The Nigerian banking sector is undergoing significant recalibration to support the ambitious goal of growing the economy to the $1 trillion target. From recapitalisation, prudential guidelines, foreign exchange reform, liquidity management, and monetary policy support, the Central Bank of Nigeria (CBN) has also thrown its hat into the race to achieve the $1 trillion economy target. With banks racing to meet new capital requirements, secure foreign investments, and deepen credit access, HELEN OJI examines Nigeria’s banking sector’s readiness and the challenges ahead.

The Federal Government’s bold ambition of transforming Nigeria into a $1 trillion economy by 2030 has created a ripple effect across various sectors. At the heart of this economic transformation is the financial services industry, particularly the banking sector, which is expected to provide the necessary capital, liquidity and financial infrastructure to drive growth.

The Central Bank of Nigeria (CBN), under the leadership of Governor Olayemi Cardoso, has responded with sweeping reforms to ensure the banking sector is well-positioned to support the vision. From bank recapitalisation and foreign exchange reforms to inflation control and financial inclusion strategies, the measures are designed to strengthen the financial system and lay the foundation for sustainable growth.

The push for more capitalised banks
When Governor Cardoso announced the need for a fresh round of bank recapitalisation nearly two years ago, many industry stakeholders were sceptical. However, the reality of Nigeria’s economic trajectory made the move inevitable. He argued that the current capital base of banks was insufficient to support the financial needs of a $1 trillion economy.

To address this, the CBN launched a two-year recapitalisation programme in April 2024, setting new minimum capital requirements: N500 billion for international banks, N200 billion for national banks and N50 billion for regional banks. The deadline for compliance is March 2026 and the race is well underway with many banks said to have recorded the needed breakthrough.

Some banks, like Access Holdings, Ecobank Nigeria and Jaiz Bank, have already met the new capital thresholds, while a few are seeking mergers and acquisitions to strengthen their financial standing. The first major deal approved by the CBN was the merger between Providus Bank and Unity Bank in 2024, signalling a wave of consolidation expected to continue as the deadline approaches.

Beyond financial stability, the recapitalisation exercise is expected to stimulate economic activity. With stronger balance sheets, banks can extend more credit to micro, small and medium enterprises (MSMEs), fund critical infrastructure projects and support emerging industries. The increased capital also enables banks to invest in technology and innovation, essential for expanding financial inclusion and digitising the economy.

Liquidity and strength of the banking system
While the recapitalisation push is necessary, it is only one part of the equation. Banks’ ability to provide liquidity and facilitate credit expansion is crucial for economic growth. Despite macroeconomic challenges, Nigeria’s banking sector remains resilient, with key indicators pointing to a sound financial system.

According to the CBN, major prudential ratios such as capital adequacy, liquidity, and non-performing loans (NPLs) remain within acceptable limits. Banks’ liquidity ratios are well above the regulatory minimum of 30 per cent, ensuring that they can meet their financial obligations. Similarly, the NPL ratio is below the five per cent benchmark, reflecting strong credit risk management and regulatory oversight.

With increased capital, banks are expected to deepen their lending activities, particularly in sectors critical to economic growth. Already, there has been significant credit expansion in agriculture, manufacturing and general commerce, as well as increased access to consumer loans. This injection of credit is vital in stimulating productivity, creating jobs and driving overall economic expansion.

Monetary policy, FX reform
For Nigeria to achieve a $1 trillion economy, it is not enough for banks to be well-capitalised. But also importantly, the overall monetary environment must be stable and predictable. Under Cardoso’s leadership, the CBN has transitioned from unorthodox monetary policies to a more conventional approach aimed at restoring investor confidence.

One of the major steps taken was lifting restrictions on 41 previously banned items from accessing foreign exchange at the official market. This move, coupled with reforms in the foreign exchange market, has led to improved liquidity and a more transparent FX system. The introduction of the Electronic Foreign Exchange Matching System (EFEMS) has further enhanced efficiency by providing real-time information on exchange rates and market activity.

The results have been encouraging. Official remittances through international money transfer operators (IMTOs) surged by 79.4 per cent to $4.18 billion in the first three quarters of 2024, clearly indicating that confidence in the FX market is gradually being restored.

Additionally, Nigeria’s external reserves climbed to over $40 billion by the end of 2024, providing a stronger buffer against external shocks.

In tackling inflation, the CBN raised the monetary policy rate (MPR) by 875 basis points to 27.5 per cent in 2024, a move designed to curb inflationary pressures and stabilize the economy. While higher interest rates have made borrowing more expensive, they have also helped to control excess liquidity and moderate price increases.

Regulatory oversight and future banking
A key factor in ensuring the banking sector’s readiness for a $1 trillion economy is strong regulatory oversight. The CBN, in collaboration with the Securities and Exchange Commission (SEC) and the Nigeria Deposit Insurance Corporation (NDIC), said it is closely monitoring the recapitalisation process to ensure compliance and prevent systemic risks.

The regulators with the benefit of hindsight may be under pressure to prevent a repeat of the 2008 financial crisis. The banks became too big and awash with so much liquidity that the majority threw caution to the wind and lowered risk management standards. What followed was a torrent of failed mega credits that weakened the financial positions of major operators and triggered a major crisis.

The establishment of a tripartite capital verification committee by the CBN, SEC and NDIC is to ensure that funds raised during the recapitalisation process are properly accounted for and used to strengthen banks’ capital positions. This level of oversight is crucial in maintaining financial stability and preventing past mistakes that led to bank failures.

Beyond traditional banks, the CBN is also looking at the role of other financial institutions (OFIs), such as microfinance banks (MFBs) and primary mortgage banks (PMBs), in driving financial inclusion. Strengthening these institutions will provide more Nigerians, especially those in rural and underserved communities with access to credit and financial services.

The acid test
Despite the progress made, significant challenges remain. The ability of banks to raise the required capital within the stipulated time frame will be a major test. Global economic uncertainties, fluctuating oil prices and foreign exchange volatility could impact investor sentiment and the willingness of foreign investors to inject funds into the sector.

However, the opportunities outweigh the risks. A well-capitalised and liquid banking sector will not only support Nigeria’s economic growth but also position the country as a leading financial hub in Africa. Increased credit to MSMEs, enhanced digital banking services and improved corporate governance will create a more vibrant and competitive economy.

As CBN and other regulators continue industry-wide reforms, the banking sector is gradually being transformed into a more resilient and globally competitive industry. The journey to a $1 trillion economy may be ambitious, but with the right financial structures in place, it is a goal that is increasingly within reach.

Need for collective action
Industry leaders believe that while the banking sector is making significant strides, achieving a $1 trillion economy will require more than just financial reforms. Chairman of Parthian Group, Adedotun Sulaiman, emphasised that capital investment remains the backbone of economic expansion. “Capital is the oxygen of the economy. Without sufficient capital, we cannot go very far,” he stated.

He highlighted the need for more innovative financial products to mobilize savings and direct investments toward infrastructure and business expansion.

Other analysts stressed that corporate governance reforms are critical to ensuring long-term economic stability. They argued that Nigeria must align with international best practices to attract sustainable foreign investment.

“It is not just about increasing bank capital; we must also ensure that governance structures in both the public and private sectors foster transparency and accountability,” said a financial expert, Collins Okwe, at a recent economic summit.

With continued collaboration between policymakers, financial institutions, and investors, the dream of a $1 trillion economy may no longer be a distant aspiration but an achievable reality.