Banks are the most important financial intermediaries especially in developing countries and they operate in the money market segment of the financial system and provide short term funds to businesses, and which are typically tenured for one year or less, though sometimes short term funds could extend up to three years.
Despite the tight monetary policy of the Central Bank of Nigeria( CBN) and the concomitant high interest rate, Bank loans to businesses reached significant levels in 2025.
In 2024 net domestic credit by banks stood at N105.88 trillion. Personal and private sector loans stood at N470 billion in the fourth quarter Q4 2024, according to CBN. And up to September 2024, 90 percent of bank debtors reportedly used microfinance banks.
Manufacturers accessed N68.7 trillion bank loans between January to September, 2025 and it was noted that the economy grew by 4.25 percent in Q2 2025 which was said to be the strongest pace in four years and was partly driven by financial services and the telecommunication sectors.
Nigeria operates a predominant bank-based financing system as most businesses tend to source their capital through banks than through the capital market which is the other segment of the financial system that offers long term funds.
Thus, the banking system seems to be the most regulated to ensure that banks are healthy and void of any form of crisis that could lead to a loss of public confidence.
Some of the causes of crisis in the banking system include high levels of non- performing loans( NPLs), insufficient capital to cover losses, poor risk management, investment losses and poor corporate governance.
Others include underregulation or overregulation, credit risk, contagion, moral hazards etc.
Experts have noted that banking crisis occurs on the average once every 20 to 25 years and that higher capital base and liquidity requirements reduces rate of bank failure.
CBN has continued to maintain a robust framework to ensure the resilience and effectiveness of banks’ in contributing to economic growth and in preventing any form of crisis in the industry.
Over years( 2004- 2024/26), CBN has implemented two banks recapitalisation policies.
The first was in 2004 under the leadership of Professor Charles Chukwuma Soludo and it was a reactive policy measure which was necessitated by the fragility and crisis in the banking system.
It aimed to improve the fragility and deficiencies of the banking system prominent among which was low capitalisation as a result of which banks could not finance large scale projects in critical sectors of the economy.
Then, it was noted that most banks operated with a capital base of less than USD10 million before the first recapitalisation in 2004 and that the largest bank as at then had a capital base of USD240 million, compared to the USD526 million capital base for the smallest bank in developed countries, which its capital base alone was larger than all of the Nigerian commercial banks put together.
Thus, in 2004, CBN mandated banks to recapitalise from a minimum of N2 billion capital base to N25 billion and within a time frame of 18 months. The policy faced stiff oppositions from various quarters and interest groups but it was successfully implemented and it transformed the banking landscape for the better going forward.
CBN’s current banks recapitalisation policy under the Governor, Olayemi Cardoso is a proactive policy. The Governor and his team have demonstrated a good understanding of the business and economic concepts of strategic sensitivity, strategic agility, scenario thinking and scenario planning.
The current recapitalisation policy is forward- looking and preventative and aims to shape future outcome. Unlike that of 2004 which was reactive, the current one is proactive and not necessitated by any form of crisis in the banking system.
It is proactive and aims to boost resilience and strengthen the banking system for the future, enhance lending capacity, boost international competition, drive technology investment and reinforce bank capital base to support the envisioned USD1 trillion economy by 2030.
CBN, Deputy Governor, Corporate Services, Emem Usoro had noted that building a USD1 trillion economy was not easy and highlighted the strategic importance of the banks recapitalisation policy to achieve the vision.
The policy stipulates that banks in the international category would recapitalise to a minimum share capital of N500 billion, national banks, N200 billion and N50 billion for regional banks. It became effective in 2024 and the deadline is March 31, 2026 and thus far 21 banks have reported met the capital requirements.
It is expected that the recapitalisation policy will boost the net domestic credit to businesses and impact positively on the GDP.
Mckinsey and Co, a global management consulting firm has projected that the economy would attain a GDP of USD1.6 trillion in 2030 and that the economy would be one of the world’s top 20 economies.
Nwobu, a Chartered Stockbroker and Business Journalist wrote via arizenwobu@yahoo.com Tel 08033021230
