CPPE Advocates for Real Sector Emphasis as Bank Recapitalisation Concludes
The Centre for the Promotion of Private Enterprise (CPPE) has issued a pressing call for a fundamental shift in Nigeria's banking focus, moving from capital strength to tangible impact on the real economy. This appeal comes as the bank recapitalisation programme nears completion, with the organisation warning that the financial sector's connection to productive activities remains tenuous despite significant progress in bolstering capital bases.
Recapitalisation Success and Regulatory Strength
In a policy brief released recently, Dr. Muda Yusuf, Chief Executive Officer of CPPE, commended the Central Bank of Nigeria (CBN) for the orderly and successful implementation of the recapitalisation initiative. He highlighted that the exercise has enhanced the resilience and stability of the financial system without causing disruptions. As of March 27, 2026, thirty-two banks have already met the new minimum capital requirements, achieving this milestone without depositor losses, forced mergers, job cuts, or erosion of shareholder value.
"The exercise has been notably orderly, non-disruptive and confidence-enhancing," Yusuf stated. He added that it "reflects stronger regulatory capacity, improved market discipline and greater resilience within the banking system." This progress positions banks better to absorb economic shocks and support large-scale transactions, but Yusuf emphasised that the critical issue lies in whether this fortified strength translates into meaningful support for the real economy.
Weak Linkages to Productive Sectors
Yusuf expressed concern over the persistent weakness in financial intermediation, noting that private sector credit as a share of gross domestic product (GDP) remains low at approximately 17 per cent as of 2025. This figure falls below the sub-Saharan African average of about 25 per cent and lags significantly behind peer economies with more robust financial systems. He pointed out that credit constraints are particularly severe in key segments, such as consumer and small business lending.
Consumer credit accounts for only around seven per cent of total credit in Nigeria, compared to 15 to 25 per cent in sub-Saharan Africa, which limits domestic demand and hampers growth across various sectors. The situation for small and medium enterprises (SMEs) is even more troubling, with SME credit making up merely about one per cent of total credit, versus approximately five per cent in sub-Saharan Africa. This disparity exists despite SMEs' substantial contributions to economic output and employment.
"This represents one of the most significant weaknesses in Nigeria's financial architecture," Yusuf remarked, underscoring the urgent need for improvement.
Structural Issues in Credit Allocation
Yusuf also identified structural problems in how credit is allocated, noting that a large proportion of lending is short-term. Credit with maturities of less than one year accounts for about 55 per cent of total credit, while long-term credit exceeding three years constitutes only around 25 per cent. This structure is misaligned with the needs of critical sectors such as manufacturing, agriculture, infrastructure, and real estate, which often require longer financing horizons.
Furthermore, the distribution of credit remains skewed, with the services sector receiving about 55 per cent of total credit, while manufacturing obtains approximately 14 per cent and agriculture only about five per cent. Yusuf attributed this disconnect between banks and the real economy to several factors, including high government borrowing, tight monetary conditions, elevated interest rates, and stringent collateral requirements that restrict small businesses' access to credit.
He added that existing incentive structures tend to favour short-term, low-risk financial investments over lending to productive sectors, exacerbating the issue.
Call for New Phase of Reforms
With recapitalisation largely achieved, Yusuf called for a new phase of reforms focused on deepening financial intermediation and improving credit flow to the real economy. "The priority must shift from capital adequacy to economic impact," he asserted, urging policymakers to implement measures that boost private sector credit, de-risk lending to SMEs, strengthen monetary policy transmission, and promote long-term financing.
He also advocated for efforts to expand access to consumer credit and address the crowding-out effects of public sector borrowing, which can stifle private investment. While acknowledging the success of the recapitalisation exercise, Yusuf stressed that its ultimate value will be measured by how effectively the banking system supports investment, enterprise, and job creation.
"At this critical juncture, the priority must shift from capital adequacy to economic impact. Nigeria needs not just stronger banks, but banks that work for the economy," he concluded, highlighting the imperative for a more inclusive and growth-oriented financial sector.
