The Central Bank of Nigeria has directed all banks in the country to conduct a comprehensive stress test on their credit portfolios beginning from April 1, 2026, as part of efforts to strengthen the stability of the banking system. The directive, issued under the provisions of the Banks and Other Financial Institutions Act 2020, requires lenders to evaluate their financial resilience under simulated adverse economic conditions.
According to the apex bank, the exercise will involve assessing the strength of banks’ loan portfolios over a 12 month period by simulating possible risks such as deterioration in asset quality, governance issues, fluctuations in foreign exchange rates and changes in industry dynamics. The regulator said the test will help determine the potential impact of these factors on key indicators such as non performing loans, loan loss provisions and the capital adequacy ratio of banks.
The central bank also directed that the stress test must cover all credit exposures, including both on balance sheet and off balance sheet facilities as well as insider related loans. Under the guidelines, exposures linked to directors or insiders will be treated under a severe stress assumption and considered to be in default for the purpose of the exercise, with banks required to make full provisions for such risks in their stress scenarios.
Following the exercise, banks are expected to disclose the impact of the stress test on their capital positions and submit board approved reports to the Central Bank on or before April 30. The regulator stated that banks with capital shortfalls would be required to raise the necessary funds within an 18 month period, while institutions that maintain adequate capital levels will continue to undergo routine annual stress testing.