World Bank backs bank recapitalisation to bridge Nigeria’s credit gap

Nigeria’s push to recapitalise its banks could help unlock credit to businesses and households, narrowing a long-standing intermediation gap that has constrained economic growth, the World Bank said, as authorities seek to strengthen lenders after sweeping currency and fiscal reforms.

“The financial sector has to intermediate capital so that it leads to a growing economy, women and farmers are prospering and households are prospering,” Mathew Verghis, country director, World Bank in Nigeria said at an economic roundtable event organised by Agusto&Co on Thursday.

“Small balance sheets cannot finance big ambition. The $1 trillion GDP target requires a strong financial sector.”

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Private-sector credit in Nigeria remains low by international standards, with the credit-to-GDP ratio hovering well below both the sub-Saharan average and emerging-market peers, highlighting structural shortfalls in financial intermediation that have constrained corporate investment and job creation.

Africa’s most populous economy’ credit-to-GDP ratio stood at a staggering 21 percent in 2024. That dwarfs peer countries like South Africa, Brazil, Indonesia, Mexico and even Kenya with 91 percent, 76 percent, 36 percent, 35 percent and 32 percent respectively credit to private sector.

That shortfall highlights why the World Bank has supported reforms to strengthen banks’ capital bases and expand lending capacity to micro, small and medium enterprises (MSMEs) who make up about 97 percent of businesses and contribute about 50 percent to the economy.

“If the banking sector can start reaching MSMEs in a more significant way, then you will start to see a real impact in the economy,” Verghis said.

Nigerian banks are racing to meet the new capital requirements mandated by the central bank, a policy shift that is expected to strengthen the lenders’ resilience against shocks and enable them to contribute to the country’s $1 trillion economy by 2030.

The recapitalisation exercise, which began in 2024, sets N500 billion for commercial banks with international authorisation, N200 billion for national banks, and N50 billion for regional banks. For non-interest banks, the thresholds are N20 billion (national) and N10 billion (regional).

In less than 50 days to the March 31 2026 deadline, 25 out of 38 commercial, merchants and non-interest banks have successfully met the capital requirements with N2.5 trillion raised across the banking sector, according to data from Agusto&Co.

The recapitalisation echoes a 2004 exercise under then-CBN governor Charles Soludo, which forced banks to raise capital to N25 billion from N2 billion. That consolidation cut the number of lenders from 89 to 25 and paved the way for stronger players to emerge.

Stronger banking sector aids GDP growth rate

Roosevelt Ogbonna, managing director of Access Bank Plc, said there is ample historical evidence linking stronger banking systems to economic expansion.

Pointing to the period between the mid-1990s and 2007 when Nigeria recorded average annual growth of 7 percent to 8 percent, with peaks of about 12 percent Ogbonna said the expansion coincided with a recently recapitalised banking industry that had the balance-sheet strength to fund private-sector investment.

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“What you had was a government focused on creating an enabling environment and a banking industry with a war chest to support the private sector,” he said. Stronger capital buffers, he argued, allow banks to finance infrastructure, support capital accumulation in manufacturing and provide liquidity to households, thereby reinforcing broader macroeconomic stability.

Ogbonna added that the quality of capital matters as much as the size. Well-capitalised banks with strong liquidity positions are better able to absorb shocks in an environment where economic cycles have shortened and crises occur more frequently.

“Banking is always about capital and liquidity,” he said. “If the quality of capital is strong, banks have the absorptive capacity to withstand shocks and continue supporting economic actors.”

Wasiu Alli is a business and economics journalist with more than two years experience covering macro trends, government policies, corporate earnings and comparative economics analysis. Alli turns raw data into trends that not only tells compelling stories but nudges investors to make valued and informed decisions. An alumnus of Lagos State University and trained at Lagos Business School, he heads the Companies and Markets desk at BusinessDay where he writes and supervises the production of well researched articles on earnings updates, corporate sectoral comparisons, market intelligence as well as interviews with C-suite executives.

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