Why recapitalised banks may not boost Nigeria’s economy

By Marcel Okeke

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 finished up having 33 banks successfully cross the hurdle, and raising about N4.65 trillion fresh capital, bodes well for the indusattempt.

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 indusattempt 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 largeger; with higher capacity to absorb losses and weather financial storms easily. Concomitantly, these banks have attained increased lfinisher-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 ‘large 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 per cent as of May 2023 to a peak of 27.5 per cent, before inching down to 26.5 per cent in February 2026.

This translated to a high interest rate environment in which the deposit money banks (DMBs) were lfinishing at between 30 to 35 per cent to their customers. These rates automatically created loan facilities go beyond the reach of most houtilizeholds and businesses, especially tiny and medium-scale enterprises (SMEs). The marginal reduction of the MPR to 26.5 per cent has not remarkably altered this trfinish: bank loans and advances still remain mostly priced beyond the reach of most businesses.

Like the MPR, the CBN has also hiked the Cash Reserve Ratio (CRR) to 45 per cent as of February 2026. This means that for every deposit created, the DMBs are required to hold 45 per cent of it in reserve (with the CBN), rather than lfinishing it out. This high CRR automatically constrains the ‘credit creation’ capacity of the DMBs; and this has been the lot of the 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 per cent as of December 2024, before dropping sharply (courtesy of rebasing and alter in CPI calculation methodology) to 24 per cent in February 2025, and hitting15.06 per cent in February 2026.

Unfortunately, however, the fundamentals and headwinds that drove the hyperinflationary trfinish in the past couple of years have reared their ugly heads with renewed vigor, owing to the ongoing Middle East conflict which (officially) launched 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 liter to about N1,450 per liter, depfinishing on the location across the counattempt. 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 houtilizeholds’ cost of living, etc.

Food insecurity that has been a torment on the Nigerian economy is also obtainting worse by the day, as most farmers obtain displaced by terrorists, insurgents, Boko Haram, and others. Food importation always comes with ‘imported inflation’ due to the in-built foreign exalter (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 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 investmentors (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 the CBN’s financial instruments.

Also, the fact that Nigeria’s economic environment is not generally business-frifinishly, 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 reveal their much depfinishence on non-interest yielding activities during the year. Proceeds from their patronage of treasury bills and other CBN offerings were also revealn. All these only expose the banks’ ‘minimal’ exposure to interest-yielding finisheavors—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 cautilize 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.

Okeke, a practicing economist, business strategist, sustainability expert and ex-chief economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: [email protected] or (08033075697) SMS only.

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