With the aim of increasing banks capital reserves; the central bank of Nigeria (CBN) issues a directive halting the payment of bonuses, profits to shareholders, and the temporary suspension of foreign investments by commercial banks.
According to a statement from the apex bank, the temporary suspensions is to “enhance balance resilience and promote prudent internal capital retention during this transitional period”. However, the suspension is limited to only banks benefiting from credit or single obligor limits (SOL) forbearance.
single obligor limit (SOL)restricts banks from lending more than 20% of their shareholders’ funds to a single borrower or a group of related borrowers.
Nigerian banking sector is currently undergoing a major recapitalization push, with new capital thresholds set to be implemented in phases up to 2026. To strengthen resilience and stability of the banking sector during recapitalization period the CBN directed banks to: “Suspending the payment of dividends to Shareholders; Deferring the payment of bonuses to Directors and Senior
Management Staff; and Refraining from making investment in foreign subsidiaries or new offshore ventures.”
The directive is to ensure all banks are not being reckless with their profits and curb the exposure of banks under SOL from high risk investments.
“This supervisory measure is intended to ensure that internal resources are retained to meet existing and future obligations and to support the orderly restoration of sound prudential positions”. CBN noted.
However, the suspension will hold till the Nigerian apex bank can verify “independently” that the affected banks capital reserves are at “provisioning levels” and “compliant with prevailing standards.” Central bank noted that it will continue to monitor developments while engaging with relevant institutions. Urging the affected banks to “fully comply with this directive and maintain prudent capital management practices during this period”.
