CBN says capital buffer is a starting point of recapitalisation reform, not the end

The Central Bank of Nigeria (CBN) has announced that stronger capital buffers are merely the initial step in the banking sector recapitalisation process, with the subsequent stage involving enhanced governance, risk management, and productive lending. This was disclosed during the bank's 38th seminar for finance correspondents and business editors in Abuja, under the theme "Towards a Robust and Resilient Financial System in the Post-Banking Sector Recapitalisation Era."

Dr. Muhammad Sani Abdullahi, the CBN Deputy Governor for Corporate Services, informed that 33 banks had attained the revised minimum capital requirements by the end of the two-year programme, introduced in March 2024, which led to a collective increase of N4.65 trillion. Abdullahi cautioned that banks with riskier capital exposure might need to raise additional capital to bolster their balance sheets.

He emphasized that the success of the recapitalisation programme should not be measured only by the sum of capital raised, but rather by the quality of banking services and the economic activity supported by the enlarged capital base. The CBN's vision of building a $1 trillion economy by 2030 necessitates banks with the ability to mobilize and allocate capital on a larger scale, which stronger balance sheets should facilitate.

However, even a stronger balance sheet could be jeopardized by inadequate governance and excessive risk-taking. Dr. Abdullahi underscored that boards and management teams should therefore reinforce internal controls, enhance accountability, and promptly identify emerging risks. The CBN also indicated that its supervisory oversight would extend beyond conventional credit exposures to encompass risks associated with the evolving digital and interconnected financial system.

The recapitalisation programme is in tandem with other reforms in Nigeria's monetary and foreign exchange markets. The FX market has become more stable three years into the reform programme, and external buffers have strengthened. Despite the improved indicators, the CBN acknowledged that pressure on households and businesses persists, calling for the sustained maintenance of these gains.

The conclusion of the two-year recapitalisation programme marks a pivot in what the CBN anticipates from banks that have met the revised requirements. The emphasis is now more on the management and deployment of stronger balance sheets rather than solely on the amount of capital raised. Consumer protection, financial inclusion, fintech regulation, crisis preparedness, and resolution planning will continue to be part of the CBN's supervisory priorities.

Henceforth, the post-recapitalisation phase will center on determining whether the enhanced capital positions lead to productive lending, improved banking services, and increased resilience across Nigeria's financial system.