The ongoing recapitalisation of Nigeria’s banking sector is set to generate far-reaching benefits, particularly in job creation, wealth distribution, and the attraction of foreign investment, according to a report by Afrinvest Securities Limited.
This development is regarded as a critical step toward achieving the nation’s $1.0 trillion economy ambition by 2030. With the recapitalisation exercise scheduled for completion by 2026, its positive spillover effects are already being anticipated across various sectors of the economy.
Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), highlighted the importance of strengthening banks’ capital buffers to bolster economic growth. “To ensure that our banking system can effectively support the growth of our economy, efforts to strengthen banks’ capital buffers were announced in 2023 with a two-year implementation window,” he said. Cardoso expressed satisfaction with the progress made so far, noting, “I am pleased to note that a significant number of banks have raised the required capital through rights issues and public offerings well ahead of the 2026 deadline. I believe that the banking sector is in a strong position to support Nigeria’s economic recovery by enabling access to credit for Micro, Small and Medium Enterprises (MSMEs) and supporting investment in critical sectors of our economy.”
The CBN’s recapitalisation policy has introduced new minimum capital requirements tailored to the authorisation level of banks. For instance, banks with international authorisation now need a minimum capital base of N500 billion. Commercial banks with national authorisation must raise N200 billion, while those with regional authorisation must meet a requirement of N50 billion. Merchant banks and non-interest banks also face increased thresholds, with the latter needing N20 billion and N10 billion for national and regional authorisations, respectively. These measures aim to ensure that banks remain well-capitalised to support the demands of an evolving economy.
Despite these adjustments, the banking sector has demonstrated resilience, as reflected in key performance indicators. The non-performing loan (NPL) ratio remains within the prudential benchmark of 5 percent, underscoring robust credit risk management practices. Additionally, the liquidity ratio surpasses the regulatory minimum of 30 percent, indicating that banks maintain adequate cash flow to meet operational and customer demands. “The recent stress test conducted also reaffirmed the continued strength of our banking system,” Cardoso affirmed, painting an optimistic picture of the sector’s health.
However, the banking sector’s ability to sustain growth amid broader economic challenges remains a subject of debate. Muda Yusuf, director and CEO of the Centre for the Promotion of Private Enterprise (CPPE), urged the CBN to reconsider its tight monetary policy stance, which has led to persistently high interest rates. “The current high-interest regime foisted by the tightening stance increases the risk of loan defaults, raising the prospects of higher non-performing loans in the financial sector,” Yusuf cautioned. He further argued that high interest rates elevate the debt servicing burden for the government, which already grapples with substantial domestic debt obligations, while simultaneously undermining the sustainability of businesses navigating a challenging economic landscape.
“There is a need to protect the real economy from the adverse consequences of free market principles. This is the basis of government intervention in a market economy,” Yusuf added, emphasising the importance of balancing market dynamics with policy measures to foster stability and growth.
The CBN’s third-quarter economic report for 2024 also highlighted the state of the banking sector, affirming its safety, soundness, and stability. The report noted that monetary aggregates trended upwards, driven by increased credit to critical economic sectors and the impact of exchange rate depreciation. However, rising interest rates led to a slowdown in the equities market, as investor preferences shifted toward fixed-income securities.
While challenges such as high interest rates and shifting investment patterns persist, the recapitalisation exercise appears to be laying a solid foundation for long-term economic growth. The banking sector’s reinforced capital base is expected to catalyse investments, boost lending to micro, small, and medium enterprises (MSMEs), and drive development in key sectors, positioning Nigeria on a path to sustained economic recovery and transformation.
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