Capital Buffers, Balance Sheet Resilience and Prudent Capital Retention

By Lawal Dahiru Mamman 

It is becoming clear that the Central Bank of Nigeria (CBN) is moving from a crisis-era leniency to institutional discipline. The apex bank is reaffirming its commitment to strengthening capital adequacy and financial accountability across the nation’s banking industry.

With its latest directive halting dividend payouts, executive bonuses, and foreign expansion for banks under forbearance, the apex bank has made it crystal clear that Nigeria’s banking system must transition from reliance on regulatory relief to a foundation of verified financial strength.

This marks a crucial moment for the Nigerian financial system. Some have rightly said that it is a deliberate recalibration aimed at reinforcing long-term stability, ensuring investor protection, and securing economic resilience in the face of domestic and global headwinds.

At the core of the CBN’s new directive is the concept of capital adequacy, the measure of a bank’s capital relative to its risk exposure. Through demanding independently verified compliance with capital requirements, the CBN is ensuring that Nigerian banks are not only liquid but structurally sound enough to withstand economic shocks.

“This temporary suspension is until such a time as the regulatory forbearance is fully exited and the banks’ capital adequacy and provisioning levels are independently verified to be fully compliant with prevailing standards,” explained Olubukola Akinwunmi, Director of Banking Supervision.

The move is particularly crucial as Nigeria’s banking sector moves toward the 2026 recapitalisation deadline, which segments banks into different categories (international, national, and regional) based on capital thresholds. In this light, the suspension of capital outflows such as dividends and overseas ventures is a proactive measure to redirect internal resources toward meeting new capital benchmarks.

Regulatory forbearance was introduced during the COVID-19 pandemic to cushion the financial sector from widespread disruptions. It allowed banks to delay recognition of non-performing loans, apply flexible provisioning and capital treatments, and continue dividend payments despite weakening capital.

While these measures provided much-needed breathing space, they also created blind spots in risk assessment and capital transparency. The current reversal is not just a policy tweak, it is a structural correction.

Phasing out forbearance means CBN is closing loopholes that may have encouraged under-provisioning, asset overvaluation, or unhealthy dividend policies. In doing so, it repositions Nigerian banks for organic growth anchored on robust reserves and clean books.

The broader economic implications of this shift are substantial. First, ensuring banks are well-capitalised enhances the stability of credit markets. Stronger banks are more capable of supporting lending to the real sector, especially small and medium-sized enterprises (SMEs), without threatening systemic risk.

Secondly, it boosts investor confidence, especially among foreign portfolio and direct investors wary of fragility in the financial system. With independent verification now tied to regulatory compliance, capital inflows may find a more attractive, predictable environment.

Thirdly, by mandating internal capital retention, the CBN is reinforcing a culture of financial prudence, which will discourage speculative lending, excessive executive compensation, and aggressive but unsustainable expansions, all habits that have historically weakened institutions during economic downturns.

This policy is only the latest in a broader tapestry of reforms aimed at enhancing financial accountability and prudential oversight. These reforms alongside others before it are in line with global best practices and echo the IMF’s recommendations urging Nigerian authorities to phase out crisis-era relaxations and enforce stricter macroprudential policies.

CBN’s latest directive should not be perceived merely as restriction. It is a strategic nudge toward sustainable banking. It tells institutions that reliance on regulatory leniency is over. What follows must be a deliberate effort to build financial muscle, deepen risk awareness, and align with global standards.

For shareholders, the message is sobering. Dividends and bonuses must wait until the house is in order. For bank executives, prudence is no longer optional, it is regulatory.

In the final analysis, the CBN is not just enforcing discipline. It is laying the groundwork for a more credible, shock-absorbent, and globally respected banking industry, one that places financial soundness above cosmetic performance.

As the dust settles on the pandemic-era forbearance, the Nigerian banking sector is being ushered into a new era. This era is one of capital integrity, strategic patience, and measured growth.