Nigerian Bank Stocks Plunge as CBN’s Forbearance Phases Out, Halts Dividends to Bolster Reserves

Nigerian bank stocks plummeted on June 16, 2025, following a Central Bank of Nigeria (CBN) directive barring certain banks from paying dividends to strengthen their cash reserves. The move, aimed at enhancing banking sector resilience, sent shockwaves through the Nigerian Stock Exchange (NGX), with investors grappling with the implications of heightened capital requirements.

The NGX Banking Index, tracking Nigeria’s 10 largest and most liquid banks, dropped 4% by 2:53 p.m. in Lagos, after earlier losses exceeded 7%, hitting its lowest level since June 2. Major banks like Access Holdings Plc (-8%), Zenith Bank Plc (-6.4%), and First HoldCo Plc (-6%) bore the brunt of the sell-off, reflecting investor concerns over profitability constraints.

Bearish Sentiment Grips Market, Trading Volume Surges

Pre-market trading saw intense bearish sentiment, with major banking stocks sliding over 5% and the NGX Banking Index plunging from 1,218.2 to 1,131.2 points. Trading volume soared past 172.7 million shares, underscoring the market’s reaction to the CBN’s unexpected policy shift.

While some losses were later trimmed as bearish pressure eased, most banking stocks closed in negative territory. The broader NGX All-Share Index, less affected, dipped by just 0.2%, highlighting the banking sector’s outsized vulnerability to the new regulations.

CBN’s Stringent Measures Target Non-Performing Loans

The CBN’s June 13 statement mandated that banks with granted credit forbearance—introduced during the COVID-19 pandemic to manage loan risks—halt dividend payments and director bonuses, as well as foreign investments. Additionally, banks must fully provision for non-performing loans (NPLs), a requirement likely to strain profitability and capital adequacy.

This policy shift ends forbearance measures that allowed banks to avoid classifying certain loans as non-performing. Analysts warn that banks with lower NPL coverage or exposure to high-risk sectors face heightened earnings and capital pressures in the coming months.

Uneven Risks Threaten Banking Sector Stability

While some Nigerian banks are well-positioned to absorb the new capital and liquidity demands, risks are not uniformly distributed. Institutions with under-provisioned loan books or heavy exposure to vulnerable sectors may struggle to meet the CBN’s stringent requirements.

“The guideline has changed every assumption and outlook on Nigerian banks,” said Olumide Sole, head of financial institutions research at Renaissance Capital Africa. The CBN’s measures aim to fortify the banking sector amid Nigeria’s economic challenges, including high inflation, sluggish growth, and foreign exchange losses from 2023 currency reforms.

Strategic Implications for Nigeria’s Financial Landscape

The CBN’s directive aligns with its broader strategy to enhance banking sector resilience in a volatile economic environment. By prioritizing capital buffers over dividend payouts, the regulator seeks to safeguard financial stability against ongoing macroeconomic headwinds.

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