To Avert Potential Vulnerabilities, CBN Directs Commercial Banks to Conduct Stress Tests

*Banks deposit N61.1tn with apex bank in February 2026

Kayode Tokede

As the March 31, 2026, deadline set by the Central Bank of Nigeria (CBN) for the recapitalisation of Nigerian banks approaches, the apex bank has directed all commercial banks to conduct stress tests, effective April 1, 2026.
This is consistent with banks operating in Nigeria depositing an estimated N61.1 trillion with the CBN, indicating excess liquidity in the financial sector.

In a letter dated March 6, 2026, and addressed to all banks, the CBN said the stress tests would determine the resilience of financial institutions.
According to an online medium that cited the letter, the apex bank added that the test would evaluate how a bank could handle extreme economic conditions, such as a severe recession or market crash.
In the letter, the CBN said the directive aligned with Sections 13 and 63 of the Bank and Other Financial Institutions Act (BOFIA) 2020, which require banks to maintain capital it considers adequate to cover the risks arising from each bank’s activities.

According to the CBN, the stress test is “without prejudice to the contents of the CBN Guideline on Stress Testing for Nigerian Banks,” issued in March 2019.”
“Banks are expected to stress the resilience of their credit portfolio over 12 months by simulating deterioration in asset quality, governance risk and significant change in industry dynamics such as fall in commodity prices, foreign exchange rate movement, structural shift in obligor operating market dynamics (supply chain disruption, contracting demand, etc.), portfolio variables, among others,” the letter said.

According to the CBN, the stress testing will estimate the impact on banks’ non-performing loans (NPLs), loan loss provisions, and capital adequacy ratio (CAR).
The CBN asked banks to apply the credit exposures – on and off-balance sheet – including director/insider-related exposures and assume staged migration of credit exposure to the next risk classification in line with the provisions of the prudential guidelines (PG) issued in July 2020, with additional stress for specific sector deterioration and insider-related credits.

The regulator said that, in conducting the stress test, banks are required to establish a baseline based on the last examiner’s communicated assessment of credit portfolios (risk asset assessment or risk-based supervision examination).
“However, where a bank’s financial account returns indicate a deterioration in specific exposures as at the stress testing date, these should be adopted as the baseline amount and performance status,” the CBN said.
“In addition to classification of credit portfolio across performing, watchlist (specialised loans), substandard, doubtful, and lost, baseline position shall include exposure at default, current provisioning level, collateral value, and risk weighted position,”

Meanwhile, the CBN also disclosed that the primary stress scenario should assume progressive deterioration of the credit portfolio over 12 months, aligned with the PG provisioning cycles.
The apex bank also said that each exposure category should migrate to the next stage and be appropriately provisioned in line with the provisions of the PG applied.

According to the CBN, where there are signs of potential deterioration in industry dynamics, the exposures shall be further stressed and deteriorated with at least an additional 10 per cent provisioning applied.
On the issue of director/insider-related credits, the CBN noted that to address governance and insider-related risks appropriately, all insider-related exposures shall be treated under a severe stress assumption and assumed to be in default.
“These shall be fully provided for in the banks’ stress scenarios,” the CBN said.
“Following the conclusion of stress testing, banks are expected to report pre-stress CAR, post-stress CAR, and capital shortfall (if any).

 “It is pertinent to note that banks shall be required to raise 100% of their reported stressed capital shortfall or 50% of the shortfall computed from CBN stress analysis of the banks (whichever is higher), within 18 months.
“Once communicated, this level of capital shall become the risk-based capital requirement of the bank until the next cycle of stress testing, which would take place 6 months after the end of the capital raise to close the shortfall in stressed CAR,” the CBN said.

Banks Deposit N61.1tn With Apex Bank in February 2026

Following excess liquidity in the financial sector, banks operating in Nigeria deposited an estimated N61.1 trillion with the apex bank in February 2026 to generate short-term overnight income.
The figure represents a 16.2 per cent month-on-month increase compared with N52.6 trillion placed with the central bank in January 2026, underscoring the continued reliance of deposit money banks on the CBN’s liquidity management facilities.
Banks typically lodge surplus funds with the CBN through the Standing Deposit Facility (SDF), which allows lenders to earn modest overnight returns on idle liquidity.

Conversely, institutions experiencing temporary cash shortfalls can access funds through the Standing Lending Facility (SLF), thereby meeting immediate settlement obligations.

While deposits surged, banks’ borrowing from the apex bank declined modestly during the same period. Lending through the SLF stood at N1.03 trillion in February, a 5.6 per cent decline from N1.09 trillion in January.

The numbers highlight a financial system with ample liquidity but cautious lending behaviour.

This pattern is not entirely new. Throughout 2025, banks significantly increased placements with the CBN while scaling back reliance on its lending window. Data previously compiled showed that banks deposited N336.2 trillion with the CBN in 2025, an extraordinary 777.2 per cent year-on-year increase compared with N38.33 trillion in 2024.

The surge became particularly pronounced toward the end of the year, when deposits reached an all-time monthly high of N64.55 trillion in October 2025.

The latest figures suggest that although liquidity conditions within the banking system have improved considerably, many institutions remain reluctant to extend aggressive credit to the wider economy.

Indeed, in the first two months of 2026 alone, banks have already placed a combined N113.7 trillion with the CBN.

For analysts, the steady rise in banks’ deposits with the CBN reflected a mix of prudence and caution rather than a shortage of funds.

Investment banker and stockbroker Tajudeen Olayinka believes lenders are responding to prevailing economic risks by prioritising safety over aggressive credit expansion.

“With benchmark interest rates still elevated and concerns about credit risk lingering across the economy, banks naturally gravitate toward the relative safety of the SDF window,” he said.