CBN bans dividend payments, bonuses, offshore investments for Banks under regulatory forbearance

In a decisive move to strengthen the financial resilience of Nigeria’s banking sector, the Central Bank of Nigeria (CBN) has directed all banks operating under regulatory forbearance to suspend dividend payments, defer executive bonuses, and halt new offshore investments.

This new directive, issued as part of the apex bank’s broader strategy to reinforce capital buffers, applies specifically to banks currently benefitting from regulatory leniency due to breaches in credit exposure or the Single Obligor Limit (SOL) — indicators of potential financial strain.

According to a circular issued by the CBN, the restrictions will remain in place until the banks fully exit the forbearance regime and their capital adequacy and provisioning levels are independently verified to meet regulatory standards.

“This supervisory measure is intended to ensure that internal resources are retained to meet existing and future obligations and to support the orderly restoration of sound prudential positions,” the CBN stated.

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The CBN emphasized that these temporary measures are designed to ensure capital preservation and prudent financial management in the face of macroeconomic uncertainties, including inflation, foreign exchange volatility, and exposure to risky sectors.

The Nigerian banking industry is currently navigating a significant recapitalization process, with higher capital thresholds set for implementation in stages up to 2026. Against this backdrop, the CBN appears to be tightening its grip on capital deployment among vulnerable banks.

This is not the first time the central bank has acted to restrict how banks manage profits. In April 2022, the CBN extended COVID-19-era interest rate forbearance on loans, inadvertently increasing banks’ credit risk exposure. In September 2023, it barred the use of foreign exchange revaluation gains for dividends or capital projects, mandating that such funds be held in a “Special Regulatory Reserve.”

In March 2024, the CBN reaffirmed this stance, warning banks against deploying volatile FX revaluation gains for payouts, stressing the need to retain such funds as a capital buffer.

This latest measure broadens the scope of previous directives by extending restrictions not only on profit usage but also on who benefits from them and how they are allocated across borders.

With the sector’s recapitalization agenda gathering pace, industry observers view the CBN’s actions as an attempt to enforce discipline, restore financial health in weaker banks, and bolster overall confidence in Nigeria’s banking system.