The Central Bank of Nigeria (CBN) has directed all commercial banks to conduct industry-wide stress tests as it steps up monitoring for potential vulnerabilities.
The instruction, which takes effect on April 1, 2026, was sent in a letter dated March 6 and seen by TheCable. The same day the CBN said “the Nigerian banking system remains stable and sound.”
The directive comes as banks undertake a recapitalisation programme ahead of a March 31 deadline set by the apex bank.
Scope and objectives
The CBN said the exercise — aligned with Sections 13 and 63 of the Banks and Other Financial Institutions Act (BOFIA) 2020 and its 2019 “Guideline on Stress Testing for Nigerian Banks” — will assess how banks would fare under severe economic shocks over a 12‑month horizon.
Banks must simulate deterioration in asset quality, governance risk and major industry shifts such as falls in commodity prices, foreign exchange volatility, supply‑chain disruption or contracting demand. The tests are intended to estimate impacts on non‑performing loans (NPLs), loan‑loss provisions and capital adequacy ratio (CAR).
Methodology
The CBN instructed banks to include all credit exposures — on and off balance sheet — including director and insider‑related exposures. Credit exposures should be migrated progressively to the next risk classification in line with the prudential guidelines issued in July 2020, with additional stress applied for specific sector weakness and insider‑related credits.
Banks must establish a baseline using the most recent examiners’ assessment of credit portfolios (risk asset assessment or risk‑based supervision). Where a bank’s FinA returns show deterioration as at the stress‑testing date, those figures should be used instead.
Baseline reporting must classify portfolios across performing, watchlist (specialised loans), substandard, doubtful and lost, and include exposure at default, current provisioning, collateral value and risk‑weighted positions.
Insider exposures and provisioning
To address governance risks, the CBN said all insider‑related exposures should be treated under a severe stress assumption and assumed to be in default; these must be fully provided for in stress scenarios. Where industry dynamics show potential deterioration, exposures must be further stressed with at least an additional 10% provisioning.
Capital shortfall and remediation
Banks must report pre‑stress CAR, post‑stress CAR and any capital shortfall. The CBN requires banks to raise either 100% of their reported stressed capital shortfall or 50% of the shortfall as computed by the CBN (whichever is higher) within 18 months. Once communicated, this raised capital will become the bank’s risk‑based capital requirement until the next stress‑testing cycle, which the regulator said will occur six months after the end of the capital raise.
For banks that show no shortfall, the CBN said a 12‑month stress‑testing cycle will apply.
Submission deadline
All banks are required to submit board‑approved stress‑testing reports to the CBN by close of business on April 30.
