Despite drop, Nigerian banking sector remains stable with strong liquidity — CBN
The Central Bank of Nigeria (CBN) says the capital adequacy ratio (CAR) of the country’s banking industry fell to 12 per cent in July 2025, following the withdrawal of the temporary regulatory forbearance earlier granted to financial institutions.
In its July 2025 Monthly Economic Report, the apex bank revealed that the industry’s CAR declined by 1.43 percentage points compared to the level recorded in June.
According to the CBN, the decline reflects the end of temporary relief measures that had previously helped banks cushion the effects of macroeconomic challenges on their balance sheets.
What the Ratio Means
The capital adequacy ratio measures how well banks can absorb potential losses, comparing their capital base to risk-weighted assets. A higher CAR indicates a stronger ability to withstand financial shocks and protect depositors’ funds.
Despite the drop, the CBN maintained that the industry’s CAR remained comfortably above the 10 per cent regulatory threshold, signalling that Nigeria’s banking sector still has sufficient capital buffers to absorb credit and market risks.
Liquidity Strong, But NPLs Still High
The CBN report also highlighted other key indicators of the industry’s financial health. It noted that the liquidity ratio (LR) which measures banks’ ability to meet short-term obligations remained well above the regulatory minimum, while the non-performing loans (NPL) ratio exceeded the prudential limit.
“The Nigerian banking sector was broadly stable in the period, as most key financial soundness indicators remained within prudential benchmarks,” the report stated.
It added that the liquidity ratio strengthened to 62.86 per cent, far above the 30 per cent minimum requirement, underscoring the sector’s robust short-term solvency and ability to meet maturing obligations.
However, the NPL ratio rose by 2.17 percentage points to 7.8 per cent, exceeding the 5.0 per cent prudential limit. The CBN attributed this to increased loan defaults but noted that enhanced supervision and risk-based oversight have helped contain systemic risks.
CBN’s Assurance
Despite the mixed performance across indicators, the apex bank described the sector as broadly stable, supported by ongoing regulatory vigilance and targeted interventions to preserve financial stability.
“Overall asset quality remained broadly stable, supported by enhanced supervisory vigilance and risk-based regulatory interventions that have curtailed potential contagion and preserved systemic stability,” the report said.
Background
The CBN’s regulatory forbearance measures, introduced during periods of economic stress, allowed banks temporary relief in asset classification and provisioning requirements. The withdrawal of these measures in June 2025 has now revealed the true state of the industry’s capital adequacy.
Analysts say the slight decline in CAR is expected, as banks gradually adjust to normal regulatory conditions. The key concern, however, remains the rise in non-performing loans, which could pressure profitability if not carefully managed.
Outlook
Financial experts believe the Nigerian banking industry remains fundamentally sound, with adequate liquidity and capital buffers. They say the CBN’s continued focus on macroprudential supervision, stress testing, and policy coordination will be critical in maintaining sectoral stability as the economy navigates inflationary pressures and exchange rate volatility.
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