By Oluseyi Awojulugbe

A common theme among analysts when discussing ways to help Nigerian businesses grow is urging banks to deploy capital and loans to the real sector of the economy, as it is termed. The common statements include: “Banks need to grow their loan books, money should not be sitting idle in government securities, lending is a core function in banking”.
Simply urging banks to extend more loans to support small and medium-sized enterprises and other sectors of the economy is like trying to hold up a fully laden tray by one handle… one would surely struggle to maintain balance.

Here’s why: While lending to businesses is a core banking function, the state of the economy (read: inflation and the availability of disposable income) determines whether the debtor can meet their loan obligations.

In fact, the Central Bank of Nigeria, the apex regulator in the banking sector, tried to force banks to increase loan issuance in 2019 by increasing the loan-to-deposit ratio to 65%. This meant that banks were required to lend 65% of customer deposits as loans. Failure to do this resulted in the CBN debiting 50% of the shortfall and holding onto it as an extra credit reserve for the said bank, making the funds unavailable for the bank’s use. It is important to state at this point that this threshold has now been reduced to 50%.

Despite this, some banks did not budge, choosing to maintain somewhat clean books by selectively approving loans and accommodating the penalty. Others who did were kept on their toes by delinquent debtors who constantly craft ways of avoiding their loan obligations.

The ghosts of loans past are still with us today, with the Asset Management Corporation of Nigeria (AMCON) still chasing debtors around the block with a loanbook exceeding N4 trillion. Despite operating past its sunset date, AMCON continues to take on more of these obligors who try to defer the rainy day.

Nigeria’s tier-one banks, popularly known as FUGAZ (First Bank, United Bank of Africa, Guaranty Trust Bank, Access Bank and Zenith Bank), reported huge impairment charges in 2025, signalling that some of the loans disbursed might not be recovered.

First Bank was significantly affected. The recently released financials for the first quarter of 2026 show that Nigeria’s oldest bank is not taking it lying down. Net interest income grew by over 20% to N439 billion, indicating a bold step away from the weak loan recovery system that has plagued the banking system.

Every personality along the banking system value chain is impacted by the weak loan recovery system. Depositors feel the pinch and cannot be at peace about the safety of their funds when the bank is unable to meet short-term obligations. Intending loan applicants also face the possibility of higher interest rates and stricter collateral provisions before loans are approved. Shareholders bear the brunt when these bad loans reduce profitability and erode investments. Even the regulator bears part of the burden by having to intervene to keep the bank afloat, and the broader economy feels the impact when investor confidence is weakened, and investment flows decline.

Rather than play the victim, the bank acknowledged its bad loans and faced them head-on, a testament to the resilience that has seen it through over 130 years of being in business. Legacy non-performing exposures were fully provided for and written down as part of a balance-sheet clean-up to strengthen the base, while recovery actions continue through appropriate legal and commercial channels.

Loan recovery is not about personalities; it is a signal to the market about the consequences of lending and a confidence indicator for investors who are assured of the mechanisms in place for the continued existence (and profitability) of their investments.

The no-dividend decision by the bank’s management certainly shocked investors, especially the newcomers who are currently having a sweet time in the market due to a combination of the huge retail capital flowing into the market, the social media buzz and record-high figures reached by different stocks. However, all can now agree that the willingness to address the bad loans in the books, transparently pursue recovery rather than postpone the rainy day, is the type of accountability and credibility needed in the market and the country at large.

Banks record bad loans from time to time, but what differentiates institutions is the way it is handled. The N745 billion impairment charges reported in 2025 are not the sign of a failing business entity; it is the sign of a corporation willing to swallow the difficult pill and build towards a better day. This is already evident in the 2026 Q1 results, where the impairment charges are significantly lower at N40 billion.

The Q1 2026 results also show signs of better days to expect. Non-interest income realised from electronic banking fees and credit-related charges grew by over 100%. Interestingly, First Bank reported making ₦46.57 billion from the sale of investment securities this quarter, compared to ₦136 million in the same period in Q1 2025. The stock exchange market certainly took note of this and expressed its vote of confidence by pushing the share price higher by the close of trading. It is also important to state that the FirstHoldco stock was the best-performing tier-one bank stock on the Nigerian Exchange in April, and surged 32%.

Additional stock purchases by Femi Otedola, the bank chairman, also signal to the wider market continued confidence in the bank. Let’s also not forget the proposal to raise N253.099 billion fresh capital to build the capital base of the bank to N1 trillion; this is after meeting the CBN requirement of N500 billion to hold an international operating license.
A larger capital base for a bank means more lending power, the ability to secure foreign credit lines to support cross-border trade, and to acquire more foreign subsidiaries while gaining a competitive advantage. A solid capital base also assures investors and depositors in times of economic uncertainty and no doubt, this is how formidable institutions are built.

The performance of the other African subsidiaries, now accounting for a fifth of the group revenue, can be interpreted as a departure from the past perception that these entities were merely a line item on the books, not adding much. One daresay that these business units provide a shield and somewhat soften the blows incurred from operating in a tough business environment like Nigeria.

With some innovation while staying in line with the CBN’s regulations, transnational entities like First Bank Holding Company can transform the role of their other African subsidiaries, adapting products to the cultures of each market and reaping the bountiful rewards that will most definitely come along. This would require some work and would certainly rely on the Nigerian subsidiary to drive these initiatives.

As the months roll by and the economy stabilises further, resulting in an improved business climate, credit will be deployed to expand economic activity. It would also be of immense benefit to the sector for other entities to acknowledge the bad loans acquired over the years and strengthen loan recovery processes to collectively contribute to the growth of the sector.

Awojulugbe is a financial journalist and public policy enthusiast. She can be reached via [email protected]