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According to Moody’s Ratings, Nigerian deposit money banks are holding undisclosed levels of legacy exposures following regulatory forbearance provided by the Central Bank of Nigeria (CBN) during the COVID-19 period. While the planned recapitalization will support the banks, the ratings agency highlights ongoing concerns around the quality of lenders’ loan portfolios.
In a report accessed by MarketForces Africa, Moody’s noted that recapitalization would bolster the banks’ ability to absorb loan losses, increase lending capacity, and aid compliance with Basel III banking regulations. The agency emphasized that while the move is positive for Nigeria’s banking sector, it falls short of fully alleviating concerns about loan quality.
Moody’s projects that the sector’s five largest banks, holding over 80% of total assets, are likely to raise the necessary capital by early 2025. However, some second-tier banks, including those with international licenses, may struggle to meet the March 2026 recapitalization deadline, potentially prompting industry consolidation.
As banks strengthen their buffers to better handle non-performing loans (NPLs), which stood at 3.9% in June, they continue to hold uncertain amounts of legacy exposures covered by regulatory forbearance introduced during the pandemic. Although the CBN has expressed intent to phase out these relief measures, it has not provided a timeline.
The report also highlights pressures on Nigerian banks over the past 18 months, including currency devaluation and inflation, which have strained capital levels. Falling currency values have affected banks’ foreign currency risk-weighted assets (RWAs), raising the denominator of the capital adequacy ratio and pushing some, like FCMB and Fidelity, close to the 15% minimum capital adequacy threshold, which Moody’s sees as a solvency risk.
In March, under Governor Yemi Cardoso, the CBN issued a directive requiring Nigerian banks to meet significantly increased capital thresholds: a tenfold increase for international banks and an eightfold increase for domestically licensed banks. To comply, banks can choose from several options, including equity injections, mergers and acquisitions, or a downgrade of their license classification.
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