The Lacking Items in Nigeria’s Banking Recapitalisation

BY BLAISE UDUNZE

Nigeria’s financial system will likely be experiencing one more spherical of reform; after the brand new tax implementation, the banking sector recapitalisation train will start inside lower than three months till the March 31, 2026, deadline. The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, disclosed that 27 banks have tapped the capital market by way of public provides and rights points.

The figures present that of 21 the 37 business, service provider, and non-interest banks within the nation have met or exceeded the revised minimal capital thresholds of N500 billion for internationally authorised banks, N200 billion for nationwide banks, N50 billion for regional banks, and N10-20 billion for non-interest banks. With the developments above, policymakers are betting that stronger steadiness sheets will assist banks stand up to macroeconomic shocks, finance progress, and restore confidence within the monetary system. On the floor, the logic is sound, capital issues. However historical past warns us that capital alone is just not a cure-all.

Nigeria has been right here earlier than, going by the 2004-2005 period of the then-governor of CBN, Charles Soludo, whose banking consolidation dramatically diminished the variety of banks from 89 to 25 and created nationwide champions. But barely 5 years later, the system was again in disaster, requiring regulatory intervention, bailouts, and the creation of the Asset Administration Company of Nigeria (AMCON) to soak up poisonous belongings. The lesson right here is obvious, which revealed that recapitalisation that ignores structural weaknesses merely postpones failure.

If the present train is to succeed, the CBN should use it not solely to lift capital however to restore the deeper fault traces which have lengthy undermined the soundness, credibility, and effectiveness of Nigeria’s banking sector.

Extra Capital isn’t At all times Higher Capital

The primary and most important difficulty is the standard of capital being raised. Disclosures made by the banks have proven that the mixed capital base of about N5.142 trillion is already locked in by lenders throughout the totally different licence classes. Greater numbers on paper imply little if the capital is just not genuinely loss-absorbing. In previous recapitalisation cycles, issues emerged about funds being raised by associated events, short-term borrowings disguised as fairness, or advanced preparations that finally recycled the identical dangers again into the system.

This time, the CBN should insist on clear, verifiable sources of capital. Each naira raised ought to be traceable, free from conflicts of curiosity, and able to absorbing actual losses in a downturn. In any other case, recapitalisation turns into an accounting train slightly than a resilience-building one.

Why Company Governance Stays the Achilles’ Heel

Maybe essentially the most persistent weak point in Nigeria’s banking sector is company governance failure. Many financial institution crises haven’t been brought on by macroeconomic shocks alone, however by poor board oversight, insider abuse, weak danger tradition, and extreme govt energy.

Recapitalisation offers a uncommon regulatory leverage level. The CBN ought to use it to reset governance requirements, not simply capital thresholds. Boards should be impartial in substance, not simply in kind. Being one of many crucial elements of the banking problem, insider lending guidelines ought to be enforced with out exception. Danger committees in each monetary establishment should be empowered, not sidelined by dominant executives.

With out the apex financial institution fixing governance, new capital dangers turn out to be contemporary gas for previous excesses.

The Unresolved Burden of Non-Performing Loans (NPLs)

Knowledge from the CBN’s newest macroeconomic outlook confirmed that the banking trade’s Non-Performing Loans ratio climbed to an estimated 7 %, pushing the sector above the prudential ceiling of 5 %. Nigeria’s banking sector continues to be drowned with excessive volumes and recurring non-performing loans (NPLs), and that is usually concentrated in sectors corresponding to oil and fuel, energy, and government-linked tasks. Although with the pattern of occasions, one could say that regulatory forbearance has helped keep floor stability within the sector, little question it has additionally masked underlying vulnerabilities.

The reality is {that a} credible recapitalisation train should confront this actuality head-on. Mortgage classification and provisioning requirements ought to replicate financial reality, not regulatory comfort. Banks shouldn’t be allowed to hold impaired belongings indefinitely whereas presenting wholesome steadiness sheets to buyers and the general public.

Transparency round asset high quality is just not a menace to stability; it’s a basis for it.

How International Alternate Danger Quietly Amplifies Monetary Shocks

Few dangers have broken financial institution steadiness sheets lately as severely as international trade volatility. Many banks proceed to hold vital FX mismatches, borrowing short-term in international forex whereas lending long-term to purchasers with naira revenues.

In periods of FX adjustment, these mismatches can quickly erode capital, regardless of how well-capitalised a financial institution seems on paper. Recapitalisation should due to this fact be accompanied by tighter supervision of FX publicity, stronger disclosure necessities, and real looking stress testing that assumes hostile forex eventualities, not best-case outcomes.

Ignoring FX danger is now not an possibility in a structurally import-dependent financial system.

Focus Danger and the Slender Credit score Base

One other long-standing weak point is extreme focus danger. A disproportionate share of financial institution lending is usually tied to a small variety of massive corporates or government-related exposures. Whereas this may occasionally seem protected within the brief time period, it creates systemic vulnerability when these sectors face stress.

On the similar time, the actual financial system, significantly SMEs and productive sectors, stays underfinanced as a result of, through the years, Nigeria’s banks confronted vital focus danger, significantly within the oil and fuel sector and in international forex publicity, whereas grappling with a slender credit score base characterised by restricted lending to the personal sector. This is because of excessive credit score danger and tight financial coverage. Owing to this pattern, recapitalisation ought to due to this fact be in alignment with insurance policies that encourage credit score diversification, improved credit score underwriting, and smarter risk-sharing mechanisms, and never the opposite manner spherical.

Subsequently, it will likely be proper to say that banks that develop bigger however stay narrowly uncovered don’t strengthen the financial system; they amplify its fragilities.

Danger Administration in a Risky Economic system

The recurring inflation shocks, interest-rate swings, fiscal pressures, and exterior shocks are frequent options, not uncommon occasions, which present that Nigeria is just not a low-volatility atmosphere.

Presently, the Nigerian banking sector’s monetary efficiency and funding returns are equally affected by numerous dangers, together with credit score, liquidity, market, and operational dangers.

As we speak, many banks nonetheless function danger fashions that assume stability slightly than disruption. Time has confirmed that danger administration is crucial for mitigating these dangers and guaranteeing stability and profitability.

The apex financial institution should be sure that the recapitalisation course of mandates sturdy, Nigeria-specific stress testing, and banks should reveal resilience beneath extreme however believable eventualities. This contains sharp forex depreciation, interest-rate spikes and sovereign stress. It should evolve from a compliance operate to a strategic self-discipline.

Transparency and Monetary Reporting

Traders, depositors, and analysts should have the ability to perceive banks’ true monetary positions with out navigating a scarcity of clear disclosures or inventive accounting. Therefore, public belief within the banking sector relies upon closely on credible monetary reporting.

The CBN ought to use recapitalisation to strengthen the Worldwide Monetary Reporting Customary enforcement, disclosure requirements, and audit high quality. In championing this course, banks’ monetary statements ought to clearly replicate capital adequacy, asset high quality, related-party transactions, and off-balance-sheet exposures. Transparency is to allow confidence, not about exposing weak point.

Regulatory Consistency and Credibility

Coverage credibility has been one of many best challenges for Nigeria’s monetary regulators.

Abrupt adjustments, unclear timelines, and inconsistent enforcement undermine investor confidence and weaken reform outcomes.

Recapitalisation should be ruled by clear guidelines, predictable timelines, and constant enforcement. Each home and international buyers want assurance that the principles of the sport is not going to change midstream. Regulatory credibility is itself a type of capital.

Client Safety and Banking Ethics

Whereas recapitalisation focuses on banks’ steadiness sheets, the general public experiences banking by charges, service high quality, dispute decision, and moral conduct. Persistent complaints about hidden prices and poor buyer remedy erode belief within the system and a stronger banking sector should even be a fairer and extra accountable one. It should be famous that strengthening shopper safety frameworks alongside recapitalisation will assist rebuild public confidence and reinforce monetary inclusion objectives.

Too Massive to Fail and The way to Resolve Failure

what’s obtainable within the system, bigger, better-capitalised banks can even turn out to be systemically harmful if failure decision frameworks are weak. This requires that recapitalisation ought to due to this fact be accompanied by credible plans for resolving distressed banks with out destabilising your complete system or resorting to taxpayer-funded bailouts, which has been the norm within the Nigerian banking sector in the present day. The cynic may say that recapitalisation merely made huge banks greater and empowered dominant shareholders. Nevertheless, a extra potential method invitations all stakeholders, together with regulators, prospects, civil society and bankers themselves, to co-design the following chapter of Nigerian banking; one which balances scale with inclusion, profitability with influence, and stability with innovation.

Clear decision mechanisms cut back ethical hazard and reinforce market self-discipline.

A Second That Should Not Be Wasted

Recapitalisation is just not merely a monetary train; it’s a governance and belief reset alternative. If the CBN focuses solely on capital numbers, Nigeria dangers repeating a well-recognized cycle of obvious stability adopted by disaster.

The banking sector can lay a stable basis that really helps financial transformation if recapitalization is used to handle governance failures, asset high quality, FX danger, transparency, and regulatory credibility.

Nigeria doesn’t simply want greater banks. It wants higher banks, establishments which can be resilient, clear, well-governed, and trusted by the general public they serve. Therefore, it should be a system that creates a extra sturdy buffer towards shocks and positions Nigerian banking as a worldwide competitor able to funding a $1 trillion financial system, because the case could also be.

This recapitalisation second should be about constructing sturdiness, not simply measurement. The price of lacking that chance can be far better than the price of getting it proper.

Blaise, a journalist and PR skilled, writes from Lagos and could be reached by way of: blaise.udunze@gmail.com