Nigeria’s bigger banks face fresh test as recapitalisation ends

Nigeria’s banks are now bigger than ever, thanks to the sweeping recapitalisation drive by the Central Bank of Nigeria (CBN), which has reshaped balance sheets and strengthened buffers across the industry.

But while the capital-raising cycle has enabled 32 lenders to raise as much as N4.61 trillion, according to official figures, analysts worry whether larger capital bases will translate into deeper credit flows to the real economy or simply fortify banks against shocks without materially lifting growth.

“More capitalised banks mean that the banks are in a position to expand their credit extension process and improve intermediation,” Johnson Chukwu, group CEO of Cowry Asset Management, said in an interview.

Chukwu, however, argued that deeper credit extensions are heavily dependent on the overall performance of the economy, which includes what he described as “the availability of good credit deal pipelines.”

“If you have an expanding economy, businesses are prospering, and they are making good returns on their investment, then they will have the capability to come to the banks to borrow.”

Private sector credit in Africa’s most populous nation stands at roughly 17 percent of gross domestic product as of 2025, well below the sub-Saharan African average of about 25 percent and far behind peer markets such as South Africa and Mauritius, where credit penetration exceeds 50 percent of GDP.

The gap highlights a structural disconnect between Nigeria’s financial system and its productive sectors — one that recapitalisation alone may not resolve.

The imbalance is even more pronounced when credit allocation is disaggregated. Consumer lending accounts for only about 7 percent of total credit, constraining domestic demand in an economy seeking non-oil growth drivers.

More striking is the marginalisation of small and medium-sized enterprises. SME lending represents roughly 1 percent of total bank credit, despite the segment contributing about half of GDP and more than 80 percent of employment. PwC estimates place the SME financing gap at around N48 trillion, underscoring the scale of unmet demand.

The risk is that recapitalised banks, faced with elevated interest rates and attractive yields on government securities, may continue to favour low-risk, short-duration assets over riskier, longer-term private lending.

In such a scenario, stronger capital positions would boost profitability and resilience but leave credit depth largely unchanged, a move that could be a drag on the country’s efforts to raise growth to 7 percent in the short term while pushing the economy to $1 trillion by 2030.

The recapitalisation exercise, which began in 2024, set N500 billion for commercial banks with international authorisation, N200 billion for national banks, and N50 billion for regional banks. For non-interest banks, the thresholds are N20 billion (national) and N10 billion (regional).

With the capital adequacy rule now largely achieved, the Centre for the Promotion of Private Enterprise (CPPE), in a recent policy brief, urges the apex bank and the fiscal authorities to prioritise the next critical phase of reform that will help reconnect the banking system to the real economy.

These policy measures include increasing private-sector credit as a percentage of GDP to at least 30 percent in the medium term; de-risking lending to SMEs through credit guarantees and improved credit infrastructure; and strengthening monetary policy transmission to ensure that lower policy rates translate into real-sector lending.

Others are incentivising long-term financing for productive sectors, promoting a more balanced sectoral allocation of credit, expanding access to consumer credit to stimulate aggregate demand, and addressing the crowding-out effects of public sector borrowing.

“The ultimate success of this reform will be determined not just by stronger balance sheets but also by the extent to which the banking system supports investment, enterprise, job creation, and economic transformation,” Muda Yusuf-led CPPE wrote in the brief.

As the recapitalisation hurdles end today, a few banks that are yet to meet the capital threshold risk being downgraded in their licence ratings or merging with other banks.(BusinessDay, but headline rejigged)