NIGERIAN banks’ aggregate Capital Adequacy Ratio, (CAR), remains below the regulatory threshold as of January this year, an official report from the Central Bank of Nigeria (CBN) has revealed.

Although many banks are intensifying efforts to meet the regulatory obligations as the banking recapitalisation deadline draws closer in March 2026, CAR indicates how well a bank can meet its obligations to the regulator to determine its risk of failure. In this case, Nigerian banks were below the threshold.

According to CBN’s Guidelines on Regulatory Capital issued in September 2021, “A minimum Pillar 1 regulatory Capital Adequacy Ratio (CAR) of 15 per cent will apply to all banks and banking groups with international authorisation and those that have been categorised by the CBN as being Domestic Systemically Important Banks (D-SIBs). A minimum CAR of 10 per cent will apply to all other banks.”

The report, released recently, contains the personal statements of its Monetary Policy Committee (MPC) members on the 299th MPC meeting held on February 19 and 20 this year.

The committee used the two-day bi-monthly MPC to make decisions on Nigeria’s macroeconomics and rein in inflation.

At its meeting last month, the committee held all key economic parameters, The ICIR reported.

Members of the committee observed that the CAR of banks was still below the regulatory threshold, raising concerns over banks’ financial stability.

The ICIR reports that CAR is a tool used by the CBN to measure the ability of banks to handle their financial risk exposures.

The apex bank regularly takes into account the relevant risk factors and the internal capital adequacy assessments of each bank to ensure that the capital held by a bank is commensurate with the bank’s overall risk profile.

The assessment includes, among others, the effectiveness of a bank’s risk management systems in identifying, assessing, measuring, monitoring, and managing various risks, including interest rate risk in the banking book, liquidity risk, concentration risk, and residual risk.

In Nigeria, the apex bank mandates a minimum CAR of 15 per cent for banks with international licenses and 10 per cent for those operating locally.

In his note for the last MPC meeting, a member of the committee, Mustapha Akinkunmi, expressed concern that banks’ CAR, which rose to 14.84 per cent at the end of January this year, up from 10.70 per cent in January last year, was still below the minimum regulatory threshold.

According to him, the increase reflects positive movement in the capital strength of Nigerian banks, indicating that banks have either raised more capital, improved profitability, or reduced risky assets, which enhances their ability to absorb shocks, but fell below the requirement.

“While this improvement is positive, 14.84 per cent remains below the regulatory threshold for many banks in the advanced economies, thus leaving room for further improvement to meet international standards and cope with external financial pressures.

“I therefore call for additional action to accelerate the recapitalisation process,” Akinkunmi said.

Another member of the MPC, Bandele Amoo, also expressed similar worries.

He said, “The Capital Adequacy Ratio (CAR) declined to 14.8 per cent in January 2025 from 15.2 per cent in December 2024, thereby exposing banks to more risk-weighted assets and undermining credit growth, even as interest margin to total operating income rose by 8 per cent.”

Amoo, however, noted that banks’ non­performing loans (NPLs), as a proxy of credit risk, stood at 4.2 per cent in January 2025.

When banks’ NPLs reach five per cent and above, it signals a danger that borrowers may not be meeting their loan obligations.

The NPLs declined to 4.22 per cent in January 2025 from previous months, since November 2024, when the ratio was at 4.87 per cent.

“This decline is generally a good sign, indicating that more borrowers are meeting their obligations, and banks may be addressing their non-performing loans more effectively.

“It could also reflect improved economic conditions and better risk management practices,” Akinkunmi added his voice.

But while this represents a positive trend, it is important to note that NPLs remained higher than the 4.15 per cent recorded in January 2024, leaving substantial room for improvement, he pointed out.

CBN’s mandates on CAR

According to CBN, banks are required to maintain the minimum regulatory threshold on an ongoing basis to ensure their financial stability and instill confidence in the banking sector.

Simply put, CAR is the proportion of a bank’s equity to its risk exposure.

It is an indicator of how well a bank can meet its obligations, and it is used to protect depositors and promote the stability and efficiency of financial systems around the world.

For instance, if a bank has N200 billion risk-weighted assets and has a qualifying capital of N60 billion, then its CAR is N60 billion divided by N200 billion, which equals 30 per cent.

CAR helps the apex bank to protect depositors from banks that lend aggressively and, in doing so, do not get back most of the money lent.

When a bank makes large loan losses that wipe out its total equity, it may lead to an immediate bankruptcy, which will result in depositors losing their money.

Concerns over individual deposits higher than corporate deposits

Another warning signal noted by MPC members was that individuals’ deposits in the banks were higher than deposits from corporate organisations.

According to Akinkunmi, as of January this year, individuals led the ownership of deposits with 45.20 per cent of the total bulk deposits in the banking system.

“This suggests that Nigerian consumers, whether through personal savings accounts, current accounts, or other forms of deposit, hold a significant portion of the liquidity in the banking system,” he said.

However, corporate organisations hold 42.07 per cent of total deposits, indicating a significant role in the banking system, especially considering their lower percentage compared to individual ownership.

“Therefore, I call for carefully balanced monetary policy decisions to maintain consumer confidence in the banking system,” Akinkunmi said.