Nigeria’s banking sector has grown significantly following the Central Bank of Nigeria’s (CBN) sweeping recapitalisation drive, which strengthened balance sheets and bolstered financial buffers across the industry. Over the past year, 32 banks raised a combined N4.61 trillion, making them better capitalised than ever before. But industry experts are questioning whether this capital will translate into meaningful credit growth for the economy or simply protect banks against shocks.
“More capitalised banks are in a position to expand credit and improve intermediation,” said Johnson Chukwu, CEO of Cowry Asset Management. He added, however, that credit growth depends on broader economic conditions and the availability of viable investment opportunities for businesses seeking loans.
Currently, private sector credit in Nigeria stands at roughly 17 percent of GDP—well below the sub-Saharan average of 25 percent and far behind countries like South Africa and Mauritius, where lending exceeds 50 percent of GDP. The discrepancy is even starker when looking at credit distribution: consumer loans make up only 7 percent, and small and medium-sized enterprises (SMEs) account for barely 1 percent, despite driving half of Nigeria’s GDP and employing more than 80 percent of the workforce. PwC estimates the SME financing gap at about N48 trillion.
Analysts warn that the combination of high interest rates and attractive government bond yields could push banks to favor low-risk, short-term assets over longer-term private lending. If this happens, recapitalisation may improve profitability and resilience without expanding credit access, slowing Nigeria’s ambition to achieve 7 percent growth and reach a $1 trillion economy by 2030.
With recapitalisation thresholds now largely met—N500 billion for international commercial banks, N200 billion for national banks, and lower requirements for regional and non-interest banks—policymakers are urged to focus on the next phase. Recommendations from the Centre for the Promotion of Private Enterprise (CPPE) include boosting private-sector credit to 30 percent of GDP, de-risking SME lending, strengthening monetary policy transmission, and promoting sectoral balance in credit allocation to reconnect banks with the real economy.
source: Business day