The Central Bank of Nigeria (CBN) has initiated a recapitalization drive for Nigerian banks, setting a deadline of 2026. This strategic move aims to strengthen the financial sector, enabling banks to fund larger projects, drive economic activity, and contribute to Nigeria’s ambitious goal of a $1 trillion economy by 2030. The CBN’s initiative is designed to bridge the gap between monetary and fiscal policies, ensuring a more robust and effective financial system capable of supporting sustainable economic growth. The recapitalization effort has already seen significant progress with banks raising substantial capital through various means including rights issues and public offerings. The CBN Governor, Olayemi Cardoso, emphasizes that this exercise will enhance financial stability, mitigate economic shocks, and improve access to credit for underserved sectors, ultimately boosting investor confidence and promoting efficiency within the banking sector.
The recapitalization plan sets tiered capital requirements: N500 billion for international banks, N200 billion for national banks, and N50 billion for regional banks. Similar requirements apply to merchant banks and non-interest banks with varying national and regional licenses. This tiered structure allows for differentiated growth and capacity building based on each bank’s operational scope and strategic focus. By empowering banks to extend credit to micro, small, and medium enterprises (MSMEs), the initiative also addresses job creation and productivity. Investment in technology and innovation, particularly in digital financial services, is another critical outcome anticipated from this increased capitalization, further extending financial inclusion to remote areas.
The CBN’s assessment of the banking sector indicates overall robustness, with a healthy non-performing loan ratio within the 5% benchmark and a strong liquidity ratio exceeding the regulatory 30% floor. Recent stress tests further validate the banking system’s resilience. The positive response from banks, many of whom have raised the required capital ahead of schedule, substantiates the sector’s commitment to this transformative initiative. Emem Usoro, Deputy Governor of Corporate Services at the CBN, underscored the importance of structured planning, clear policies, and collaborative public-private sector efforts to achieve the $1 trillion economy goal, highlighting the significance of bank recapitalization in funding and fueling economic growth.
Dr. Olubuka Akinwumi, Director of the Banking Supervision Department at the CBN, confirms the ongoing compliance of banks with prudential thresholds and their active pursuit of recapitalization strategies, including potential mergers and acquisitions. An increase in licensing applications and approvals further indicates the dynamic nature of the sector. The CBN prioritizes key sectors for investment: agriculture, infrastructure, and manufacturing, aligning with the national budget’s focus and the need for a diversified and robust economy. Akinwumi notes the proactive nature of the CBN’s approach, starting the recapitalization process early to mitigate potential challenges and capitalize on emerging opportunities.
Investor confidence in Nigeria’s banking sector is on the rise, fuelled by recent reforms in the foreign exchange regime and increased transparency regarding reserves. Improved regulatory credibility and disclosures about Nigeria’s net reserves have contributed to a positive shift in foreign direct investment outlook. The CBN’s current approach to loan-to-deposit ratios and Cash Reserve Ratio (CRR) calculations reflect a cautious strategy responding to inflation and macroeconomic conditions, prioritizing sustainable growth and enhancing transparency and predictability for banks. The emphasis on tracing capital trails ensures compliance and accountability, strengthening regulatory oversight and maintaining the integrity of the system.
Oliver Alawuba, Group Managing Director of United Bank for Africa, echoes the sentiment that the recapitalization policy is timely and crucial. He argues that it will improve the banking sector’s resilience against economic shocks and increase capacity to finance long-term economic transformation projects, including large-scale infrastructure initiatives. Alawuba highlights the need for Nigerian banks to operate at a scale comparable to international counterparts, stressing the importance of adequate capital buffers to support traditional and emerging sectors. He points out the significant gap between Nigerian bank assets relative to GDP compared to more advanced economies, emphasizing the necessity for a robust financial system aligned with global standards. He commends the CBN’s directive to increase minimum capital thresholds as a strategic step towards fulfilling national priorities such as infrastructure development, digital transformation, and economic diversification. A strong, well-capitalized banking sector is fundamental to achieving Nigeria’s economic aspirations, and the recapitalization initiative is considered a crucial step towards reaching the $1 trillion economy target.
