In March 2024, the Central Bank of Nigeria (CBN) initiated an ambitious recapitalisation programme aimed at strengthening the country’s banking sector. The initiative, which concluded on 31 March 2026, has seen Nigerian banks raise a total of 4.65 trillion naira ($3.38bn) in new capital.
According to the CBN, the programme recorded strong participation from both domestic and international investors, with 72.55% of capital sourced locally and 27.45% from international markets.
CBN governor Olayemi Cardoso (pictured) 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 confirmed in a statement that 33 banks have met the revised minimum capital requirements established under the programme. A limited number of institutions remain subject to ongoing regulatory and judicial processes, which are being addressed through established supervisory and legal frameworks, the CBN said.
This effort has significant implications not only for the financial sector but also for Nigeria’s broader economic goals. As the banking system is vital for financial intermediation, its strength and resilience are crucial for sustained economic growth.
Recapitalisation goals
The recapitalisation programme of 2024 differed significantly from the one carried out in 2005, which saw numerous mergers and acquisitions in the Nigerian banking sector. At that time, Nigeria’s banking system was riddled with distressed institutions, and the recapitalisation was primarily aimed at consolidating banks to avoid a financial crisis.
The goal was to reduce the number of banks from 89 to a more manageable number by forcing weaker institutions to merge or close.
Uche Uwaleke, president of the Capital Market Academics of Nigeria (CMAN), says that banks started from a stronger base this time.
“This time, the banks are much stronger. Most of them did not need to raise more capital, as they had already grown in size and financial strength.”
As Yushau Ango, deputy vice chancellor at Kaduna State University, explains, “The key difference this time is that banks were asked to raise fresh funds, as opposed to using retained earnings. This has helped improve the quality of the capital raised and contributed to greater stability.”
Another major difference is the categorisation of banks based on their operational scope. In 2005, all banks were subject to the same capital base requirement. In 2024, however, the CBN introduced differentiated requirements, with banks in possession of international licences required to raise 500bn naira, while regional and national banks faced lower thresholds.
By improving the capital adequacy ratios (CAR) of the banks, the recapitalisation aims to allow for greater liquidity in the financial system, which in turn enables banks to lend more extensively to sectors critical for growth. This includes providing much-needed credit to small and medium enterprises (SMEs), the agricultural sector, and large-scale infrastructure projects.
Risks and challenges
While the recapitalisation exercise is intended to lead to substantial improvements in the financial system, Uwaleke warns of potential risks associated with increased liquidity in the banking system.
He argues that “some banks may be tempted to lend recklessly after raising significant capital”.
This could result in risky loans being issued, potentially exposing the banking sector to financial instability.
Additionally, the pressure to recover the costs of recapitalisation could lead to increased bank charges or a shift in focus from lending to SMEs and the agricultural sector to more profitable but less socially useful sectors, such as high-net-worth individuals and large corporations.
“The Central Bank will need to ensure that these risks are managed effectively and that banks continue to lend responsibly, especially to sectors that are vital for Nigeria’s economic development,” Uwaleke says.
What next for banks that didn’t meet the requirements?
Uwaleke says that banks that did not meet the capital requirements have several options under the regulations.
“The Central Bank has provided options for banks that are unable to meet the capital requirements. If a bank holds an international licence and cannot meet the requirement, it can downgrade to a regional licence with a 200bn naira capital base. If a bank holds a regional licence and is unable to meet the capital requirement, it can downgrade further to a 50bn capital naira base.
“Additionally, there is the option of a merger. Based on reports, one or two banks are currently discussing the possibility of merging. Therefore, the remaining options are either a merger or a downgrade.”
Moving forward
With 4.65 trillion naira raised, supporters of the programme say the banking sector is now more resilient and better able to support critical sectors like agriculture, infrastructure, and manufacturing.
Uwaleke says that the CBN should build on the recapitalisation programme by encouraging flows to vital sectors of the economy.
“I haven’t seen much effort in recent times to use monetary policy to influence the direction of credit. The Central Bank should address this issue by guiding where credit flows, especially to sectors such as SMEs and agriculture.”
In the past, the CBN used a credit ceiling, where it required banks to allocate at least 20% of their loans to SMEs.
One approach the CBN could use now is providing incentives for banks to meet certain lending thresholds to economically crucial sectors.
Some analysts say that the CBN could lower the cash reserve requirement for banks that meet specific lending thresholds.
Currently, the Cash Reserve Ratio (CRR) is 45% for banks. This means that for every deposit a bank receives, it must hold 45% of that deposit with the CBN, a requirement which restricts the amount of money available for banks to lend.
As it wraps up the most ambitious recapitalisation programme in a generation, the CBN will need to weigh up whether such incentives will support economic growth and a more resilient financial system.