Several banks have been confirming their ability and readiness to satisfy the requirements of the Central Bank of Nigeria, CBN on the regulatory forbearance that has been in place in the last few years. However, this requirement and ongoing recapitalisation in the industry are certain to determine those who survive.
Some banks have been particularly strident in assuring their shareholders and investors that they are positioned to satisfy all relevant conditions to exit the forbearance by June 30, 2025 and this is obviously with a view to pacify shareholders that their dividend expectations would be met in the 2025 financial year, while also stressing their positioning on meeting the N500 billion minimum capital requirement.
The flurry of activities and information flow is as result of increased scrutiny of Nigerian banks’ capital strength following the new CBN directive that suspends dividend payments and tightens oversight for banks with outstanding forbearance-related loans or breaches of the Single Obligor Limit (SOL).
In a June 13, 2025 circular, the CBN essentially, asked the banks to carry their forbearance loans to their full provisioning and set their single obligor limits within prudential thresholds.
Forbearance was provided to banks during the COVID-19 pandemic, whereby they were able to temporarily breach prudential requirements owing to the rigid economic environment that existed at the time. Most businesses were affected by the pandemic crisis, which caught the economy, and most of their loans were non-performing. The CBN permitted them to exceed their single obligor limits temporarily. That was almost five years ago.
In its latest circular, the CBN reeled out several guidelines for immediate implementation and full compliance by banks. These include the termination of forbearance measures and SOL waivers. This means that effective June 30, 2025, all COVID-19-related regulatory forbearance and waivers on Single Obligor Limits (SOL) shall be terminated. This step is obviously aimed at restoring risk sensitivity in credit classification, provisioning, and asset quality assessments. Affected banks are expected to align all impacted credit exposures with existing CBN Prudential Guidelines and other relevant regulations.
The CBN is also temporarily lifting regulatory caps on ATI recognition solely for the purpose of supporting capital adequacy. In addition, to ensure that retained earnings are conserved for capital strengthening and systemic risk mitigation, banks benefiting from these transitional concessions must adhere strictly to the directive on suspension of dividend payments, bonuses to directors and senior management, and investments in foreign subsidiaries, as outlined in the June 13 circular. These restrictions, it says, remain in force until capital levels and provisioning are fully restored to regulatory compliance.
Needless to say that shareholders do not find the regulation on suspension of dividend payment funny as it would basically amount to them not receiving anything for their investment in the banks this year and even beyond. Such shareholders have put pressure on the boards and management of banks to ensure that they comply with the CBN directive early enough to ensure they all smile by the end of 2025.
These pressures have obviously prompted the banks to quickly assure their shareholders or their readiness to comply with the CBN directive and would not affect dividend payment.
Some banks have even written to the Nigeria Exchange (NGX) Group to explain their exposure under the Single Obligor Limit (SOL) forbearance regime and what plans they have to bring the exposure within the applicable regulatory limit by June 30, 2025. Some banks are also known to be working on the forbearance granted on other credit facilities and make substantial provisions in respect of these facilities, while taking appropriate and comprehensive steps to ensure full provisioning.
The bottom line in all of this is that any bank that does not have a strong financial footing, cannot successfully raise or surpass the new regulatory capital requirement of N500 Billion, to make it well positioned to continue delivering value to all its key stakeholders.
Banks that fail to meet the CBN N500 billion capital requirement by the March 31, 2026 deadline could face serious consequences, including license downgrade. This means banks with international licenses may be downgraded to national or regional licenses, which require lower capital thresholds of N200 billion and N50 billion respectively. There could also forced mergers or acquisitions where the CBN may encourage consolidation through mergers and acquisitions to help struggling banks meet the requirement. Also, if a bank cannot meet even the downgraded capital requirement, it risks losing its license altogether, while some may be limited in the scope of their services, geographic reach, or ability to expand internationally.
The CBN has in the past stepped in to restructure or manage banks to protect depositors and maintain financial stability and this may also not be out of place if such situation were to occur again from inability to recapitalise.
It must be noted that the recapitalisation must be through paid-up capital and share premium only, as retained earnings and Tier 1 instruments do not count. Many banks have used several options to raise their capital under this current dispensation, including private placements or public offerings, rights issues, while there have also been talks of mergers and acquisitions as well as license reclassification or downgrade.
Several banks have announced that they have already surpassed the N500 billion benchmark, while others are actively raising capital or exploring strategic partnerships.
With the hustle and bustle generated by the June 13 CBN circular, it was apparent that some banks had focussed more on raising their capitals without thinking about how to sort themselves out of the waivers provided in the forbearance regime. The apex bank has therefore brought such banks back to earth that they must ensure that compliance with the regulations or risk huge sanctions and possible downgrade.
