Ummie Kabir
As we bask in the euphoria of successful banking sector recapitalisation exercise, it has become more pertinent to re-evaluate the primary roles of banks vis-a-vis what they have been able to deliver to the Nigerian economy over the years.
Primarily, banks act as financial intermediaries that mobilise savings, allocate capital to productive sectors and foster entrepreneurship through credit creation and trade promotion. By managing risks and providing liquidity, they drive economic growth and stablise financial system.
How far has the banks been able to deliver or discharge the above responsibilities leaves much to be desired. Notwithstanding the evolution witnessed spanning 130 years. The system has transitioned from unregulated colonial trade financing (1892) to a robust, technologically driven digital ecosystem regulated by the Central Bank of Nigeria (CBN).
Major milestones include the establishment of the first bank in 1892, the 1952 Banking Ordinance, the 1958 CBN Act, consolidation reforms 2004-2005, the CBN Act of 2007, emergence of fintech, down to the recently concluded recapitalization exercise.
On its determination to bolster the banking system, safeguard the sector against risks, and realign the banks in line with the nation’s overarching objective of establishing a trillion-dollar economy within the coming years, Cardoso’s team, on March 28, 2024, unveiled new minimum capital requirements for banks. The minimum capital base for commercial banks with international authorisation was set at N500 billion, while those with national authorisation were set at N200 billion and new requirement for regional banks was pegged at N50 billion.
According to Mr Cardoso, the recapitalization exercise aims to strengthen the financial system, with the banks increasing their capital base to support the proposed $1 trillion economy by 2030. Key reasons include enhancing resilience against economic shocks, financing large-scale projects and ensuring high compliance with regulatory standards which CBN anchors.
And by April this year, after the two year grace period was declared closed by CBN Governor, Olayemi Cardoso, as he proclaimed the successful conclusion of the banking sector recapitalization exercise.
Highlights the statement by CBN boss progress reports include the submissions that the recapitalization exercise yielded ₦4.65 trillion in fresh capital, by 33 banks thereby surpassing expectations. The successful banks having met the new minimum capital requirements, with a few remaining institutions under regulatory and legal processes.
One interesting thing about this new capital base is that fact that Over 72% of the capital was raised locally, while about 27% came from international investors, indicating strong confidence in the Nigerian financial system.
The exercise has bolstered the banking system’s resilience against economic shocks, increased capital adequacy ratios, and aligned the sector with the nation’s target of a $1 trillion economy as proposed by the current administration.
A critical review of the performance or contribution of the banking sector contribution to the economy in the public realm is mostly skepitacl and critical even thought banks have been recapitalised. The dominant view among the SMEs, manufacturers and genuine farmers is that banks prefer low risk lending to governmentand oil and gas sector. This is notwithstanding the periodic publication of amount of credit either to the specific sectors or economy in general
Indeed banks are in business to make profit and enhance the returns on investment for shareholders. However, it is generally believed that Nigerian banks’ low risk appetite for the real economy is primarily driven by the massive yields on low-risk government securities like Treasury Bills and bonds in addition to the macroeconomic volatility that inflates default rates. Rather than lending to small businesses and manufacturing, banks have favoured sovereign debt for reliable, inflation-hedging returns
They may have Platora of reasons for their conservative approach to risk bearing such as credit, operational risks, market risks and even reputational risks. As the case maybe, agriculture and small and medium scale enterprises (SMEs) especially the startups are the major victims of the risk averse nature of the sector. This is irrespective of the policies like direct credit allocation, moral suasion and special programmes designed to attract credit to agriculture and SMEs are yet to yield the desired results.
According to National Bureau of Statistics (NBS) data, agriculture remains Nigeria’s largest employer of labour, providing jobs for over 25 million Nigerians and accounting for roughly 30.1% to 36% of the country’s total workforce and 28.66 percent to the GDP as of 2024, but gets a tiny share of bank credit. The suspension of Anchor Borrowers Programme in 2024 further reduced the amount of credit to agriculture but fast recovering in 2025 with NIRSAL risk-sharing frameworks.
SMEs are the most credit-starved part of the economy with financing gap estimated at N48 trillion as of 2024 largely due to constraints like Commercial lending rate which is as high as 30 percent and short tenors limit uptake.
Suffice to proclaim that as the country race towards the $1.0 trillion dollar economy, more commitments to the development of agricultural sector and SMEs are quite critical to the economic growth and attainment of this ambitious goal.
Banks’ recapitalization exercise is over, and the Nigerian economy enters a new phase where the financial system is stronger more resilient but the real economy still faces structural pressure. Such pressures include but not limited to Infrastructure Deficit like unreliable electricity, unddr developed transotation system, cost of finance, multiple taxation, regulatory bottlenecks, skill gaps and insecurity.
These pressures shrink margins, discourage long-term investment, and keep Nigeria’s real sector at 20-25% of GDP despite policy focus. Indeed, credit alone doesn’t solve the problem because if you pump money into an economy with bad infrastructure, inconsistent power, insecurity and policy uncertainty such money may go down the drain.
The recapitalization exercise has made the banks emerged with significantly stronger capital buffers, improved resilience, and capacity to take on larger, more complex transactions similar to the outcome of 2025 bank consolidation exercise. IMF called it a “timely and appropriate policy decision”. And banks are positioned to fund larger projects and support Nigeria’s push toward a ₦1 trillion economy. Fitch expects loan growth to accelerate to higher than 20 percent in 2026.
It is now incumbent on the CBN to redirect its focus to stricter corporate governance, investor confidence, and financial stability. Funds are expected to be channeled to productive sectors for job creation and growth as the CBN boss has since keyed into the race to $1.0 trillion economy. However, the bottom line for Nigeria post-recapitalization exercise is strong and stable financial system which on its own does not deliver or guarantee economic growth. Rather, real growth depends on what funds are channelled into.
After the 2026 recapitalization, CBN and indeed, the major economic agents, look forward to significant shift in allocation of capital toward the real sector namely agriculture, manufacturing, and SMEs rather than concentrating on services and oil and gas, which together got 95 percent of credit in 2024.
In conclusion, recapitalization programme has fortified the banking sector, positioning it to absorb economic headwinds, finance large scale industrial project and drive the government’s goal of $1.0 trillion economy.
The CBN has onerous tasks far beyond financial system stability, risk management and good corporate governance. The apex bank should ensure that whatever influence it can muster, either in form of regulation or moral suasion, make sure that affordable and adequate credit must be extended to the real sector. Existing businesses and investors now expect facilities with lower interest rates and longer tenures away from short tenure and high rates facilities. Even if it means advocating targeted funding for agriculture, SMEs, manufacturing and other critical sectors like essential infrastructure in order to ensure food security, provision of raw materials and employment generation.