By Sunny Bako Azongwa

The Central Bank of Nigeria (CBN) has directed all banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt new foreign investments, in a move aimed at reinforcing financial stability and preserving capital within the banking system.

In a circular issued to financial institutions, the apex bank said the suspension will remain in place until affected banks fully exit the forbearance regime and their capital adequacy levels are independently verified to meet regulatory standards.

“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,” the CBN stated.

The directive applies specifically to banks currently benefitting from regulatory forbearance related to breaches in credit exposures and Single Obligor Limits (SOL), conditions that typically indicate financial distress or exposure to high-risk lending.

Restrictions Imposed

According to the CBN, banks under forbearance must:

• Suspend all dividend payments to shareholders;

• Defer bonuses to directors and senior management;

• Refrain from making new investments in foreign subsidiaries or offshore ventures.

The regulator emphasized that the policy is intended to ensure the retention of internal resources to meet obligations and restore strong prudential standards.

Policy Context

This move comes amid a broader recapitalization push across Nigeria’s banking industry. New capital requirements are set to be introduced in phases through 2026, in response to economic challenges such as exchange rate volatility, high inflation, and credit risk exposure.

Financial analysts say the latest directive marks a transition from COVID-era relief measures to stricter regulatory discipline.

“The CBN appears to be signaling a shift from regulatory accommodation to more robust capital preservation,” said analysts at Nairametrics.

Recent CBN Actions

The policy is the latest in a series of measures taken by the CBN to limit risk and enforce fiscal discipline among banks:

• In April 2022, the CBN extended interest rate forbearance on loans to ease borrower pressure, but increased banks' exposure to unrecovered debts.

• In September 2023, it barred the use of foreign exchange revaluation gains for dividends or capital expenditures, mandating that such gains be held in a Special Regulatory Reserve.

• By March 2024, the apex bank reiterated its stance, warning banks against using FX windfalls for dividend payouts due to the temporary nature of such gains.

Outlook

With this latest directive, the CBN expands its regulatory oversight beyond the use of profits to include who receives those profits and where they may be invested. It signals an increasingly assertive approach by the central bank to ensure banks build stronger capital buffers ahead of potential economic shocks.