Market Update: How Nigeria’s recapitalised banks will lift businesses, drive $1tr economy – Full Analysis

By Michael Nwadike

It was on November 24, 2023 that the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, first announced the apex bank’s plan to recapitalise banks. He laid out ambitious plans to get the sector significantly drive growth of businesses and support the Federal Government’s $1 trillion economy project. Analysts have lauded the success of the two-year exercise and expressed confidence that with bigger and more resilient banks, the Nigeria financial sector has what it takes to drive sustainable growth and real sector productivity.

When the CBN Governor, Dr Olayemi Cardoso, asked banks to brace up for a new round of recapitalisation in the sector, many pundits foresaw an idea whose time had come. Expectedly, the CBN boss, walked the talk, and set a two-year timeline for the exercise. March 31, signaled the end of the timeline, and beginning of an era with more than 32 resilient and highly capitalised banks raising N4.61 trillion and determined to drive business and economic growth.

The recapitalised banks will play significant role in Federal Government’s drive for $1 trillion Gross Domestic Product (GDP) target by 2031.

Cardoso said the Nigeria banks needed to raise new capital to have sufficient capital relative to the financial system’s needs in servicing a $1.0 trillion economy in the near future. Continuing, he said: “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 $1.0 trillion, with clearly defined priority areas and strategies.

According to him, 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,” he said.

Reaffirming the stability of the banking sector, he said: “Indeed, despite the challenging global and domestic macroeconomic environment, Nigeria’s financial sector has demonstrated resilience, with key indicators of financial soundness largely meeting regulatory benchmarks.”

The recapitalisation plan requires minimum capital of N500 billion, N200 billion and N50 billion for commercial banks with international, national and regional licences respectively. The 24-month timeline for compliance ends on March 31, 2026. Cardoso said the apex bank will be enforcing stronger governance, greater transparency, and firmer accountability to protect raised funds.

The CBN has equally established a dedicated Compliance Department, now fully operational, with mandates covering financial crime supervision, market conduct, enterprise security, corporate governance, and Environmental, social, and governance (ESG).

According to the CBN boss, the process enforcing stronger controls on raised funds is ongoing with the redesigning of the credit-risk framework expected to ensure that raised funds are well managed by financial institutions.

Previously, banks were awash with post recapitalisation funds, with analysts predicting that without proper risk management policies and regulatory controls, chances of misapplying such raised funds through risky loans remain high.

To guard against such occurrence, Cardoso stated: “We are redesigning the 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”.

In a report titled: “Nigeria’s macro headwinds trigger bank recapitalisation” Deloitte, a global accounting and audit firm, said the upward review of banks’ capital base from N50 billion to N500 billion depending on the type of licence held by the bank, remains an essential action required to boost capital adequacy needs of the Nigerian financial industry.

Nigeria banks’ capital adequacy, the report says, has been significantly impacted by macroeconomic challenges such as high inflation and interest rates, currency volatility and forex illiquidity.

“The upward revision will ensure that Nigerian banks have the capacity to take on bigger risks and stay afloat amid both domestic and external shocks. It also means increased liquidity position of banks, which will help broaden their loss-bearing capabilities,” the report said.

Bank recapitalisation which started two years ago, has ended today. President, Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogubunka, said the exercise, which saw 32 banks raising N4.61 trillion presented opportunity for the lenders to provide cheaper loans, expand their operations and provide improved services to customers.

CEO, Economic Associates, Dr Ayo Teriba, urged the Central Bank of Nigeria (CBN) to review Cash Reserve Ratio (CRR) policy to allow banks utilise funds raised from the recapitalisation exercise.

He said that with Ways and Means dropping from N27 trillion to N3 trillion and stability in exchange rate, and adequate FX reserves, the CBN should rescind the policy on CRR to allow banks intermediate.

The CBN pegged Cash Reserve Requirement (CRR) for Deposit Money Banks at 45.00 per cent, Merchant Banks at 16.00 per cent, and 75.00 per cent for non-Treasury Single Account (TSA) public sector deposits.

Also speaking, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr Aminu Gwadabe, agreed with Ogubunka on the need for low interest loans.

Gwadabe said: “We need cheaper loans. Big capital should reflect on cheaper and more affordable loans. Also, banks should lend for longer terms, and projects that support the economy.

He said that more capital will increase banks’ buffers and hasten Nigeria’s path to achieving $1 trillion economy.

“Now they have bigger capital, we expect the banks to come out and compete with other global banks. The Nigerian banks need to compete favourably at international stage,” he said.

Country Director, World Bank in Nigeria, Matthew Verghis, underscored the importance of positioning recapitalisation as a tool for economic transformation as well as the strategic opportunities that lies ahead.

“A stronger banking system creates the foundation to finance Nigeria’s long-term ambitions — from empowering MSMEs and expanding productive capacity to unlocking large-scale infrastructure development. The opportunity before us is clear: to convert stronger balance sheets into deeper intermediation, greater resilience, and inclusive growth that accelerates Nigeria’s journey toward a more competitive and sustainable economy,” he said.

Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, said many of the banks classified as being at an advanced stage of compliance have already secured the required funds.

“Some of those that the CBN said are at an advanced stage already have the funds with the CBN. What CBN is doing is verifying those funds. So, it’s not that they are still going in the markets looking for the funds.”

Cardoso earlier explained that within the banking sector, the sector remains robust with key indicators reflecting a resilient system.

“The non-performing loan ratio remains within the prudential benchmark of five per cent, showcasing strong credit risk management. The banking sector liquidity ratio comfortably exceeds the regulatory floor of 30 per cent, a level which ensures banks are maintaining adequate cash flow to meet the needs of customers and their operations. The recent stress test conducted also reaffirmed the continued strength of our banking system,” he said.

Founder and Chief Consultant of B. Adedipe Associates Limited (BAA Consult), Prof. ‘Abiodun Adedipe, listed major policy shifts yielding positive results for the economy. He said that the CBN has eliminated  strange arbitraging and roundtripping opportunity through the forex market reforms; through petrol subsidy removal, the Federal Government Remove crippling annual waste of US$10.7 billion and created environment for competition; bank recapitalisation is creating stronger and more capable banks to fund US$1 trillion economy while fiscal consolidation is plugging leakages, deploying technology and making government agencies more accountable and expanding fiscal space at sub-national.

As the CBN explained, monetary reform cannot be effective in a vacuum. Alignment with fiscal policy has strengthened Nigeria’s macro stability and yielded tangible results including reduced domestic borrowing costs, improved liquidity conditions, and more predictable fiscal operations.

For instance, the discontinuation of direct deficit financing signals one prong in our commitment to discipline.
Nwadike, a financial analyst wrote from Abuja.