Dare Babalola
The Centre for the Promotion of Private Enterprise (CPPE) has commended the Central Bank of Nigeria (CBN) for the successful execution of the country’s bank recapitalisation programme, describing it as a major milestone in strengthening the nation’s financial system.
In a policy brief issued on Sunday and signed by its Chief Executive Officer, Muda Yusuf, the CPPE said the recapitalisation exercise, which is nearing completion, has significantly enhanced the resilience, stability and capacity of Nigeria’s banking sector.
The group noted that the process has been largely smooth and non-disruptive, with no adverse consequences typically associated with past banking reforms.
“The exercise has been notably orderly, non-disruptive and confidence-enhancing. Evidence indicates that 32 banks have already met the new minimum capital requirements as at Friday, 27th March 2026, with no reports of depositor losses, forced mergers, job losses or erosion of shareholder value,” Yusuf stated.
According to the CPPE, this marks a significant improvement over previous consolidation exercises and reflects stronger regulatory oversight, improved market discipline and a more resilient banking system.
Despite the gains recorded in strengthening banks’ capital base, the CPPE raised concerns about the limited impact of these reforms on the real economy, warning of a persistent disconnect between financial institutions and productive sectors.
Yusuf observed that private sector credit in Nigeria remains low at about 17 per cent of Gross Domestic Product (GDP) as of 2025—well below the sub-Saharan African average of 25 per cent and 34 per cent for lower-middle-income countries. He noted that countries such as South Africa, Mauritius and Cape Verde have significantly higher levels of financial intermediation.
The policy brief highlighted that this gap reflects a structural weakness in Nigeria’s financial system, where banks are not adequately supporting economic activities that drive growth and job creation.
The CPPE further pointed to severe credit limitations affecting key segments of the economy, particularly small and medium enterprises (SMEs) and consumers.
Consumer credit, it said, accounts for only about seven per cent of total credit in Nigeria, far below the 15 to 25 per cent average in sub-Saharan Africa. This, according to the organisation, has implications for domestic demand and overall economic expansion.
More critically, credit to SMEs remains extremely low at just one per cent of total lending, despite the sector contributing roughly 50 per cent of GDP and over 80 per cent of employment. The group cited estimates indicating a financing gap of about ₦48 trillion for SMEs, describing the situation as one of the most significant weaknesses in the country’s financial architecture.
The CPPE also identified structural distortions in credit allocation across the economy. It noted that a majority of bank lending is short-term, with about 55 per cent of credit having maturities of less than one year, while long-term financing accounts for only about 25 per cent.
This pattern, Yusuf explained, is misaligned with the financing needs of critical sectors such as manufacturing, agriculture, infrastructure and real estate, which require long-term funding.
Additionally, the distribution of credit remains skewed in favour of the services sector, which receives about 55 per cent of total lending. In contrast, manufacturing accounts for 14 per cent, while agriculture receives only five per cent—figures the CPPE said are inconsistent with Nigeria’s economic diversification goals.
The organisation attributed the weak linkage between banks and the real economy to several factors, including high government borrowing that crowds out private sector access to funds, a tight monetary policy environment with elevated interest rates, and stringent collateral requirements that limit SME access to credit.
It also cited incentive structures within the financial system that favour short-term, low-risk investments over lending to productive sectors.
With recapitalisation largely achieved, the CPPE urged policymakers to focus on deepening financial intermediation and ensuring that banks play a more active role in economic development.
The group recommended measures such as increasing private sector credit to at least 30 per cent of GDP in the medium term, de-risking SME lending through credit guarantees, improving monetary policy transmission, and incentivising long-term financing.
Other proposals include expanding consumer credit access, promoting balanced sectoral credit allocation, and addressing the crowding-out effect of public sector borrowing.
While commending the CBN for delivering a successful and non-disruptive reform, the CPPE stressed that the ultimate success of the recapitalisation programme would be judged by its impact on the broader economy.
“However, the ultimate success of this reform will be determined not just by stronger balance sheets, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation,” Yusuf said.
The organisation concluded that Nigeria must now move beyond building stronger banks to ensuring that the financial system effectively supports economic growth and development.
“At this critical juncture, the priority must shift from capital adequacy to economic impact. Nigeria needs not just stronger banks, but banks that work for the economy.”
