The Centre for the Promotion of Private Enterprise (CPPE) has called for an urgent shift in the focus of banking from capital strength to real sector impact, warning that the sector remains weakly connected to the productive economy despite strong progress in recapitalisation.

In a policy brief issued yesterday, the Chief Executive Officer of CPPE, Muda Yusuf, commended the Central Bank of Nigeria (CBN) for the successful and orderly implementation of the bank recapitalisation programme, noting that the exercise has strengthened the resilience and stability of the financial system.

He noted that the exercise had been non-disruptive and confidence-enhancing, with 32 banks already meeting the new minimum capital requirements as of March 27, 2026, without depositor losses, forced mergers, job losses or erosion of shareholder value.

“The exercise has been notably orderly, non-disruptive and confidence-enhancing,” Yusuf said, adding that it “reflects stronger regulatory capacity, improved market discipline and greater resilience within the banking system.”

However, he stressed that while banks are now better positioned to absorb shocks and support large transactions, the key issue is whether this strength translates into meaningful support for the real economy.

“The critical question now is whether this stronger banking system will sufficiently support the real economy. The evidence suggests that this linkage remains weak,” Yusuf said.

According to the CPPE, private sector credit as a share of gross domestic product (GDP) remains low at about 17 per cent as of 2025, falling below the sub-Saharan African average of about 25 per cent and significantly behind peer economies with stronger financial intermediation.

He expressed concern that credit constraints are more severe across key segments of the economy, particularly in consumer and small business lending.

Yusuf noted that consumer credit accounts for only about seven per cent of total credit, compared to about 15 to 25 per cent in sub-Saharan Africa, limiting domestic demand and slowing growth across sectors.

He described the situation for small and medium enterprises as more troubling, with SME credit accounting for only about one per cent of total credit, compared to about five per cent in sub-Saharan Africa, despite the sector’s significant contribution to economic output and employment.

“This represents one of the most significant weaknesses in Nigeria’s financial architecture,” Yusuf said.

He also identified structural issues in credit allocation, noting that a large share of lending is short-term, with credit of less than one year accounting for about 55 per cent of total credit, while long-term credit above three years accounts for only about 25 per cent, a structure not aligned with the needs of sectors such as manufacturing, agriculture, infrastructure and real estate.

According to him, the distribution of credit remains skewed, with the services sector accounting for about 55 per cent of total credit, while manufacturing receives about 14 per cent and agriculture about five per cent.

Yusuf attributed the disconnect between banks and the real economy to factors including high government borrowing, tight monetary conditions, elevated interest rates, and stringent collateral requirements that limit access to credit for small businesses.

He added that existing incentive structures also favour short-term, low-risk financial investments over lending to productive sectors.

With recapitalisation largely achieved, he 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 said, urging policies to boost private sector credit, de-risk lending to SMEs, strengthen monetary policy transmission, and promote long-term financing.

Yusuf also called for efforts to expand access to consumer credit and address the crowding-out effects of public sector borrowing.

While acknowledging the success of the recapitalisation exercise, Yusuf stressed that its ultimate value would be measured by how well 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 said.