The payment of executive bonuses, dividends, and foreign investments by banks that are currently subject to regulatory forbearance has been temporarily halted by the Central Bank of Nigeria (CBN). This is part of a plan to strengthen financial restraint and safeguard the stability of the banking industry.

Only banks receiving temporary regulatory relief—also known as "regulatory forbearance"—are impacted by the order. This mechanism allows the CBN to offer exceptional support to institutions that are exhibiting signs of financial stress or that are not meeting important prudential criteria.

The apex bank asserts that, before these banks engage in profit distribution or expansionary activities, they should concentrate entirely on stabilising their operations and regaining financial stability.

“This temporary suspension will remain in effect until the regulatory forbearance is fully exited, and the banks’ capital adequacy and provisioning levels are independently verified to be fully compliant with prevailing 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 apex bank stated.

According to the regulator, the limitations particularly apply to banks currently enjoying forbearance concerning credit exposures and Single Obligor Limit violations, which are indicators of possible difficulty in the impacted institutions.

Banks prohibited from certain payment

These banks are prohibited from paying dividends to shareholders, rewarding directors and senior management with bonuses, or making new investments in overseas subsidiaries or offshore enterprises until they meet capital adequacy standards and demonstrate full compliance.

The action signifies that the CBN is moving away from short-term assistance toward more supervision and budgetary restraint.

It occurs during a sector-wide recapitalisation exercise in Nigeria's banking system, where new capital thresholds will be progressively introduced until 2026.

The apex bank emphasises that capital preservation is now crucial in light of foreign exchange volatility, escalating inflation, and increased exposure to high-risk industries.

This most recent guideline expands on several previous policy actions aimed at curbing dangerous financial practices.

To alleviate post-pandemic strain on debtors, the CBN extended interest rate forbearance on loans by an additional year in April 2022; nevertheless, this move also increased banks' susceptibility to credit risks.

The bank issued a circular in September 2023 forbidding lenders from utilising gains from foreign exchange revaluation for capital expenditures or dividends, instead requiring the earnings to be held in a "Special Regulatory Reserve" until further notice.

CBN sends warning banks

In March 2024, the CBN reaffirmed its stance, warning banks not to use erratic foreign exchange windfalls to pay dividends because they are only transitory. Instead, the regulator suggested retaining the money to strengthen capital positions and lessen the impact of shocks caused by the unification of Nigeria's disparate exchange rates.

Analysts pointed out that the CBN has broadened its supervision with this most recent instruction, limiting not only the use of gains but also who can profit from them and where they can be invested.

This shows the CBN's growing determination to prioritise institutional recovery, enforce prudential compliance, and ensure that banks under its supervision restore their financial roots before focusing on shareholder returns or international ambitions.