‘Lending Likely To Rise’ As CBN Confirms 33 Banks Meet Recapitalisation Targets

With the recapitalisation deadline of the Nigerian banking industry now concluded, analysts have called for a cut in the Cash Reserve Requirements (CRR) for banks to allow banks effectively mediate and provide the needed funding for the private sector to effectively grow the Nigerian economy.

This is as the Central Bank of Nigeria (CBN) announced the successful completion of its banking sector recapitalisation programme, revealing that Nigerian banks raised a total of N4.65 trillion in new capital over a 24-month period to strengthen the financial system and support economic growth.

According to the CBN, 33 banks had raised N4.65 trillion in the course of the 24-month period that the recapitalisation exercise lasted – funds, analysts say, should go into increased lending to the private sector, particularly the small and medium scale businesses who make up a large chunk of the economy.

Speaking with LEADERSHIP Friday, the chief executive of Economic Associates, Ayo Teriba stressed the need to cut the CRR to either one per cent or remove it completely, arguing that prevailing macroeconomic conditions no longer justify the tight monetary stance.

Teriba noted that while the recapitalisation exercise had successfully addressed concerns around banks’ capital adequacy, monetary authorities must now shift focus to improving liquidity transmission to the real economy.

The Manufacturers Association of Nigeria (MAN) had charged the CBN to encourage banks to increase the percentage of funds allocation to the manufacturing sector using moral suasion, noting that the government – through the CBN – would create the much-needed environment for extending long-term loans to manufacturers at single digit interest rate.

“When these are done, access to finance will improve, the cost of finance will reduce, production will be upscaled and competitiveness will be enhanced,” he explained. The conditions under which the recapitalisation policy was introduced have changed materially,” he said, pointing out that Nigeria has moved past a period marked by foreign exchange and fiscal pressures.                                                                                                                                           He explained that at the time the policy was announced, the country faced a severe foreign exchange crisis, but net reserves had since improved significantly, reducing the risk of liquidity-induced volatility in the foreign exchange market.

He further stated that the fiscal strain arising from excessive Ways and Means advances had also eased considerably, with outstanding obligations dropping sharply from previous levels. “With those two major crises largely resolved, and banks now meeting the new capital thresholds, the third concern, which is undercapitalisation, has also been addressed,” he said.

Teriba, however, expressed concern that despite these improvements, the Central Bank of Nigeria has maintained a high CRR regime, currently at 45 per cent, which he described as restrictive. He argued that the elevated CRR continues to limit banks’ ability to intermediate funds, effectively locking up significant portions of deposits that could otherwise be channelled into productive sectors of the economy.

“There is no longer a compelling justification for maintaining CRR at such elevated levels,” he said, adding that fears of excess liquidity destabilising the exchange rate are no longer valid given the current appreciation trend of the naira.

Teriba disclosed that CRR debits had surged in recent years, rising from about N14 trillion in 2023 to nearly N28 trillion as of the latest data, with additional liquidity sterilised through the apex bank’s special deposit facility.

He warned that the combined effect of these measures had constrained credit expansion, particularly to small and medium enterprises, which remain critical drivers of economic growth. “You cannot ask banks to recapitalise, mobilise deposits, and then restrict their ability to lend,” he stated.

He therefore called on the apex bank to either reduce the CRR to near-zero levels or begin to pay interest on sterilised funds, similar to the rates offered under its standing deposit facility.

According to him, allowing banks to fully intermediate their deposits would unlock credit to the private sector, boost investment, and support Nigeria’s broader economic growth ambitions.

Also, director general of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, had noted that “stronger capital buffers expand banks’ lending headroom and risk tolerance, enabling them to finance larger, more complex, and longer-tenor transactions,” particularly in manufacturing, infrastructure, energy and agriculture.

She added that while the outlook for access to finance is positive, “immediate relief in borrowing costs may be limited,” citing elevated inflation and tight monetary policy as key factors sustaining high lending rates.

Chief executive of the Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, had pointed out that the real test of the reform lies in its impact on the broader economy, warning that financial intermediation remains weak despite stronger bank balance sheets.

To him, “the ultimate success of this reform will be determined not just by stronger balance sheets, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation.”

The CBN, in a press statement issued yesterday, noted that the exercise, which commenced in March 2024, recorded robust participation from both local and foreign investors, underscoring sustained confidence in the country’s banking sector.

According to the CBN, “Over the 24-month period, Nigerian banks raised a total of N4.65 trillion in new capital, strengthening the resilience of the financial system and enhancing its capacity to support the economy.”

The CBN noted that domestic investors accounted for a larger share of the capital raised. “The programme recorded strong participation from both domestic and international investors, with 72.55 per cent of capital sourced locally and 27.45 per cent from international markets,” the bank said.

CBN Governor Olayemi Cardoso described the outcome of the exercise as a major boost to the stability of the financial system. He said: “The recapitalisation programme has strengthened the capital base of Nigerian banks, reinforcing the resilience of the financial system and ensuring it is well-positioned to support economic growth and withstand domestic and external shocks.

Providing further insight into the outcome, the CBN confirmed that 33 banks have met the revised minimum capital requirements, while a few others are still undergoing regulatory and judicial processes.

“The CBN confirms that 33 banks have met the revised minimum capital requirements established under the programme. A limited number of institutions remain subject to ongoing regulatory and judicial processes,” the statement noted.

MAN, LCCI Expect Increased Lending

The Manufacturers Association of Nigeria (MAN) has urged the CBN to encourage the  recapitalised banks to increase the percentage of funds allocated to the manufacturing sector through moral suasion, noting that the government, through the CBN, would create the much-needed environment for extending long-term loans to manufacturers at a single-digit interest rate. “When these are done, access to finance will improve, the cost of finance will reduce, production will be upscaled, and competitiveness will be enhanced.”

Also, the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Dr Chinyere Almona, says “stronger capital buffers expand banks’ lending headroom and risk tolerance, enabling them to finance larger, more complex, and longer-tenor transactions,” particularly in manufacturing, infrastructure, energy and agriculture.

She adds that while the outlook for access to finance is positive, “immediate relief in borrowing costs may be limited,” citing elevated inflation and tight monetary policy as key factors sustaining high lending rates.

Chief Executive of the Centre for Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, also  says  that the real test of the reform lies in its impact on the broader economy, warning that financial intermediation remains weak despite stronger bank balance sheets.

To him, “the ultimate success of this reform will be determined not just by stronger balance sheets, but by the extent to which the banking system supports investment, enterprise, job creation and economic transformation.”

In November 2023, just two months after his appointment, the Central Bank of Nigeria (CBN) Governor announced at the Annual Bankers Dinner in Lagos that banks must increase their capital. This was  aimed to strengthen the sector to support Nigeria’s $1 trillion economy target.

POINTS TO PONDER

2.  Before the change, minimum capital varied by bank type: international commercial banks required N50 billion; national banks, N25 billion; regional and national non-interest banks, N10 billion; merchant banks, N15 billion; and regional non-interest banks, N5 billion.
3. In March 2024, CBN raised the bar: international commercial banks to N500 billion; national banks to N200 billion; regional banks and merchant banks to N50 billion each; national non-interest banks to N20 billion; and regional non-interest banks to N10 billion.
4. The hikes were steep—900 per cent for international banks (from N50 billion to N500 billion), 700 per cent for national banks, 400 per cent for regional banks, 233 per cent for merchant banks, and 100 per cent for both national and regional non-interest banks.
5.   Banks met requirements through public offers, rights issues, private placements, and asset sales, sourcing 72.55 per cent of funds locally and 27.45 per cent internationally.

(LEADERSHIP)