The Central Bank of Nigeria (CBN) has ordered banks operating under regulatory forbearance to suspend the payment of dividends, defer executive bonuses, and halt investments in foreign subsidiaries. This directive, issued in a circular signed by Olubukola Akinwunmi, Director of Banking Supervision, is part of the CBN’s broader strategy to reinforce the resilience of the Nigerian banking sector during ongoing recapitalisation efforts. The apex bank emphasized the importance of maintaining prudent capital practices while affected banks work toward meeting regulatory standards.
Economic and financial experts have backed the CBN’s move, describing it as necessary to ensure genuine capital injection and discourage practices that artificially boost bank capital. Tunde Amolegbe, Managing Director of Arthur Steven Asset Management Limited, highlighted the problem of banks recycling profits from CBN loans into dividends and then reusing those dividends as capital—an act he termed financial engineering or round-tripping. He noted that the suspension would push shareholders to inject fresh capital, in line with Nigeria’s goal of building a $1 trillion economy.
In support, Ayokunle Olubunmi of Agusto & Co. noted that the directive could make it difficult for some banks to issue interim dividends, especially if they are yet to resolve loans under forbearance. He, however, expressed optimism that many of these issues would be resolved before the end of 2025. He also reminded stakeholders that the CBN had earlier hinted at the expiration of the forbearance window by June 2025, giving banks some time to prepare.
Adetilewa Adebajo, CEO of CFG Advisory, reinforced the directive’s importance, stating that banks must make full provisions for non-performing loans if they wish to resume dividend payments. He noted that the recapitalisation exercise must be used to improve the quality of risk assets and that retaining earnings rather than distributing them would ultimately benefit banks’ capital strength and stock valuations.
The CBN clarified that the suspension is temporary and will last until the affected banks fully exit the forbearance regime and meet the required capital adequacy standards. It pledged to continue monitoring compliance and engaging with institutions as needed. Overall, experts agree that this measure, though restrictive in the short term, is a step in the right direction for the long-term stability and credibility of Nigeria’s financial sector.
Source: Punch