DataPro, a Nigerian rating agency, advises banks to begin portfolio analysis and data gathering to comply with the Central Bank of Nigeria's (CBN) stress test directive, which aims to implement a risk-based capital requirement policy effective April 1, 2026. The directive, meant to strengthen the financial sector and ensure resilience, includes detailed portfolio analysis, data migration, and collaboration across teams, with a board-approved stress testing report due by April 30, 2026. The new mandate introduces severe stress assumptions impacting the Capital Adequacy Ratio (CAR), including staged migration, sectoral sensitivity, and insider credit considerations. DataPro offers guidance and support for compliance, emphasizing the importance of a robust balance sheet for banks operating within the framework of a $1 trillion economy.
‘Begin portfolio analysis, data gathering’ — DataPro advises banks on compliance with CBN stress test directiveDataPro, a Nigerian technology-driven rating agency, has advised banks to begin their portfolio analysis and prepare baseline data as the Central Bank of Nigeria moves towards a risk-based capital requirement policy.
Idris Adeleke, a member of the firm’s rating team and an enterprise risk management expert, issued the advisory on behalf of DataPro during a recent webinar on the CBN’s stress testing directive., 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 strengthen the financial sector and make it more resilient 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 results of 31st of March come out”. “Prioritize 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 , 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 percent to 100 percent 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 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 that banks are raising can absorb “the wave of defaults in their balance sheets”. Adeleke emphasised that the apex bank is transitioning from a fixed capital requirement to a 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 recapitalisation exercise is for size and solvency, he said the essence of the risk-based capital instruction 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”. Adeleke said DataPro is willing to provide support to Banks and other financial institutions to ease compliance.
CBN Stress Test Risk-Based Capital Banking Regulations Datapro
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