**CBN Asks Banks to Prepare for the Worst: What the Stress Test Means for Nigeria's Banking System** As the recapitalisation deadline set by the Central Bank of Nigeria (CBN) draws near, the apex bank has ordered all commercial banks to conduct a comprehensive financial stress test. This move, which takes effect from April 1, 2026, aims to assess the resilience of Nigeria's banking system under extreme economic pressure. The directive, contained in a regulatory letter dated March 6, requires banks to evaluate their credit portfolios over a 12-month period. During this exercise, they will simulate various adverse scenarios, including asset quality deterioration, insider lending risks, foreign exchange fluctuations, commodity price crashes, supply chain disruptions, and declining market demand in key sectors. This stress test is not just a routine exercise; it's a crucial measure to ensure the stability of Nigeria's banking system. The CBN has repeatedly maintained that the system remains sound, but this latest move signals the regulator's determination to prepare banks for the worst-case scenario. For instance, the stress test will help identify potential risks in insider loans, which must be treated as defaults. This is a bold step towards greater transparency in the banking sector, where such loans have been a subject of controversy in the past. Major lenders, including Access Holdings Plc, Zenith Bank Plc, and United Bank for Africa Plc, are expected to comply with the directive. The results of the stress test will help regulators estimate the possible impact of extreme economic shocks on the banking system. In essence, this stress test is a wake-up call for banks to strengthen their balance sheets and improve their risk management strategies. With the CBN's strict capital shortfall measures in place, banks face stiff penalties if they fail to meet the minimum capital requirements. As Nigeria's economy continues to face challenges, the CBN's stress test directive is a timely reminder of the need for vigilance and preparedness in the banking sector. By conducting this exercise, banks can identify potential risks and take proactive measures to mitigate them, ensuring the stability of the financial system.