CBN’s Fresh Directive: A Shift Towards Prudence in the Banking Sector : By Clem Aguiyi

Email: totalpolitics@ymail.com

The Central Bank of Nigeria (CBN) has issued a directive instructing banks operating under regulatory forbearance to suspend dividend payments, defer bonuses for executives, and halt investments in foreign subsidiaries or offshore ventures. This move is part of the CBN’s broader strategy to reinforce capital buffers, improve balance sheet resilience, and ensure prudent capital retention within the banking sector.

Key Highlights of the Directive

Suspension of Dividend Payments: Affected banks are required to suspend all dividend payments to shareholders until their capital adequacy and provisioning levels are independently verified to meet prevailing regulatory standards.
Deferment of Bonuses: Bonuses to directors and senior management staff are to be deferred, ensuring that internal resources are retained to meet existing and future obligations.
Halt on Foreign Investments: Banks are prohibited from making new investments in foreign subsidiaries or offshore ventures, aiming to preserve capital and mitigate potential risks associated with foreign exchange volatility.

The CBN’s decision appears to signal a shift from relief to discipline, particularly given the Nigerian banking sector’s ongoing recapitalization push with new capital thresholds set to be implemented in phases up to 2026. This move underscores the need for capital preservation, especially in light of ¹ ²:

FX Volatility: The naira’s fluctuations against major currencies pose risks to banks’ capital adequacy.
Inflation: Rising inflation rates may impact banks’ asset quality and provisioning requirements.
Exposure to Risky Sectors: Banks’ exposure to sectors vulnerable to economic shocks necessitates prudent risk management.

Implications for the Banking Sector
The CBN’s directive is likely to have significant implications for the banking sector, particularly in terms of:

Capital Preservation: Banks will need to prioritize retaining capital to meet regulatory requirements and absorb potential shocks.
Prudent Risk Management: The directive emphasizes the importance of managing risk exposure, particularly in foreign investments and dividend payments.
Regulatory Compliance: Banks must ensure compliance with the CBN’s directive, demonstrating their commitment to sound prudential practices.