DataPro Advises Banks on CBN Stress Test Compliance

Nume Ekeghe

DataPro, a Nigerian technology-driven rating agency, has advised banks to begin their portfolio analysis and prepare a baseline data as the Central Bank of Nigeria (CBN) moves towards a risk-based capital requirement policy.

Idris Adeleke, a member of the firm’s rating team and an Enterprise Risk Management (ERM) expert in a statement issued the advisory on behalf of DataPro during a recent webinar on the CBN’s stress testing directive.

The CBN, on March 6, directed banks to stress test, an exercise aimed at detecting weaknesses stemming from credit risk exposures of financial institutions.

The instruction is expected to take effect from April 1, 2026, immediately after the ongoing banking sector recapitalisation exercise ends.

In his presentation, Adeleke said the directive means the CBN is initiating a risk-based capital requirement in its drive to make the financial sector more resilient in order to power the $1 trillion economy target of President Bola Tinubu.

To comply with the directive, he advised banks to act quickly, saying a detailed portfolio analysis should be done immediately or “when the result or the numbers of 31st of March come out.”

“Prioritise data gathering and migration of credit exposures to meet the strict regulatory deadline,” the risk expert said.

“Ensure collaboration across risk, finance, and compliance teams to finalize the stress test results on time. The Board-approved stress testing report must be submitted to the Central Bank of Nigeria by April 30, 2026, close of business.”

A stress test aims to determine the resilience of the institution by evaluating how a Bank should handle extreme economic conditions, such as a severe recession or market crash.

DataPro said the new CBN mandate introduces severe stress assumptions that will directly impact the Capital Adequacy Ratio (CAR), including a ‘staged migration’, which requires Banks to assume a severe deterioration in asset quality across all credit exposures.

Other assumptions are sectoral sensitivity, which mandates Banks to apply an additional 10 percent provisioning floor to deteriorated sectors; and insider credits, which directs Banks to treat all director- and insider-

related exposures as fully in default.

The DataPro webinar, tagged ‘Bank Capital Stress Testing: Getting the CBN Directive Right’, hosted stakeholders across the banking industry.

The virtual event featured a step-by-step guidance on executing the mandated staged migration, strategies to enable Banks to independently validate shortfall calculations to meet the CBN’s 50 per cent  to 100 per cent threshold requirements.

The engagement also provided an overview of reference models and reporting templates to ensure seamless compliance by the April 30 deadline.

Speaking further, Adeleke said the stress test framework aligns “perfectly” with Section 13 and Section 63 of Banks and Other Financial Institutions Act (BOFIA) 2020.

The expert said with the policy, the regulator wants to see that Banks have enough capital to handle the kind of risks they are taking.

“A large capital base alone can be fragile if underlying assets are actually deteriorating,” the DataPro official said.

“The CBN goal is to ensure that the new capital you are raising is not swallowed up immediately by existing bad loans.

“There are a lot of brought in dead loans into the balance sheet because the directive says both on and off balance sheet should be considered when you are doing your baseline data gathering.”

He said the simulation checks will allow the CBN to see whether the new capital Banks are raising can absorb “the wave of defaults in their balance sheets”.

Adeleke emphasized that the apex bank is transitioning from a fixed capital requirement to risk-based capital requirement.

“So, the stress test result shall become the Bank’s official individual capital requirement until the next supervisory cycle,” the expert said.

While the goal of the recapitalization exercise is for size and solvency, he said the essence of the risk-based capital instruction (stress testing) is for stability and risk sensitivity.

“The outcome of this risk-based capital charge is to determine the buffer and see whether you need additional capital to do your business,” the ERM expert said.

“Another thing we need to consider is the government of Nigeria, by 2030, is looking at $1 trillion economy. That’s the ambition.”

He said with such an ambition, Banks operating within a $1 trillion economy should have a “bulletproof balance sheet to take on those infrastructural developments”.

He said DataPro is willing to provide support to Banks and other financial institutions to ease compliance.