The Central Bank of Nigeria (CBN) has reported a decline in the capital adequacy ratio (CAR) of the banking industry to 12% in July 2025, following the withdrawal of regulatory forbearance. According to the CBN’s monthly economic report, the industry’s CAR dropped by 1.43 percentage points from the previous month. This decline is largely attributed to the end of temporary relief measures that had allowed banks to cushion the impact of macroeconomic headwinds on their balance sheets.
The CAR measures the financial soundness and shock-absorbing capacity of banks by comparing their capital to risk-weighted assets. Despite the moderation, the CBN notes that the ratio remains well above the 10% regulatory threshold, indicating that the banking sector retains sufficient strength to absorb shocks from credit and market risks. The Liquidity Ratio of the banking sector also remained above the allowable limit, standing at 62.86%, significantly above the 30% regulatory minimum.
However, the Non-Performing Loans (NPL) ratio is a concern, standing at 7.8%, which is 2.8 percentage points above the allowable limit of 5%. The CBN attributes the increase in NPLs to the withdrawal of regulatory forbearance. Despite this, overall asset quality remains broadly stable, supported by enhanced supervisory vigilance and risk-based regulatory interventions.
The CBN’s report suggests that the Nigerian banking sector remains broadly stable, with most key financial soundness indicators within prudential benchmarks. The decline in CAR is a result of the withdrawal of temporary relief measures, and the sector’s ability to absorb credit and market shocks remains intact. The CBN’s regulatory interventions have curtailed potential contagion and preserved systemic stability.
The banking sector’s stability is crucial for the overall health of the Nigerian economy. The CBN’s efforts to maintain prudential standards and ensure the soundness of the banking system are essential for promoting economic growth and financial stability. As the banking sector continues to navigate the challenges of the economic environment, the CBN’s regulatory measures will play a critical role in maintaining stability and promoting confidence in the financial system.