Following the successful conclusion of the banking sector recapitalisation exercise, the Central Bank of Nigeria (CBN) is set to focus on the next phase of regulatory oversight, unveiling a strengthened risk management regime anchored on stress testing and stricter capital discipline.
Announcing the completion of the recapitalisation programme, the CBN stated that the new framework was designed to consolidate gains recorded and ensure that banks remain resilient in the face of potential macroeconomic and sector-specific shocks.
To this end, the Director of Banking Sector Supervision at the CBN, Dr. Olubukola Akinwunmi, who disclosed this during an interview on ARISE NEWS Channel, said the apex bank has reinforced its risk-based capital adequacy framework, mandating deposit money banks to conduct periodic stress tests under defined scenarios, while maintaining sufficient capital buffers to absorb potential losses.
He explained: “To safeguard these gains, the CBN has strengthened its risk-based capital adequacy framework, requiring banks to conduct regular stress testing across defined scenarios and maintain appropriate capital buffers.
“Key regulatory measures, including prudential guidelines and the supervisory framework, are subject to periodic review to support ongoing strengthening of governance, risk management, and sector resilience.”
Speaking further, Akinwunmi said: “We don’t have to wait for another 20 years or 30 years before we ensure that our banks are adequately capitalised.
“Now, the stress testing framework requires that banks create scenarios that could happen where there is a deterioration in their loan books. So, if there is any shock, domestic or external, that affects the economic agents that they are lending to households, consumers, businesses and it happens to impact their ability to repay, that means the bank may be exposed to taking some losses.
“What the risk-based capital requirement, founded upon the stress testing framework, says is that, on an ongoing basis, banks will assess their exposure to risk based on a gradual deterioration of their loan book.
“And that gradual deterioration of the loan book is a scenario-based deterioration to determine the gap that may be there for banks to proactively respond by raising additional capital, or perhaps proper planning of their loan books to ensure that the capital they have is properly managed to meet the demands of their risk exposure.
“The essence of the stress testing framework, and the intent is to ensure that banks proactively manage the capital required, their capital adequacy, and meet it when necessary, raise adequate fresh capital that is required to maintain capital adequacy.”
Reacting to the move by the central bank, analysts said it signals a transition from capital raising to capital preservation and efficient deployment, adding that the regulators seek to avoid a repeat of past episodes of asset quality deterioration and weak risk controls.
Nume Ekeghe
