CBN Issues New Transition Framework, Lifts Regulatory Caps on Tier 1 Capital

The Central Bank of Nigeria (CBN) has announced a temporary lifting of regulatory caps on the recognition of Additional Tier 1 (AT1) capital in banks’ Capital Adequacy Ratio (CAR) calculations, effective June 30, 2025.

The measure, which will remain in place until March 31, 2026, forms part of a broader transition framework to guide Nigerian banks through the final phase of exiting the COVID-19-era regulatory forbearance regime.

The directive, communicated through a regulatory notice signed by Olubukola A. Akinwunmi, Director of Banking Supervision, aims to reinforce capital buffers across the banking sector without undermining the long-term recapitalisation roadmap already underway.

“The temporary lifting of regulatory caps on AT1 capital recognition is solely for the purpose of supporting capital adequacy and should not be seen as a substitute for the ongoing recapitalisation programme,” the CBN stated.

The apex bank previously outlined its recapitalisation strategy in a circular dated March 28, 2024.

The CBN explained that the decision will help banks maintain adequate resilience and absorb potential shocks during the transition to normal regulatory standards.

However, the measure does not alter the minimum capital requirements that banks must meet under the recapitalisation guidelines.

To ensure prudent application of this relief, the CBN has imposed restrictions on the use of transitional benefits. Banks that benefit from the temporary relief are prohibited from paying dividends, awarding bonuses to directors and senior management, or undertaking new investments in foreign subsidiaries.

These restrictions, originally detailed in a separate circular dated June 13, 2025, will remain in force until capital and provisioning levels are fully restored to regulatory thresholds.

In addition to the capital relief, the CBN has mandated enhanced disclosure requirements for all affected banks. Effective June 30, 2025, banks must submit quarterly disclosures covering detailed provisioning status, CAR computations both with and without transitional relief, credit facility reclassifications, and comprehensive information on AT1 instruments — including issuance terms, usage and compliance status.

The apex bank also directed all institutions benefiting from the measure to submit a Capital Restoration Plan within ten working days of the end of each quarter.

The plan must clearly outline strategies for returning to full compliance with prudential standards, including cost optimisation, risk asset reduction, significant risk transfers, and necessary business model adjustments.

Each restoration plan will be subject to regulatory review and will serve as a baseline for ongoing supervisory engagement throughout the transition period.

The CBN reiterated that the transition framework represents a balanced approach to strengthening macro-financial stability while supporting the resilience of the banking sector.

“These integrated measures represent a firm but supportive framework for the final phase of exiting the regulatory forbearance regime and reflect the CBN’s strategic focus on macro-financial stability, responsible banking practices, and alignment with global best standards,” the circular said.

The apex bank urged banks to maintain continuous engagement with its Banking Supervision Department to ensure proper implementation of all transitional measures.