Recapitalisation solves scale in Nigeria’s banks but leaves growth unresolved

Nigeria’s banking sector has once again crossed a significant milestone with the successful implementation of the two-year recapitalisation programme. But what happens next? This is the question that now defines the reform. Will stronger banks drive economic growth by deploying new capital productively, or will this become another well-executed policy that falls short at the point of real impact?

Recapitalisation is not merely a banking exercise. It is a core element of industrial policy, addressing how an economy improves its performance. In Nigeria’s case, it is tied to an ambitious objective: building a $1 trillion economy by 2030. The banking system, as the primary allocator of capital, is central to that ambition.

The 2024–2026 programme, led by Central Bank Governor Olayemi Cardoso, was designed to address structural weaknesses in the financial system. It compels a reconfiguration of the banking landscape, creating larger balance sheets, stronger capital buffers, and clearer differentiation across institutions. The framework moves beyond uniformity toward a tiered system aligned with institutional capacity.

Under this structure, banks with international licences must maintain a minimum capital base of N500 billion, national banks N200 billion, and regional and merchant banks N50 billion. For non-interest banks, the thresholds are set at N20 billion for national operations and N10 billion for regional institutions, reflecting their developmental stage. These are not arbitrary figures; they are policy signals aimed at aligning financial system scale with economic ambition. The logic is straightforward. Large banks are expected to finance infrastructure, absorb macroeconomic shocks, and operate across borders, while smaller institutions deepen inclusion and serve niche markets. In theory, this creates a balanced ecosystem where scale and specialisation coexist.

Announcing the outcome on April 1, the Central Bank confirmed that the programme concluded on March 31, with 33 banks meeting the new requirements. In total, N4.65 trillion was raised, with 72.55 percent sourced domestically and 27.45 percent from international markets. Capital adequacy ratios have also improved significantly, with the industry operating above Basel benchmarks – minimum thresholds of 10 percent for regional and national banks and 15 percent for internationally active institutions. On paper, the system is stronger and more resilient. This is, however, where the more important question begins.

Nigeria’s own history presents a cautionary perspective. The current reform comes two decades after the consolidation led by Charles Soludo in 2004–2005. At the time, the minimum capital base was raised from N2 billion to N25 billion, triggering a wave of mergers and acquisitions that reduced the number of banks from 89 to 25. The exercise created larger and more visible institutions and marked a turning point in financial sector development. However, increased capital did not translate into sustained economic transformation. The global financial crisis exposed structural weaknesses, including poor risk management, weak oversight, and excessive exposure to volatile sectors. Several banks required intervention despite their expanded balance sheets. Capital improved stability, but not necessarily efficiency or developmental impact. The lesson remains clear: recapitalisation creates capacity, not outcomes.

Nigeria now faces a similar inflection point. The current exercise has addressed scale, but the growth question remains unresolved. Will banks channel capital into productive sectors such as agriculture, manufacturing, infrastructure, and SMEs? Or will they gravitate toward low-risk, high-yield activities that offer returns without expanding the real economy?

This is not a theoretical concern. Banking systems, left to market incentives alone, often prioritise short-term profitability over long-term development. Government securities, foreign exchange trading, and other low-risk instruments can become more attractive than lending to the real sector, particularly in volatile macroeconomic environments. Without deliberate policy direction, the system risks reproducing familiar patterns—stronger banks coexisting with weak economic transmission.

The post-recapitalisation phase therefore becomes decisive. Regulatory vigilance must shift from capital thresholds to capital deployment. It is not enough to ensure that banks are well-capitalised; it is necessary to ensure that capital is productively allocated. This requires a more active regulatory posture. The Central Bank must strengthen supervision, enforce risk management standards, and align incentives toward developmental lending. Prudential stability alone cannot be the end goal; it must be linked to economic function.

Policy coherence is equally critical. Monetary, fiscal, and industrial policies must work in tandem to create an environment where productive investment is both viable and attractive. Without this alignment, even well-capitalised banks will remain cautious, limiting their exposure to sectors perceived as high risk.

There is also a need to address structural constraints outside the banking system. Issues such as infrastructure deficits, regulatory uncertainty, and weak contract enforcement increase the cost of lending and discourage long-term investment. Banks do not operate in isolation; their behaviour reflects broader economic conditions. In this sense, the success of recapitalisation depends as much on the wider policy environment as on the banking sector itself. The challenge is therefore not simply financial, it is also systemic. Converting banking scale into economic growth requires a coordinated approach that extends beyond the balance sheets of banks to the structure of the economy they serve.

Ultimately, the effectiveness of this reform will not be measured by the volume of capital raised or compliance with regulatory thresholds. It will be judged by outcomes: whether credit flows to productive sectors, whether businesses expand, whether jobs are created, and whether economic growth becomes more inclusive and sustainable.

The banks are now bigger. The system is stronger. But the central question remains unresolved: can Nigeria convert banking scale into sustained economic growth? That is the test that lies ahead.