It is really worth celebrating that the bank recapitalisation exercise of the Central Bank of Nigeria (CBN) came to a successful conclusion on March 31, 2026, twenty-four months after it commenced. That the initiative which took effect from March 2024 ended up having 33 banks successfully cross the hurdle, and raising about N4.65 trillion fresh capital, bodes well for the industry.
Technically, the exercise recorded no casualties: no forced mergers and acquisitions or take-overs; no sudden bank failures or impromptu liquidation. No job losses; nominally, the number of operators in the industry remain intact. According to the CBN, the few banks that are yet to breast the tape are undergoing either some necessary regulatory or judicial finishing processes.
The import of all these is that Nigerian banks have become bigger; with higher capacity to absorb losses and weather financial storms easily. Concomitantly, these banks have attained increased lender-confidence; meaning that more than ever before, people are more likely to deposit and invest in them.
In the same vein, these highly capitalised banks can now take on more businesses, invest in new opportunities, and expand their operations. Particularly, they can undertake ‘big ticket’ transactions, and acquire more risky assets than hitherto. In tandem with this will be that these recapitalised banks are bound to have improved Credit Ratings by both local and foreign rating bodies — and which could lead to low borrowing costs, etc.
However, all or some of these could happen or not happen owing to the subsisting regulatory and economic environment of Nigeria. For instance, for upwards of three years, the monetary authorities have stuck to a very tight monetary stance — raising the benchmark interest rate in the economy (the Monetary Policy Rate, MPR) — from about 18 percent as of May 2023 to a peak of 27.5 percent, before inching down to 26.5 percent in February 2026.
This translated to a high interest rate environment in which the deposit money banks (DMBs) were lending at between 30 to 35 percent to their customers. These rates automatically made loan facilities go beyond the reach of most households and businesses, especially small and medium-scale enterprises (SMEs). The marginal reduction of the MPR to 26.5 percent has not remarkably altered this trend: bank loans and advances still remain mostly priced beyond the reach of most businesses.
Like the MPR, the CBN also hiked the Cash Reserve Ratio (CRR) to 45 percent in February 2026. This means that for every deposit made, the DMBs are required to hold 45 percent of it in reserve (with the CBN), rather than lending it out. This high CRR automatically constrains the ‘credit creation’ capacity of the DMBs; and this has been the lot of banks in the past three years or so.
Incidentally, the monetary authorities have always justified the hiking of both the MPR and the CRR as part of their critical measures in “fighting” high inflation rate in the Nigerian economy. Inflation rate (measured by Consumer Price Index, CPI) hit nearly 35 percent as of December 2024, before dropping sharply (courtesy of rebasing and change in CPI calculation methodology) to 24 percent in February 2025, and hitting 15.06 percent in February 2026.
Unfortunately, however, the fundamentals and headwinds that drove the hyperinflationary trend in the past couple of years have reared their ugly heads with renewed vigour, owing to the ongoing Middle East conflict which (officially) began on February 28 — with the US/Israeli airstrikes in Iran. One of the ripple effects of the war in the Middle East has been sharp increases in the prices of crude oil and refined petroleum products.
For Nigeria, a core oil producer/exporter, due to its queer economic situation, the pump price of petrol (Premium Motor Spirit, PMS) has almost doubled: from about N800 per litre to about N1,450 per litre, depending on the location across the country. Prices of other refined products have similarly risen substantially. As usual, these sharp price increases have driven up costs of transportation and logistics; prices of all food items; production costs of most factories, and households’ cost of living, etc.
Food insecurity that has been a torment on the Nigerian economy is also getting worse by the day, as most farmers get displaced by terrorists, insurgents, Boko Haram, and others. Food importation always comes with ‘imported inflation’ due to the in-built foreign exchange (FX) expenses. Thus, food inflation has remained a core driver of the CPI in recent years; and will continue to be.
These obviously would return the CBN to the ‘war front’ of fighting inflation — that is certain to resume its upward trajectory (from March, 2026). It is therefore not likely that the apex bank will pander to an accommodative monetary stance — and abandon its tight monetary policies. This means that the high CRR and MPR that have been constraining the credit creation capacity of the DMBs will be maintained ad infinitum. On the other hand, the apex bank is most likely to sustain offering financial assets (treasury bills, bonds, etc.) at mouthwatering rates (yields) to investors — thus, attracting huge inflows from foreign portfolio investors (FPIs). These offerings also provide investment outlets for the DMBs, such that rather than investing in the real sectors of the economy (e.g. agriculture, manufacturing, construction, etc.), the banks will keep investing in CBN’s financial instruments.
Also, the fact that Nigeria’s economic environment is not generally business-friendly, especially with high cost of funds, very poor power supply, high logistics costs, and weak consumer purchasing power — the businesses are not (usually) attractive to DMBs in terms of credit extension. Given this uncompetitive business environment, banks remain largely ‘risk-averse’ — to avoid piling up bad and non-performing loans (NPLs), owing to failing or failed businesses.
Audited annual reports of a number of major DMBs for 2025 (already released) vividly show their strong dependence on non-interest yielding activities during the year. Proceeds from their patronage of treasury bills and other CBN offerings were also shown. All these only expose the banks’ ‘minimal’ exposure to interest-yielding endeavours — loans and advances to the real sectors of the economy.
In all, advertently or otherwise, the tight monetary stance of the CBN, and its impact on the DMBs are very likely to hamper the transmission mechanism that would have enabled the banks to drive real economic development via massive credit expansion, among others. The DMBs can impact the economy only to the extent enabled by the policies of the monetary and fiscal authorities.
The CBN itself, at this time, does not have many choices other than to sustain its current stance, especially to control/manage liquidity in the system. As the 2027 general elections draw near, politicians are bound to (autonomously) inject money into the financial system, for their electioneering — from wherever — in their desperation to win elections at all costs. Such injections (of usually laundered money) will obviously cause a lot of distortions in the economy — particularly spiking inflation rate.
In this emerging murky scenario, post-recapitalisation, the DMBs will certainly be constrained in the deployment of the huge capital they raised in the past 24 months. The banks, in their best interest, must therefore remain circumspect, even as the Nigerian economy muddles through the thick fogs. For now, banks’ huge capital may not serve as the magic wand for Nigeria’s accelerated economic development.
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Marcel Okeke, a practising economist and consultant in Business Strategy & Sustainability based in Lagos, is a former Chief Economist at Zenith Bank Plc. He can be reached at: obioraokeke2000@yahoo.com; +2348033075697
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