As Banking Recapitalisation Ends, a New Era Begins for Nigerian Banks

NEWS ANALYSIS

Obinna Chima

As the curtain was drawn on the banking sector recapitalisation last night, a defining chapter in Nigeria’s financial evolution came to a close, leaving behind a mix of renewed confidence, lingering questions, and heightened expectations.

What began as a regulatory push to strengthen the resilience and global competitiveness of banks has now reshaped balance sheets, tested investor appetite, and redefined the contours of the industry.

The exercise underscored a deeper narrative of survival, adaptation and the ongoing quest to build a banking system capable of supporting sustainable economic growth.

Prior to today, Nigerian banks had mobilised a total of N4.61 trillion in fresh capital under the recapitalisation programme, reflecting strong investor appetite and growing foreign participation in the sector. The Central Bank of Nigeria (CBN) is expected to from today, announce the outcome of the exercise as Nigerians await to know the number of banks that scaled the hurdle, those that would no longer be in business as well as other details of the recapitalisation exercise.

The Cardoso-led CBN had, on March 28, 2024, announced a two-year bank recapitalisation exercise which commenced on April 1, 2024. The 24-month timeline for compliance ends on March 31, 2026. The upward capital revision is expected to ensure that Nigerian banks have the capacity to take on bigger risks and stay afloat amid both domestic and external shocks. It also means an increased liquidity position of banks, which will help broaden their loss-bearing capabilities.

Specifically, the recapitalisation exercise required a minimum capital of N500 billion, N200 billion, and N50 billion for commercial banks with international, national and regional licences, respectively.

Before this new capital requirements, many banks were operating with low capital levels despite the huge profits they were churning out, compared with their peers on the continent. For instance, commercial banks with international licences were previously only required to hold a minimum capital base of N25 billion.

In today’s value, N25 billion is now worth about $17 million, due to the depreciation of the Naira. This left Nigeria’s banking system with very little cushion to absorb economic shocks or to significantly play its intermediation role in an economy that is badly in need of finance.

Today, a commercial bank that decided to go for a regional banking authorisation is entitled to carry on its banking business operations within a minimum of six and a maximum of 12 contiguous States of the federation, lying within not more than three geo-political zones, as well as within the Federal Capital Territory.

Also, a bank that currently holds a national banking licence is entitled to carry on its banking business operations in every state, while those with an international licence are entitled to carry on their banking business operations within all the states of the Federation, as well as to establish and maintain offshore banking operations in jurisdictions of their choice, subject to the approval of the CBN and in compliance with regulatory requirements of the host country.

This flexibility underscored the regulator’s intent to prioritise sustainability over sheer size, ensuring that banks align their ambitions with their financial capacity. Rather than forcing a one-size-fits-all expansion, the framework encouraged institutions to deepen efficiency, strengthen balance sheets, and serve markets they can competently support—thereby reducing systemic risk while preserving stability across the banking sector.

An integral part of the exercise is the definition of qualifying capital, which was specified as paid-up share capital and share premium only, thereby excluding the industry’s significant retained earnings reserves and other forms of capital. Banks were also required to comply with the Capital Adequacy Ratio (CAR) relevant to their licence category while trying to meet. the new capital requirements

The CBN did not hide its resolve to ensure that the capital verification process was strict, to prevent bubble capital from entering the system and to ensure that every single kobo invested in the banks passed the anti-money laundering (AML) test.

This was because after the 2004/2005 recapitalisation exercise, banks were then awash with funds and the absence of strong risk management frameworks and effective regulatory oversight, the industry saw the misallocation of funds through excessive and risky lending rose significantly. This led to a regulatory intervention and removal of some banks’ Chief Executive Officers in 2009.

That was why to guard against such occurrences, Cardoso recently disclosed that the central bank has redesigned its “credit risk framework to enforce stronger governance, greater transparency, and firmer accountability across the sector. We are determined to break the boom and bust cycle that has accompanied past recapitalisation efforts.”

Already, the CBN Credit Risk Management System (CRMS) is web-enabled, allowing banks and other stakeholders to dial directly into the CRMS database to render statutory returns or conduct status enquiry on borrowers. Also, the CBN is in the process of integrating the CRMS with other systems operating in the banks to make it more efficient.

“At the same time, we remain vigilant to emerging risks, including cyber threats, credit-concentration pressures, and operational vulnerabilities. These are being addressed through strengthened risk-based supervision and our ongoing transition to Basel III, which will further bolster resilience, improve capital quality, and strengthen liquidity monitoring,” Cardoso explained.

One of the leading global management consulting firms, McKinsey & Company, in a report yesterday, pointed out that Nigeria’s banking sector is entering a new phase of competition as digital financial services expand and regulatory reforms reshape the market.

This was according to findings from a new McKinsey report, ‘From potential to performance: A snapshot of African banking,’ which examined the performance of the banking sector across the continent and the structural forces shaping its next phase of growth. It noted that banking revenues in Nigeria were projected to grow at around seven per cent annually and reach approximately $16 billion by 2030.

Nigeria remains one of the largest banking markets in Africa and part of the group of five countries that together generate around 70 percent of African banking revenues.

“Nigeria is one of the most dynamic banking markets on the continent,” Partner and Head of McKinsey’s Financial Services Practice in Africa, Mayowa Kuyoro said.

She added: “The scale of the economy, the growth of digital financial services, and the pace of innovation are reshaping competition across payments, lending, and banking services.

“The expansion of digital platforms has increased access to financial services for millions of Nigerians. At the same time, competition is intensifying as fintech companies and technology platforms enter the market.”

The Centre for the Promotion of Private Enterprise (CPPE) urged the CBN and the fiscal authorities to see the reconnecting of the banking system to the real economy as the next critical phase of financial service sector’s reform. It however, commended the CBN for the successful implementation of the bank recapitalisation programme.

The organisation decried a situation where the services sector is accounting for about 55 per cent of total credit, while manufacturing, agriculture and Small and Medium Enterprises (SMEs) are receiving about 14 per cent, five per cent and one per cent respectively, saying that this is inconsistent with Nigeria’s aspirations for economic growth.

The Chief Executive Officer of CPPE, Dr. Muda Yusuf, noted that “the recapitalisation programme has successfully strengthened the resilience and stability of Nigeria’s banking system,” which the CBN deserved commendation, especially for delivering a reform process that has been both effective and non-disruptive.

“However, the ultimate success of this reform will be determined not just by stronger balance sheets, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation. At this critical juncture, the priority must shift from capital adequacy to economic impact. Nigeria needs not just stronger banks, but banks that work for the economy.”

He also urged the CBN to incentivise long-term financing for productive sectors, promote a more balanced sectoral allocation of credit, expand access to consumer credit to stimulate aggregate demand and address the crowding-out effects of public sector borrowing.

According to Yusuf, the successful implementation of the bank recapitalisation programme marked a significant milestone in the ongoing effort to strengthen the resilience, stability and capacity of the Nigerian banking system.

It also said the orderly and non-disruptive manner the recapitalisation exercise was carried without reports of depositor losses, forced mergers, job losses or erosion of shareholder value marked a significant improvement over past consolidation episodes and reflected stronger regulatory capacity, improved market discipline and greater resilience within the banking system.

He pointed out that private sector credit as a percentage of GDP in Nigeria was still only about 17 per cent as of 2025, compared to a Sub-Saharan African average of about 25 per cent and approximately 34 per cent for lower-middle-income countries.

He stated further that peer economies such as South Africa, Mauritius and Cape Verde are recording 57.5 per cent, 69.8 per cent and 66.3 per cent respectively to demonstrate significantly stronger financial intermediation.

Indeed, it is a new dawn for Nigerian banking sector as expectation are high that with the recapitalisation exercise over, financial institutions are now better placed to undertake big-ticket transactions, support infrastructure development, play bigger roles in the African Continental Free Trade Area, and also drive Nigeria’s quest for a $1 trillion economy by 2030.

Additionally, well-capitalised banks are essential in mobilising finance for priority sectors such as agriculture, creative economy, SMEs, enhance innovation, boost financial inclusion, as well as employment opportunities. Customers on the other hand look forward to an industry where they would no longer be excessively charged, disputes resolved at ease and innovations to make banking transactions easier and more flexible introduced.

Therefore, Nigeria’s banking sector stands at a defining moment with stakeholders looking forward to stronger balance sheets, improved resilience, and renewed investor confidence going forward. This reform is expected to lay the foundation for a more stable, competitive, and growth-driven financial system.