In line with its return to orthodox monetary policy and its move to fortify Nigeria’s banking sector, the Central Bank of Nigeria (CBN) last week issued a directive mandating all banks to submit comprehensive Capital Restoration Plans within 10 working days after the close of each quarter, starting from June 30, 2025.

This bold policy action, contained in a circular signed by the Director of Banking Supervision, Dr. Olubukola Akinwunmi, is not just a compliance mechanism but a strategic intervention aimed at ensuring the financial system’s long-term stability, transparency, and resilience.

This directive marks a critical pivot in the CBN’s post-pandemic regulatory strategy, as it winds down the forbearance measures introduced during the COVID-19 era.

Last month, the banking sector’s regulator rolled out stringent measures aimed at strengthening banks’ capital buffers and curbing regulatory forbearance abuses. The directives, which included a temporary suspension of dividend payments, deferral of management bonuses, and a halt on foreign investments, were designed to ensure full provisioning for high-risk exposures and improve cash-based profitability metrics. The CBN had instructed all banks currently under regulatory forbearance to suspend the payment of dividends to shareholders, bonuses to directors and senior executives, and investments in offshore subsidiaries or new foreign ventures.

The move was part of a broader strategy to ensure that banks operating under forbearance supervision strengthen their financial resilience and fully comply with capital adequacy and loan provisioning standards. The restrictions are temporary and would be lifted once key conditions are met, which include a full exit from regulatory forbearance and independent verification of capital and provisioning levels as being within acceptable regulatory thresholds.

The pandemic had forced many regulators across the globe, including the CBN,to allow temporary leniencies in capital adequacy requirements to prevent widespread insolvency and credit contraction.

But as the global economy gradually returns to normalcy, these emergency measures must give way to sound, forward-looking prudential regulation. That is exactly what the CBN is now doing.

By compelling banks to prepare detailed capital restoration plans, the CBN is sending a clear message that capital buffers must be real, risk-based, and aligned with long-term business models. These plans are not mere paperwork. They are expected to outline how each bank will restore or maintain full compliance with regulatory capital requirements.

This includes concrete measures like cost optimisation initiatives, risk asset reduction, significant risk transfers, business model adjustments, provisioning status and reconciliation of affected credit exposures, capital adequacy ratio (CAR) calculations with and without transitional reliefs, classification migration data for restructured or impacted loan facilities, full disclosure of Additional Tier 1 (AT1) instruments, including issuance terms and usage and refinements in longer-term business models. In short, banks must demonstrate a clear, feasible roadmap to capital adequacy.

This is a welcome development with broad and lasting benefits as it enhances transparency and accountability within the sector. With this, financial institutions are now under pressure to regularly assess their capital positions and justify their strategic actions in documented plans submitted quarterly. This creates a culture of continuous self-evaluation, internal control, and proactive risk management.

Equally, the directive by the central bank will help promote financial system stability because with a consistent cycle of capital planning, banks will be better prepared to absorb shocks, whether from macroeconomic pressures, sectoral downturns, or unexpected credit events. A well-capitalised banking system is the bedrock of a stable economy. It ensures that banks remain solvent, liquid, and capable of extending credit, even in turbulent times.

Similarly, it fosters market discipline as it will enable investors, depositors, and other stakeholders to gain greater confidence knowing that Nigerian banks are under strict regulatory watch and are constantly required to update their plans for capital adequacy. This can help lower risk premiums in the system and deepen market participation.

Additionally, the CBN’s insistence on including cost-cutting and asset quality improvements will help ensure greater operational efficiency across the banking industry as operators will be motivated to focus on managing their balance sheets more prudently, tighten credit standards, and improve loan recovery mechanisms.

Finally, the directive by the apex bank shows proactiveness on the part of the regulator, who, instead of waiting for a crisis before it acts, is taking preventive steps. Early detection and resolution of capital inadequacy problems can significantly reduce the cost of banking crises, both for the public and private sectors. In the broader economic context, this policy is likely to contribute to credit market stability.

The directive dovetails neatly with other reform efforts under the current CBN leadership aimed at rebuilding trust, improving corporate governance, and restoring macro-financial discipline. The capital plan requirement is not an isolated tool; it complements broader monetary and supervisory policies to ensure that Nigeria’s banking system remains competitive, robust, and aligned with international best practices.

We must commend the CBN Governor, Olayemi Cardoso, for maintaining his stance on orthodox monetary policy, which has increased transparency in the apex bank’s operation. This was evident in its consolidated and separate financial statements for the year ended December 2024, which was positive. Investors, both local and foreign, require predictability and fairness, a path Cardoso has chosen to follow.

Therefore, the CBN’s directive is a timely, positive, and strategic measure that aligns with global regulatory norms and Nigeria’s development priorities. It is a vital step in transitioning from emergency-era banking support to a more robust, rules-based financial system. If diligently implemented and monitored, it will go a long way in restoring investor confidence, strengthening institutional discipline, and ultimately fostering a safer, sounder, and more inclusive banking sector for all Nigerians.