Economic Bouquet of Recapitalised Banking System
In this piece, James Emejo looks at the opportunities and pitfalls in a well-capitalised banking system, especially Nigeria, where the statutory roles of bankers had hitherto been called into question
It all started on November 24,2023, at the Chartered Institute of Bankers of Nigeria (CIBN) 58th Annual Bankers’ Dinner and Grand Finale of the Institute’s 60th Anniversary, held in Lagos.
The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, took bankers by surprise when he hinted at a potential liquidity injection by financial institutions to increase their capital thresholds to enable the industry effectively play their intermediation role in the proposed $1 trillion economy that was envisaged by the President Bola Tinubu’s by 2030.
This was followed up by a policy announcement on March 28,2024, when the CBN announced new minimum capital requirements of N500 billion and N200 billion for commercial banks with international and national authorisation respectively as well as new capital threshold of N50 billion for banks with regional licenses.
The central bank also pegged the new minimum capital for merchant banks at N50 Billion, while non-interest banks with national and regional authorisations are mandated to raise their capital thresholds to N20 billion and N10 billion, respectively.
The apex bank also set a deadline of March 31, 2026 for all fresh capital requirements to be met.
While justifying the capital raise, Cardoso stated, “The administration, as outlined in the widely circulated Policy Advisory Council report on the national economy earlier this year, has set an ambitious goal of achieving a Gross Domestic Product (GDP) of $1 trillion over the next seven years, with clearly defined priority areas and strategies.
“Attaining this substantial target necessitates sustainable and inclusive economic growth at a significantly higher pace than current levels. The administration has already commenced this journey through fiscal reforms, including the removal of petrol subsidy and the unification of the foreign exchange market rate.
“Considering the policy imperatives and the projected economic growth, it is crucial for us to evaluate the adequacy of our banking industry to serve the envisioned larger economy. It is not just about the stability of the financial system in the present moment, as we have already established that the current assessment shows stability.
“However, we need to ask ourselves: Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future? In my opinion, the answer is “No!” unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital.”
Failure to meeting financing obligations
Instructively, the CBN’s directive to financial institutions to beef up their capital buffers came at when banks are generally adjudged to have failed to play their statutory role of mobilizing deposit and distributing such to fund economic growth, especially big-ticket infrastructure in the country.
Credit to the real sector continued to be in trickles compared to financing gaps and interventions to SMEs which are the fulcrum of growth had been largely paltry. Agriculture, the main employer of labour continued to be relegated when it comes to financing due to risks of apathy by banks. Yet, the role of banks remained crucial to achieving the country’s economic and growth aspirations.
Dangers of undercapitalised banking system
Part of the reasons for the banks’ seeming underperformance with regards to properly supporting the Nigerian economy were largely attributed to their undercapitalised nature.
As reflected in the nation’s banking system, some financial institutions had displayed several warning signs that reflected weak financial buffers and vulnerability to shocks in recent times, leading to CBN interventions in such institutions.
These are further marked by frequent bank distress or failures as banks struggle to absorb losses, leading to closures, mergers, or bailouts.
Such scenario was also characterized by low capital adequacy ratios, limiting their ability to lend and operate safely, high levels of non-performing loans (NPLs), credit contraction,
loss of depositor confidence, and increased reliance on central bank support among a host of other symptoms.
Recapitalisation milestone, a watershed under Cardoso
This was why the CBN’s announcement on April 1, 2026, that Nigerian banks had raised a total of N4.65 trillion in new capital within 24 months, came as huge relief and positive implications for the economy at large. The development further strengthened the resilience of the financial system, and enhanced industry capacity to support the economy.
The central bank, through a joint statement signed by its Director, Banking Supervision, Dr. Olubukola A. Akinwunmi, and acting Director, Corporate Communications, Mrs. Hakama Sidi Ali, announced the successful conclusion of the banking sector recapitalisation programme that was initiated in March 2024.
The programme recorded strong participation from both domestic and international investors, with 72.55 per cent of capital sourced locally and 27.45 per cent from international markets, reflecting sustained confidence in the Nigerian banking sector.
Cardoso said, “The recapitalisation programme has strengthened the capital base of Nigerian banks, reinforcing the resilience of the financial system and ensuring it is well-positioned to support economic growth and withstand domestic and external shocks.”
The CBN governor stressed that “Sustainable economic growth is unattainable without a resilient financial system. This recapitalisation ensures Nigerian banks can fund the scale of transactions needed to drive a $1 trillion economy.”
Well-capitalised financial system
On the other hand, a well-capitalised banking system—where banks hold sufficient capital relative to their risks—usher huge benefits to an economy.
These include financial stability, strong capital buffers to absorb losses during economic shocks, and increased lending capacity.
In addition, well-capitalised banks are more confident and better positioned to extend credit to businesses and households, supporting economic growth and investment.
It boosts investor and public confidence with better shock absorption, lower cost of borrowing and regulatory compliance and global integration among others.
In fact, the most effective way to gauge how capitalized a banking system is, is through the Capital Adequacy Ratio (CAR)—the percentage of a bank’s capital relative to its risk-weighted assets.
Central banks typically require a minimum of about 10–12 per cent under Basel III frameworks as improvement above the threshold indicates strong capitalisation.
Essentially, the CBN’s recapitalisation milestone further confirmed that 33 out of 37 banks had met the revised minimum capital requirements established under the programme.
According to the apex bank, a limited number of institutions remained subject to ongoing regulatory and judicial processes, which are being addressed through established supervisory and legal frameworks, a clarification that further settled an anticipated anxiety which would have caused a major run on some banks.
Banks that are yet to fully recapitalise remained functional and are in the process of recapitalisation which aimed to strengthen resilience and support long‑term growth in addition to governance and risk management standards which are greatly enhanced.
Further attesting to the success of the exercise, the central bank stated that all banks remained fully operational, ensuring continued access to banking services for customers.
Other key recapitalisation successes
The CBN further pointed out that the recapitalisation programme had strengthened Capital Adequacy Ratios (CAR), with the sector maintaining levels above international Basel benchmarks. Minimum CAR thresholds remained at 10 per cent for regional and national banks and 15 per cent for banks with international authorisation.
The recapitalisation, implemented alongside an orderly exit from regulatory forbearance, had improved asset quality, reinforcing balance sheet transparency and overall financial system stability.
The exercise further marked the most significant banking reform since 2005, modernising regulatory and risk management frameworks and reflected strong coordination among the CBN, the Ministry of Finance, and the capital markets, with ensuing benefits including structural and enduring: stability, global competitiveness, and sustained GDP growth.
With stronger capital, better risk management, and tighter oversight, Nigerian banks are ready to support individuals, businesses, and our growing economy.
Other key aspects of the exercise included the fact that the CBN had been able to build a stable, transparent, and resilient financial system that works for you.
In addition, to safeguard these gains, the CBN had also strengthened its risk-based capital adequacy framework, requiring banks to conduct regular stress testing across defined scenarios and maintain appropriate capital buffers.
Key regulatory measures, including prudential guidelines and the supervisory framework, are subject to periodic review to support ongoing strengthening of governance, risk management, and sector resilience.
It is noteworthy that the recapitalisation programme was carried out without disruption to banking services, ensuring continuous access for individuals and businesses throughout the process.
The successful completion of the programme establishes a stronger and more resilient banking system, better positioned to support lending, mobilise savings, and withstand domestic and global shocks.
No doubt, the banks have now re-emerged with larger capital bases that allow them to absorb shocks, align with Basel III standards, and maintain financial stability as well as improved risk management and governance structures are being embedded sector-wide.
Increased capital enables banks to finance infrastructure, energy, manufacturing, and technology projects that require long-term, high-value funding. The recapitalised sector will better support the renewed industrialisation and export diversification agendas.
Specifically, the CBN’s recapitalisation aligns monetary policy with the federal government’s fiscal growth plans as a sound banking base bolsters policy transmission, liquidity management, and inflation control.
According to the CBN, “By building banks “fit for purpose” in a trillion-dollar economy, the sector can sustainably finance SMEs, export-oriented firms, and major infrastructure projects as the recapitalisation is expected to anchor financial inclusion and broaden access to credit nationwide.
Analysts’ perspectives
Justifying the capital raise, renowned economist and Managing Director/Chief Executive, Bristol Investment Limited, Dr. Chijioke Ekechukwu, said with new capital buffers, Nigerian banks have become more competitive globally and boost their credit ratings.
He however cautioned that capitalisation does not obliterate bank failure as only capital has been enhanced out of other risk assessment tools including Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk.
Ekechkwu warned that “Banks can still fail from other factors other than capital if not optimised.”
He told THISDAY, “Before the capitalisation, it was obvious that banks in Nigeria needed to recapitalize. South Africa’s Standard Bank Group was bigger in assets than all the Nigerian Deposit Money Banks put together.
“Even with the current recapitalisation, the Nigerian banks are still no match to Standard Bank. This is because of the value of our exchange rate. With the new capital base however, Nigerian Banks have become more competitive globally.
“The credit rating of the banks will increase globally, making it more possible for acceptability of our letters of Credit. Foreign currency denominated loans can easily be accessed and guaranteed by Nigerian banks as they have more capacity to do so.”
He said, “Locally, the new capitalisation will create more availability of loanable funds which will in turn stimulate the economy. It will also make funds available for projects at cheaper interest rates. Banks can increase their ICT capacities and capabilities. They also can give out loans for longer tenors.”
