happening quietly but it is meant to ensure that we maintain resilience even after the banking sector recapitalisation,” he said.

He also said the CBN had intensified its enforcement of corporate governance rules, noting that weak governance had been responsible for several banking failures in Nigeria and other countries.

According to him, excessive risk-taking, insider abuses, poor credit decisions, weak board oversight and ineffective internal controls often precede financial distress.

He said the CBN was, therefore, paying greater attention to the qualifications, experience and integrity of individuals appointed to senior management and board positions in banks.

Akinwunmi said the quality of people making decisions in banks was critical because poor decisions could lead to reckless lending, weak risk management, erosion of capital and eventual failure of institutions.

He also clarified recent reports suggesting that the CBN had introduced a new rule preventing Nigerian banks from expanding into other African countries.

“There was no new rule. What simply happened was that we enforced the existing rules,” he clarified.

He further explained that existing regulations limit a bank’s investment in foreign or offshore subsidiaries to 10 per cent of its shareholders’ funds.

According to him, the rule had been breached or poorly enforced in the past, but the CBN was now determined to ensure strict compliance, particularly following the recapitalisation of the banking sector.

He said the regulator could not allow banks to put the fresh capital raised from investors into excessive offshore investments that could expose them to additional risks.

Akinwunmi further disclosed that the CBN was strictly enforcing its Insider Credit Circular issued in February 2025, with some bank owners, shareholders and board members exiting institutions over insider lending concerns.

He said the regulator had warned some banks that continued insider credit involving certain individuals could affect their eligibility to remain on the boards of the institutions.

“If there is poor corporate governance, if insider credit pervades the industry, in a short time, we will all live to see a repeat of the problem that we have battled or dealt with through recapitalisation,” he said.

The CBN director also disclosed that the regulator had introduced a digital Supervisory Examination Application to improve the way banks are examined.

He said the system would allow examiners to conduct much of their work digitally, while creating a transparent record of examinations and supervisory decisions.

According to him, the system would enable the CBN to monitor how individual examiners reached their conclusions and determine whether a supervisor’s assessment had been unnecessarily altered.

He said the platform would also preserve the knowledge and experience of older examiners who eventually leave the system, making such expertise available to younger supervisors through artificial intelligence-enabled tools.

Akinwunmi said the CBN was also using data analytics and historical information on individual banks to improve its ability to identify emerging risks and intervene before they threaten financial stability.

He said the regulator had equally strengthened corrective supervisory action, requiring banks to implement recommendations made during examinations promptly.

He added that the CBN had become stricter in enforcing rules on single obligor limits, loan portfolio diversification and other prudential requirements, following the exit from previous regulatory forbearances.

Akinwunmi said banks could no longer expect the kind of regulatory concessions that allowed some prudential requirements to be breached in the past.

“The Central Bank of Nigeria, under the leadership of Mr Olayemi Cardoso, has made it clear to the banking system that we will follow the rules to the letter,” he said.

He said the tougher enforcement regime was ultimately designed to strengthen the banking sector, protect depositors, preserve financial stability and ensure that banks have the capacity to support Nigeria’s economic growth and development.

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