Stronger  Banks, Harder Questions on Lending to Economic Sectors

Nigeria’s banks are stronger without disruption. Now the test is whether that strength drives real growth, writes Festus Akanbi

Nigeria’s banking sector has entered a new phase, and this transition has been steady and reassuring. When the Central Bank of Nigeria (CBN) concluded the latest recapitalisation exercise on March 31, 2026, the outcome clearly pointed to stability.

Of the 37 banks, 33 met the new minimum capital requirements, while the industry raised about N4.65 trillion over 24 months. There were no bank runs, no sudden collapses, and no visible panic. For depositors, investors, and businesses, this outcome reinforced confidence in the system.

Confidence is often fragile during major regulatory changes, but it held firm in this instance. The composition of the funds raised is also noteworthy. Approximately 72.55 per cent came from domestic investors, while 27.45 per cent originated from international sources. 

This reflects sustained local confidence in the banking sector, alongside continued, though cautious interest from foreign investors despite recent economic uncertainties.

The recapitalisation exercise goes beyond increasing capital figures. It represents a deliberate effort to reposition banks to support a larger and more complex economy. Historically, Nigerian banks were often too small to finance large-scale projects independently. 

The new capital thresholds are designed to address this limitation. With capital adequacy ratios maintained above international benchmarks, 10 per cent for national and regional banks, and 15 per cent for international banks, the system is now better equipped to absorb shocks and support larger transactions.

CBN Governor Olayemi Cardoso described the outcome as strengthening resilience and positioning banks to support economic growth. While this aligns with regulatory objectives, it also raises a critical issue. Stronger capital enhances stability, but it does not automatically translate into broader economic impact. The key question is how effectively banks will deploy this capital.

Former Director General of the Nigerian Association of Chambers of Commerce, Industry and Agriculture, Ambassador Ayo Olukanni, provides historical context. He recalls the 2005 consolidation, which significantly reduced the number of banks and strengthened the system. However, he emphasises that the real challenge lies not in raising capital, but in ensuring that it supports development. 

According to him, funds within the banking system must translate into meaningful support for sectors such as agriculture, manufacturing, and small businesses.

His reference to the Nsukka yellow pepper project illustrates this gap. The initiative, which involved about 300 farmers and had export potential, struggled to secure affordable financing despite initial support from the CBN. 

Loan conditions were difficult, and interest rates remained high. This reflects a broader structural issue in which access to credit is constrained by costs and stringent requirements.

Professor Bongo Adi of Lagos Business School reinforces this concern. He argues that Nigerian banks have historically been weak at real intermediation, with limited connections to the productive sectors.

Instead, banks have often relied on relatively safer income streams such as government securities, fees, and foreign exchange gains. While this approach reduces risk, it limits the banking system’s role in driving economic growth.

There are, however, indications that the current framework is more structured. Analysts point to tighter regulation, improved risk management, and the end of regulatory forbearance. 

Last Wednesday, ARISE NEWS invited industry watchers to discuss the CBN’s clean bill of health for banks. Ugodre Obi-Chukwu of Nairametrics noted that the system is stronger than it was before the global financial crisis exposed earlier weaknesses. 

Stephen Chima of CardinalStone Securities also highlighted the importance of disciplined capital deployment rather than aggressive lending. The emphasis is shifting toward efficiency and sustainability.

This shift places clear expectations on banks. The first is to expand lending to sectors that drive production and employment. 

Agriculture remains critical, given its link to food supply, inflation, and rural livelihoods. Farmers require access to affordable credit, storage facilities, and insurance-backed financing to improve productivity.

Manufacturing also requires urgent attention. Local producers face high operating costs, foreign exchange challenges, and infrastructure deficits. Access to long-term financing remains limited, forcing reliance on short-term, high-cost loans. 

A stronger banking system is expected to address these constraints by improving financing structures and extending credit tenors.

Small and medium-sized enterprises remain central to economic activity but continue to face barriers in accessing formal credit. High interest rates and collateral requirements constrain their growth. 

Expanding financial inclusion in this segment is therefore essential. Olukanni, also a  former Nigerian High Commissioner to Australia, also emphasises the need to support women-owned businesses, given their increasing role in both production and services.

Beyond these sectors, infrastructure and power remain critical. Economic expansion is difficult when the electricity supply is unreliable, and logistics costs are high. Financing these areas requires long-term capital and structured lending, which recapitalised banks are now better positioned to provide.

The expectations extend beyond lending to governance. The CBN has emphasised zero tolerance for corporate governance violations, reflecting lessons from past banking crises where weak oversight undermined otherwise strong institutions. Stronger capital must now be accompanied by improved transparency, accountability, and internal controls.

Compliance is another priority. Alongside the recapitalisation, the CBN introduced stricter anti-money laundering requirements, directing financial institutions to submit implementation plans by June 10, 2026. Analysts said this signals a shift from procedural compliance to institutional responsibility, requiring banks to take full ownership of their control systems.

For regulators, the task is to sustain discipline. Raising capital is only the first step; ensuring effective deployment is more complex. Supervisory frameworks must remain active, stress testing must continue, and regulatory standards must be consistently enforced. 

The few banks that have not yet met the requirements must also be managed carefully to maintain system stability.

The recapitalisation exercise has undoubtedly strengthened Nigeria’s banking system. However, capital alone does not determine impact. The true measure lies in how effectively that capital supports economic activity, improves access to credit, and drives long-term growth. Nigeria now has a stronger banking platform. The challenge ahead is to ensure that this strength translates into tangible economic outcomes.