May 03, (THEWILL) — On 28 March 2024, the Central Bank of Nigeria (CBN) announced a recapitalisation programme to produce stronger, healthier and more resilient banks that could support the goal of a $1 trillion economy by 2030. New thresholds were spelt out.
International commercial banks were pushed to N500 billion authorisation licence. National commercial banks moved to N200 billion while regional commercial banks climbed to N50 billion. National merchant banks moved to N50 billion. National non-interest banks authorisation licence was raised to N20 billion, as regional non-interest banks moved to N10 billion.
According to the CBN, the two-year recapitalisation programme, which commenced on April 1, 2024 and ended on March 31, 2026, attracted N4.62 trillion in fresh capitals to the banking sector. The apex regulator said 33 banks met the revised minimum capital requirements, with 72.55 per cent of the capital sourced locally and 27.45 per cent from international markets. This has resulted in robust balance sheets. The harder question, however, is what Nigeria does with the stronger balance sheets that the recapitalisation exercise has created.
Industry specialists have highlighted that the primary issue is not the amount of capital raised, but rather whether the reform will fundamentally change Nigerian banking and also promote genuine economic growth. They argue that if the initiative only serves to inflate balance sheets without tackling underlying vulnerabilities and significant macroeconomic issues, Nigeria may face a recurrence of a well-known cycle of superficial stability, with banks becoming less equipped to rescue the economy from its difficulties.
The real measure of success is that stronger banks must stimulate economic productivity, stabilise the financial system, and expand access to credit for businesses and households.
At first glance, the strategy definitely appears straightforward with the idea that bigger capital means stronger banks and stronger banks should finance economic growth. But history offers a cautionary reminder that capital alone does not guarantee resilience, as it would be recalled that Nigeria has travelled this road before.
The 2004-2005 band consolidation reform created larger institutions that were celebrated as national champions; barely five years later, the banking system plunged into crisis, forcing regulatory intervention, bailouts, and the creation of the Asset Management Corporation of Nigeria to absorb toxic assets. This was as a result of a noxious internal operating system and a tragic macroeconomic environment that highlighted policy mismatch and summersault.
Currently, Nigeria is suffering from a reckless fiscal environment that is severely undermining the benefits of monetary policy initiatives designed to stabilise the economy and promote growth opportunities. The pervasive culture of extravagance, wastefulness, and unnecessary accumulation of debt continues to be a significant burden on the nation’s larger governance space, stifling economic growth.
This scenario has led to a significant structural difficulty. Financial institutions are unlikely to extend credit to an economy enveloped in uncertainty, which hampers growth. This explains why the banks are flocking the less risky but high earning sectors.
The audited financial results for 2025 indicate that although the overall profitability remains robust, consistently around trillion-naira levels for the leading institutions, there is a notable shift in the earnings composition towards more stable and recurring income sources.
A significant trend observed in the 2025 results is the alteration in the composition of earnings. Banks are increasingly depending on interest income generated from government securities, alongside non-interest income propelled by electronic banking. In an environment characterised by high interest rates, with the Monetary Policy Rate (MPR) set at 26.5 percent, the yields on Treasury Bills and bonds have stayed high, prompting banks to direct liquidity into relatively low-risk financial instruments.
Another structural vulnerability exists in Nigeria due to the rising number of non-performing loans, which has recently prompted the CBN to express concerns, as the country faces an increase in bad loans that jeopardise banking stability. Industry data indicates that the non-performing loan (NPL) ratio within the banking sector has surpassed the prudential threshold of five percent, now approaching approximately seven percent according to recent evaluations.
A significant portion of these problematic loans is concentrated in industries such as oil and gas, power, and government-related infrastructure projects, compounded by additional issues like foreign exchange instability, elevated interest rates, and the cessation of COVID-19 era forbearance, all of which pose risks to bank stability. Although regulatory forbearance has contributed to short-term stability, it has simultaneously masked more profound asset-quality issues. A credible recapitalisation process must directly address this reality.
Growth in the majority of advanced economies is driven by well-capitalised small and medium-sized enterprises. Any deviation from this principle undermines economic stability, as the allocation of substantial loans to large oil and gas corporations, government-affiliated organizations, and major conglomerates consumes an excessive portion of bank lending resources.
This situation continues to represent a significant risk to the financial system, particularly for small and medium-sized enterprises, which are essential for job creation but persistently face underfunding. Such an imbalance detracts from economic strength.
Consequently, recapitalisation efforts should be linked to strategies that promote credit diversification and risk-sharing frameworks, enabling banks to lend more securely to productive sectors like agriculture, manufacturing, and technology, instead of channeling their resources into government securities. Larger banks that maintain a narrow focus do not contribute to economic resilience; rather, they exacerbate existing vulnerabilities.
