Perspectives On Banks Recapitalisation and Economy

Source: Vanguard

The Central Bank of Nigeria, CBN, has been proactive and methodical in formulating policy measures to stabilise and boost the economy towards achieving sustainable growth.

The Bank started by first of all rolling back the frontiers of its operations and refocused on its core mandates and separated the hitherto blurred lines between monetary and fiscal policy to enable greater efficiency.

Among other notable policies of CBN is the recently concluded banks recapitalisation which spanned over a time period of two years from 2024 to March 2026, which is the second round of banks recapitalisation after the first one in 2005.

The first banks recapitalisation in 2005 faced intense opposition but CBN was resolute and implemented the policy within the stipulated time frame of 18 months and the impact was positive.

The 2005 banks recapitalisation reduced the number of banks from 89 to 25 and restored public confidence in the banking industry and improved the international rating of Nigerian banks and attracted foreign capital. It reinforced stability in the banking system and provided a buffer against the 2008 global financial crisis which disrupted financial markets and economies across the world.

It also increased banks' branch network from 3,247 in 2003 to 5000 by 2009 and made banks to rely less on public sector funds, and banks invested more in technology which led to improved service delivery. It increased lending and spurred economic growth and with increased growth in the non-oil sector by 8.5 percent in 2005.

The recent 2026 banks recapitalisation has been widely applauded by industry watchers, experts and prominent institutions, including the International Monetary Fund, IMF, as it is expected to create positive impacts in the banking system and the economy. IMF commended the strategic impact of the recapitalisation and noted that it provided buffers against global shocks.

At the recent 2026 IMF/ World Bank Group Spring Meeting in Washington DC, the IMF Financial Counsellor/Director of Monetary/Capital Markets Department, Tobias Andrian, noted that "it is in times of stress where the value of bank capital really comes to the fore."

The Deputy Governor, Corporate Services, Ms Emem Usoro, had noted earlier that the push for recapitalisation would improve the strength and health of the financial system and deepen financial intermediation. In developing countries, including Nigeria, banks are the most important intermediary which provides a greater percentage of financial services to drive the economy. President Bola Tinubu has envisaged a $1 trillion economy by 2030, while McKinsey and Co, a global consulting firm, had projected a GDP of $1.6 trillion in 2030.

Banks recapitalisation is one of the policy highlights of CBN which aims to drive the economy towards attaining the envisioned $1trillion by 2030. CBN mandated banks in the international category to recapitalise with a minimum share capital of N500 billion: national banks, N200 billion and regional banks, N50 billion. A total of 33 banks recapitalised successfully and accordingly and raised a total of N4.65 trillion.

It is expected that greater credit will flow to the real sector, including the Medium and Small Scale Enterprises, MSMEs, which CBN is supporting through financial inclusion towards attaining the target USD1trillion economy.

Credit drives economic growth through increased productivity and credit crunch impedes productivity in a strong and persistent way, thus the need for regular credit supply.

But some experts have noted that the high interest rate may hinder the anticipated credit supply from the recapitalised banks to the real sector.

Major challenges of the real sector in Nigeria are power supply/ infrastructure deficit, inflation, high interest rate and lack of access to credit.

In 2024, total bank credit to the economy by end of first quarter QI 2024 was N53.2 trillion, an increase of 73 percent from N30.30 trillion in the corresponding period in Q1 2023. The major recipients were the oil and gas and manufacturing sectors which received N10.99 trillion and N8.70 trillion respectively.

Other recipients included General(N8.75 trillion), Oil and Gas Service(N3.88 trillion), Trade(N3.80 trillion), Finance(N3.41 trillion), Government(N2.58 trillion), Agriculture(N2.58 trillion), Construction(N1.8 trillion) and Information(N1.9.trillion).

In January 2025, credit to the private sector stood at N77.38 trillion and increased to N78.08 trillion in April. It dropped to N75.83 trillion in August. This was noted as the lowest level in the second half of the year due to the tight monetary policy. But it dropped further to N75.24 trillion in January 2026. However, after CBN cut the Monetary Policy Rate, MPR, by 50 basis points to 26.50 percent at the 304th Monetary Policy Committee, MPC, meeting in February 2026, credit to the private sector rose by N380.85 billion and net domestic credit rose from N109.43 trillion in January to N111.40 trillion representing an increase of 1.80 percent.

It is noteworthy that the Bank of Industry, BOI, was exceptional in credit disbursements in 2025 and which underscores the importance and impact of development financing in driving economic growth.

Development financing is the use of public sector resources to facilitate private sector investments in low and middle income countries where commercial or political risks are too high to attract purely private capital and where investment is expected to have a positive impact.

The Federal Government has a MSMEs loan scheme to support businesses at single interest rate of 9 percent per annum and which is managed by the Bank of Industry. The loan scheme offers up to N1million to MSMEs and N1billion to manufacturing. In 2025, BOI disbursed N636 billion to over 7000 Nigerian businesses, including 570 start-ups, and focused on manufacturing, agro-processing and infrastructure.

President Tinubu commended the bank and said that "the N636 billion disbursed by BOI in 2025 translates directly into productive capacity across Nigeria." He added that "it financed agro-processing, strengthened manufacturing, supported infrastructure delivery and empowered thousands of enterprises across our states."

CBN is cautiously and tactically trying to balance the fight against inflation and the need to spur economic growth. And the Bank has been able to moderate inflation as a result of which it reduced the MPR by 50 basis points to 26.50 percent in February 2026, though inflation is still relatively high.

With further moderation of inflation and the concomitant reduction in interest rate by CBN, the impact of the banks recapitalisation will be more holistic and effective with greater net credit supply to the real sector and greater positive impact on the economy.