CBN and the Capital Gap: How Weak Oversight of Union, Keystone, Polaris, and Unity Banks Undermines Prudential Credibility
Capital is a bank’s last line of defense between confidence and collapse. In an industry built on leverage and trust, a bank’s own money acts as the shock absorber that keeps depositors calm when loans go bad and markets turn volatile. Without adequate capital, even a profitable bank becomes conditionally solvent—solvent only as long as no one tests it. The events between 2024 and 2025 in Nigeria proved this point in real time: banks that had expanded aggressively saw their earnings hollowed out when regulators ended forbearance and forced full recognition of bad loans, while those with leaner books and stronger cushions weathered the reset with far less damage.
The danger of inadequate capital is that it turns ordinary setbacks into existential threats. When a bank’s cushion is thin, losses that would be routine for a well-capitalized firm wipe out earnings, erode confidence, and trigger a chain reaction of deposit withdrawals, higher funding costs, and regulatory intervention. Book value can be manipulated and earnings projected, but only real capital can absorb unexpected hits and convince depositors, regulators, and markets that the bank will survive. In banking, adequacy is not about meeting a ratio on paper—it is about having enough loss-absorbing capacity to keep the institution functioning when the cycle turns. Without it, growth becomes a gamble, and the engine of profit quickly becomes the source of failure.
This principle is why the Central Bank of Nigeria’s handling of Union Bank, Keystone Bank, Polaris Bank, and Unity Bank matters. These four banks trace their origins to the 2009 and 2014 asset management and bridge-bank interventions. They were kept alive through public funds, regulatory forbearance, and repeated extensions to meet prudential standards. Yet for years, governance failures, undercapitalisation, and opaque ownership persisted without decisive action.
The CBN’s eventual move in January 2024 was decisive on paper: it dissolved the boards and management of Union, Keystone, Polaris, and Titan Trust Bank, citing Section 12(c), (f), (g), (h) of BOFIA 2020 for regulatory non-compliance, corporate governance failure, disregard of license conditions, and actions threatening financial stability. The Special Investigator’s report linked the acquisitions to proxies and missing payment evidence. But the timing exposed a deeper problem. By the time boards were sacked, the banks had missed the March 2024 recapitalisation deadline. As of April 2025, the CBN was still telling depositors not to panic because the banks were “under judicial and regulatory processes” and “in the process of raising the required capital”. Meanwhile, 33 other banks raised ₦4.65trn and met new capital thresholds within 24 months. The contrast raises a critical question: why were systemic risks allowed to fester for years under forbearance?
The prudential problem is clear. International standards under Basel and the Financial Stability Board require prompt corrective action when banks breach capital and governance thresholds. Section 12(h) of BOFIA 2020 itself allows intervention when a bank is “critically undercapitalised” with CAR below the prudential minimum. Delaying enforcement until a special investigation forces your hand violates the principle of timely intervention in the Basel Core Principles for Effective Banking Supervision. It also undermines market discipline. Investors and correspondent banks price Nigerian risk partly on the credibility of supervisory response. Nigeria’s removal from the FATF grey list in October 2025 improved optics, but compliance half-measures on capital and governance keep the financial system vulnerable.
Is the CBN’s position justifiable? The CBN argues the banks remain operational, are “actively raising capital,” and depositors face no risk. It emphasizes rule of law and judicial process. That is procedurally defensible. But prudential ethics demand more than avoiding panic. The regulator’s role is to prevent failure, not manage it after the fact. Allowing undercapitalised banks to continue operating while stress tests and recapitalisation plans are pending creates moral hazard and signals that governance failures have no immediate cost.
The danger is practical. When oversight is weak, weak banks survive longer than they should, misallocate credit, and distort competition. They also expose the Deposit Insurance Fund and public funds to losses. Nigeria’s banking sector is stronger after the ₦4.65trn recapitalisation, but the unresolved status of these four institutions shows that capital adequacy without credible, timely supervision is incomplete. International ethics and prudential dictates require supervisors to act early, transparently, and consistently. The CBN’s delayed crackdown corrected a breach, but the long period of tolerance suggests a gap between Nigeria’s prudential rules and their enforcement.
If the CBN wants credibility with markets and compliance with global standards, it must close that gap. Strong, adequate capital is the buffer that keeps banks alive when cycles turn. Timely intervention, clear timelines for recapitalisation, and public disclosure of supervisory actions are not optional extras—they are the foundation of trust in a leveraged, confidence-driven system. What concrete timelines and public metrics will the CBN now set for Union, Keystone, Polaris, and Unity to exit regulatory limbo?
