Economic decision-makers are optimistic about the prospect of significant growth as financial sector regulators rally support for bank recapitalisation and foreign exchange reforms, writes FELIX OLOYEDE
When President Bola Tinubu was sworn in in 2023, he expressed his ambition to grow the economy within the next eight years.
Economic decision-makers also projected the economy can exceed a $1tn valuation during this timeframe. This has been seen as a tall order, as the economy was valued at about $363.8bn as of 2023. The Central Bank of Nigeria Governor, Olayemi Cardoso, shortly after his appointment, highlighted the crucial role the financial sector would play in helping the government to grow the economy. He stressed the need to strengthen banks to stimulate the economic activities necessary for reaching this ambitious target of a $1tn economy.
This need is particularly key given the severe foreign exchange scarcity the country has been facing, alongside the unification of the nation’s forex market in June 2013. This unification resulted in the depreciation of the local currency, significantly eroding the assets of local lenders and reducing their ability to compete with their counterparts in other African countries.
The CBN has given local lenders 24 months to raise their capital bases. In a circular issued on March 28, 2024, and signed by its then-acting Director of Corporate Communications, Mrs. Hakama Sidi Ali, the apex bank mandated commercial banks with international authorisation to increase their capital base to N500bn and national banks to N200bn. Lenders with regional authorisation and merchant banks are required to elevate their capital base to N50bn, while non-interest banks with national and regional authorisations must enhance their capital to N20bn and N10bn, respectively.
The recapitalisation has commenced, with seven banks already having raised N1.7tn as of November 2024, according to the Securities and Exchange Commission. The fresh capital raised by the lenders is expected to reach approximately N2.99tn by the end of the second tranche of the recapitalisation.
The recapitalisation exercise has spurred renewed investors’ interest in the bank sector, which has posted 3.66 per cent year-to-date returns as of Friday, March 14, 2025, outperforming the equity market, which has recorded three per cent returns this year.
Cardoso had earlier hinted to the banks on the recapitalisation agenda.
He said, “Will Nigerian banks have sufficient capital relative to the financial system’s needs in servicing a $1tn economy in the near future? In my opinion, the answer is “No!” Unless we take action. Therefore, we must make difficult decisions regarding capital adequacy. As a first step, we will be directing banks to increase their capital.
“The administration, as outlined in the widely circulated Policy Advisory Council report on the national economy, had set an ambitious goal of achieving a Gross Domestic Product of $1tn, with clearly defined priority areas and strategies.”
He emphasised that achieving the goal required sustainable and inclusive economic growth at a significantly accelerated pace, adding that the administration had already begun this process through fiscal reforms, such as the removal of petrol subsidies and the unification of the foreign exchange market rate.
Later into the recapitalisation programme, the CBN governor hinted that many lenders have recapitalised while others were seeking mergers and acquisitions to shore up their capital bases.
He explained that the apex bank had introduced the new minimum capital requirements for banks to enhance financial inclusion and promote economic growth.
“This strategic move ensures that banks are well-capitalised, enabling them to take on greater risks, particularly in underserved markets. With stronger capital bases, banks can provide more loans and financial products to micro, small, and medium enterprises, rural communities, and other vulnerable segments that have previously struggled to access formal financial services,” Cardoso asserted.
According to the CBN boss, the recapitalisation policy will strengthen financial stability and catalyse inclusive growth.
“By enabling banks to extend more credit to MSMEs, we enhance job creation and productivity. Furthermore, with increased capital, banks can invest in technology and innovation, which are crucial for driving digital financial services such as mobile money and agent banking. These technologies are key to breaking down geographic and economic barriers, bringing financial services to even the most remote areas,” he stated.
The CBN is the final signatory in a tripartite committee for capital verification, which also includes the Securities and Exchange Commission and the Nigeria Deposit Insurance Corporation.
As part of the recapitalisation guidelines, verifying the capital is essential before approving the allotment proposal and disbursing the funds to the bank for completing the offering process and incorporating the new capital into its base.
Analysts had projected that banks could mobilise approximately N5tn within the two-year recapitalisation window.
With about a year before the deadline, banks have intensified initial discussions surrounding potential business combinations.
Experts noted an increase in conversations around mergers and acquisitions as banks explore alternative strategies for raising fresh capital.
The apex bank in 2024 approved the first merger between Providus Bank and Unity Bank. Additionally, institutions like Access Holdings Plc, Ecobank Nigeria, and Jaiz Bank successfully met the newly stipulated capital requirements.
According to the Afrinvest banking sector report, the CBN’s March 2024 guideline established a revised capital framework tailored to banks with different licensing scopes. This initiative was designed to bolster the financial system and support the government’s ambition to grow the economy to $1tn by 2032.
The recapitalisation initiative was also driven by the noticeable decline in banks’ capital buffers since 2010, influenced by real and foreign exchange factors.
The report highlighted that, based on 2023 averages, the existing minimum capital requirements had diminished by 77.1 per cent and 76.5 per cent in FX and real terms, respectively. To address this gap, the CBN assessed the macroeconomic challenges affecting banks’ risk profiles and financial health when setting the new benchmarks.
The Chairman of the Parthian Group, Adedotun Sulaiman, underscored the critical importance of investments in driving economic progress, remarking that “capital is the lifeblood of the economy, and without it, advancement is impossible.”
At the unveiling of the company’s two investment funds in Lagos, Sulaiman described the initiative as a modest effort to gather the capital necessary to support the President’s bold objective of achieving a $1tn economy.
He acknowledged Nigeria’s significant capital shortfall, a challenge shared by other developing nations, and stressed the need for sufficient capital to develop infrastructure and stimulate growth. The funds aim to collect contributions from small savers, individuals, and corporations, channelling those resources to build essential infrastructure such as roads, schools, and healthcare facilities.
He further stated that this initiative represents the company’s contribution toward advancing Nigeria’s economy. While achieving the $1tn target is ambitious, Sulaiman expressed optimism, noting that such bold goals inspire effort and resourcefulness.
He emphasised that with determination and significant effort, the country could rise to meet this challenge.
For the Director-General of the Securities and Exchange Commission, Emomotimi Agama, the ongoing bank recapitalisation is an important step toward unlocking the country’s potential to achieve a $1tn economy.
“Nigeria must diversify its economy beyond oil exports and invest in key areas, such as infrastructure, human capital, and innovation. Enhancing the business environment, reducing regulatory hurdles, and promoting financial inclusion are essential to driving sustainable growth,” he enunciated.
The apex bank’s decision to recapitalise the banking sector and reform the country’s forex market is already yielding significant results. Remittances through International Money Transfer Operators surged by 79.4 per cent to $4.18bn in the first three quarters of 2024, highlighting the positive impact of forex reforms.
Furthermore, the CBN lifted the 2015 restriction of 41 items from accessing forex at the official market, a move aimed at boosting trade and investment.
These reforms underscore the bank’s commitment to fostering an inclusive economic environment. However, achieving macroeconomic stability demands continuous vigilance and a proactive monetary policy approach.
“As we transition from unorthodox to orthodox monetary policy, the CBN remains steadfast in restoring confidence, strengthening policy credibility, and focusing on its core mandate of price stability,” Cardoso reaffirmed.
In addressing inflationary pressures, the CBN took decisive action by raising the Monetary Policy Rate by 875 basis points to 27.5 per cent in 2024—an essential step to curb inflation and restore economic stability.
Analysts maintain that these measures under Cardoso’s leadership have not only stabilised the forex market but also established a strong foundation for sustainable economic growth.
Crucially, the resilience of the domestic economy, supported by a sound financial system with robust prudential indicators, reinforces confidence in the economic framework.
Key prudential ratios—including capital adequacy, liquidity, and non-performing loans—remain within regulatory thresholds, reflecting proactive oversight and strong industry risk management. Substantial credit has been extended to sectors critical to growth, such as agriculture, manufacturing, and commerce, as well as to individuals and households.
This credit expansion has played a pivotal role in stimulating economic activity and improving output performance, emphasising the critical function of financial institutions under the CBN’s guidance.
Also, the CBN has undertaken strategic initiatives to combat inflation. The apex bank recently convened the 2025 Monetary Policy Forum, bringing together fiscal authorities, legislators, private sector leaders, development partners, subject-matter experts, and scholars under the theme “Managing the Disinflation Process.”
Cardoso reiterated that the CBN’s primary focus remains on maintaining price stability, transitioning to an inflation-targeting framework, and implementing strategies to restore purchasing power and alleviate economic hardship.
The CBN continues its disciplined approach to monetary policy, designed to curb inflation and stabilise the economy.
“These actions have produced tangible results: enhanced stability in the FX market, a narrowing of exchange rate disparities, and an increase in external reserves to over $40bn as of December 2024,” Cardoso stated.
The CBN has also prioritised strengthening the banking sector by introducing new minimum capital requirements for banks, set to take effect in March 2026, to ensure resilience and position Nigeria’s financial industry for the envisioned $1tn economy.
To further enhance the efficiency of the foreign exchange market, the apex bank launched an Electronic Foreign Exchange Matching System, which has demonstrated effectiveness in other economies.
This initiative aims to mitigate distortions in the forex market, curb speculative activities, and enhance transparency. The EFEMS, a standard feature in both developed and emerging markets, provides real-time insights into currency exchange rates, trading volumes, and overall market activity.
For many stakeholders, these reforms under Cardoso’s leadership have not only stabilised the forex market and reinforced long-term financial stability but have also created a solid foundation for economic growth and business expansion.
Cardoso emphasised that the banking sector remained strong, with key indicators reflecting its resilience.
“The non-performing loan ratio remains within the prudential benchmark of five per cent, demonstrating effective credit risk management. Additionally, the banking sector’s liquidity ratio comfortably exceeds the regulatory minimum of 30 per cent, ensuring that banks maintain adequate cash flow to meet customer needs and operational demands. A recent stress test further confirmed the continued strength of our banking system,” he stated.
To bolster the banking sector’s ability to support economic growth, a plan to strengthen banks’ capital buffers was introduced in 2023 with a two-year implementation timeline.
“I am pleased to report that a significant number of banks have already raised the required capital through rights issues and public offerings, well ahead of the 2026 deadline. This puts the banking sector in a strong position to drive Nigeria’s economic recovery by expanding access to credit for MSMEs and facilitating investment in critical sectors,” Cardoso added.
The Managing Director of Financial Derivatives Company, Mr. Bismarck Rewane, stated that the banking sector’s recapitalisation exercise would mitigate the effects of higher interest rates on asset quality, profitability, and capital.
According to the economist, the country’s banking sector is well capitalised to foster economic development.
