When Nigerians talk about the Central Bank of Nigeria (CBN), the conversation usually revolves around interest rates, inflation, the naira, or foreign exchange. Much less attention is paid to the financial strength of the institution itself. Yet the CBN’s balance sheet matters. The capital of a central bank serves as a financial buffer. It helps absorb losses, supports confidence in monetary policy, and gives the institution room to operate without constantly depending on government support. Over the past decade, the CBN’s balance sheet has come under significant pressure from foreign exchange interventions, development financing, quasi-fiscal programs, and lending to the Federal Government. These activities have contributed to losses and weakened the institution’s capital position.

That raises an important question: what happens when the institution responsible for protecting monetary stability is itself financially weak?
The answer matters not only to economists and policymakers, but also to businesses, investors and ordinary Nigerians.

What Does the Capital Base of a Central Bank Mean?

For a commercial bank, capital represents the financial cushion available to absorb losses. The principle is broadly similar for a central bank, although the mechanics are different.

A simplified way of looking at it is:

CBN Capital = Paid-up Capital + General Reserves + Revaluation Reserves − Accumulated Losses

Capital matters because it provides protection when the central bank takes losses.

If the CBN suffers losses from foreign exchange operations, intervention programs or other assets on its balance sheet, capital provides the first layer of protection. It also matters for credibility. A central bank with a strong balance sheet is in a better position to convince markets that it can carry out monetary policy independently and withstand financial shocks. There is, however, an important distinction between a central bank and a commercial bank. A central bank can technically operate with very little capital, or even negative capital, for some time because it has the ability to issue currency. But that does not mean weak capital is harmless. The longer a central bank operates with a severely weakened balance sheet, the greater the risk that financial considerations begin to influence monetary policy decisions.

Why Has the CBN’s Capital Base Come under Pressure?

There are several reasons.

1. Quasi-Fiscal Operations and Development Financing

For years, the CBN took on responsibilities that traditionally belonged to fiscal authorities or development finance institutions. The Anchor Borrowers’ Program, manufacturing and SME interventions, power and aviation support, and COVID-19 intervention programs are examples. The objective was understandable: provide financing to sectors that needed support and stimulate economic activity. The problem was the risk involved. Many of these programs provided financing at subsidised interest rates and on terms that were not necessarily comparable to conventional commercial lending. Where borrowers defaulted or recoveries were poor, the losses ultimately affected the CBN’s balance sheet.
In effect, fiscal and development risks were transferred onto the central bank.

2. Foreign Exchange Interventions

The CBN spent years intervening heavily in the foreign exchange market. Nigeria operated multiple exchange-rate windows, and the CBN supplied dollars to different segments of the Economy at different rates. Whenever a central bank sells foreign currency at a rate significantly below the prevailing market value, the gap can create substantial losses. The scale becomes even more significant when such interventions continue for years. The exchange-rate reforms introduced in 2023 brought many of these underlying pressures to the surface. The sharp adjustment in the value of the naira also resulted in significant revaluation effects on the CBN’s balance sheet.

3. Ways and Means Financing

Another major issue was the CBN’s financing of government through Ways and Means advances. The mechanism is intended to provide temporary financing to the Federal Government, subject to statutory limits. In practice, however, the balance accumulated substantially over the years, reaching more than ₦22 trillion before subsequent restructuring and securitisation. The problem goes beyond the size of the debt. When a central bank finances government spending on a large scale, it creates a close relationship between monetary and fiscal policy. That can increase money supply, contribute to inflationary pressures and weaken the independence of monetary policy. In 2024, a significant portion of the outstanding Ways and Means balance was securitised into longer-term government securities. That helped reorganise the balance sheet, but it did not erase the economic consequences of years of monetary financing.

4. Revaluation Losses Following the Naira’s Devaluation

The CBN has substantial foreign currency assets and liabilities. When the naira loses significant value against the dollar, the naira value of those foreign currency positions changes dramatically. The exchange-rate adjustment in 2023 therefore had major implications for the CBN’s financial position. These revaluation effects contributed significantly to the deterioration of the bank’s capital position. The important point is that exchange-rate reform can be economically necessary while still creating substantial accounting and balance-sheet consequences for the central bank.

5. A Very Small Statutory Paid-Up Capital

The CBN’s statutory capital has also been a longstanding concern. The CBN Act 2007 provided for authorised capital of ₦100 billion and paid-up capital of ₦100 million. That figure has remained unchanged for years, even as the size and complexity of Nigeria’s economy have expanded considerably. A central bank responsible for managing monetary policy, supervising financial institutions, managing foreign…