Daniel Otera
The Central Bank of Nigeria (CBN) has reported a notable decline in the banking industry’s capital adequacy ratio (CAR), which fell to 12.00 per cent in July 2025 following the withdrawal of earlier regulatory forbearance, the apex bank said on Wednesday.
The CBN’s July monthly economic report shows the industry’s CAR dropped by 1.43 percentage points from the prior month a move the regulator attributed primarily to the end of temporary relief measures that had allowed banks to soften the impact of recent macroeconomic stress on their balance sheets. The CBN noted, however, that the ratio remains above the 10.00 per cent regulatory minimum.
“The Nigerian banking sector was broadly stable in the period, as most of the key financial soundness indicators remained within prudential benchmarks,” the report said. “The liquidity ratio strengthened to 62.86 per cent, significantly above the 30.00 per cent regulatory minimum.” The report added: “Non-performing loans (NPLs) ratio levitated by 2.17 percentage points to 7.80 per cent, above the prudential limit of 5.00 per cent.”
What the numbers show The CAR is a central gauge of a bank’s ability to absorb losses and protect depositors. A slide from previous levels to 12.00 per cent means banks now have a narrower cushion against shocks than they did while forbearance was in place. At the same time, the industry’s NPL ratio at 7.80 per cent is well above the 5.00 per cent prudential threshold, underscoring stresses building in asset quality.
CBN emphasised the sector’s strong short-term liquidity position, with the liquidity ratio at 62.86 per cent. But the regulator also warned that asset quality deterioration required continued supervisory vigilance and risk-based interventions to avert contagion.
Why the forbearance withdrawal matters Regulatory forbearance typically allowed banks to exclude certain troubled assets or apply temporary reliefs that softened immediate capital and provisioning pressures. Removing such measures restores stricter accounting and prudential treatment, exposing existing weaknesses that had been previously masked.
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The CBN framed the reversal as a step towards restoring full regulatory discipline. That view, however, raises practical questions for bankers and investors: will banks now be forced to shore up capital through fresh equity, retain earnings, or reduce risk-weighted assets each option carrying costs that could influence lending, profitability and market confidence.
A sharper look: stability or strain? The CBN’s emphasis on “broad stability” rests largely on the strong liquidity metric and the fact that CAR remains above the regulatory floor. Yet the concurrent rise in NPLs and the swift trimming of capital buffers complicate that narrative.
A declining CAR alongside an NPL ratio that is 2.8 percentage points above the prudential benchmark signals rising credit stress. That combination typically leaves banks more vulnerable to credit shocks and increases the urgency for capital planning and stronger loan-loss provisioning.
Practical implications for the economy If banks respond to the capital squeeze by tightening credit, access to loans for households and businesses could become more expensive or constrained a drag on growth at a time when the economy still needs credit support. Conversely, rapid capital raising by banks could dilute existing shareholders and squeeze profitability in the near term.