Central Bank of Nigeria tightens regulations and liquidity

The Central Bank of Nigeria (CBN) is implementing stricter banking regulations and liquidity management measures to stabilize the financial system. The apex bank has introduced a risk-based capital framework designed to ensure financial institutions maintain reserves that reflect their specific operational risks and business models. This framework, anchored in the Banks and Other Financial Institutions Act (BOFIA), mandates rigorous stress testing to prepare banks for market shocks such as foreign exchange fluctuations and macroeconomic disruptions.

Simultaneously, the CBN is actively withdrawing excess liquidity from the banking system through Open Market Operations (OMO). Recent data shows that banks reduced their overnight deposits with the CBN via the Standing Deposit Facility (SDF) by approximately N942 billion in a single day. This reduction follows an OMO auction where the CBN mopped up significant liquidity, resulting in a net withdrawal of about N1.14 trillion. These actions reflect a broader effort to manage liquidity and enforce stricter oversight of insider lending and corporate governance within the Nigerian banking sector.