Nigerian Banks Strengthen Their Balance Sheets as New CBN Regulations Take Effect

Nigeria’s banking sector appears to be entering a phase of renewed stability following the implementation of the Central Bank of Nigeria’s recapitalisation and liquidity reforms introduced in early 2025.

According to industry analysts and early financial filings, most Tier-1 and Tier-2 banks are reporting stronger balance sheets, higher liquidity ratios, and improved capital adequacy levels, all signs of a healthier financial sector capable of supporting economic growth.

Background: Why the CBN Introduced New Capital Requirements

The recapitalisation push was prompted by several issues:

• Sustained inflationary pressure eroding banks’ real capital
• FX volatility creating revaluation risks
• Rising non-performing loans in sectors like oil and gas
• Increased need for banks to support infrastructure and private-sector credit
• Nigeria’s goal to meet international Basel III standards

The CBN’s directive required banks to significantly increase their shareholder funds and strengthen their risk-management frameworks within a structured timeframe.

How Banks Responded

Commercial banks used a combination of strategies to meet the new capital thresholds:

1. Rights Issues and Public Offers
   Several banks raised billions from existing and new investors, marking one of the most active capital-market seasons in Nigeria since 2007.
2. Mergers and Acquisitions (M&A)
   A handful of mid-sized banks initiated consolidation conversations, though no major merger has been concluded yet. Analysts expect at least two mergers in 2026.
3. Retained Earnings
   Some banks diverted profits to boost equity rather than paying out large dividends.
4. Asset Revaluation and FX Gains Management
   Banks with foreign operations benefited from FX translation gains, which were reinvested into their capital base.

Key Improvements Seen Across the Sector

1. Higher Capital Adequacy Ratios (CAR)

Most Tier-1 banks now report CAR levels above 18%, comfortably above the CBN’s minimum requirement. This creates a stronger shock-absorption buffer for economic volatility.

2. Improved Liquidity Positions

Liquid asset ratios rose sharply due to:

• Clearing of FX obligations by the CBN
• Lower demand for emergency liquidity assistance
• Improved access to international credit lines

This allows banks greater flexibility to support lending and withstand market pressure.

3. Reduction in Non-Performing Loans (NPLs)

The industry NPL ratio dropped to a projected 3.9%, the lowest since 2016. Aggressive loan restructuring, better credit monitoring, and write-offs contributed to the improvement.

4. Better Foreign Investor Sentiment

International investors who previously exited Nigerian banking stocks are gradually returning, encouraged by clearer regulation, better FX transparency, and lower systemic risks.

Impact on Customers and Businesses

A stronger banking system has several practical implications for the economy:

• More credit availability for SMEs
• Lower system-wide lending risks
• Greater confidence in digital banking infrastructure
• Potential for lower lending rates once macroeconomic conditions stabilise
• More robust support for sectors like agriculture, manufacturing, and renewable energy

Banks have started rolling out new SME-focused loans, trade-finance products, and mortgage initiatives as part of the pressure to deepen real-sector penetration.

Remaining Concerns

Despite the positive signals, the banking sector still faces headwinds:

• High interest rates continue to limit borrowing
• FX risk remains elevated due to global uncertainties
• Cybersecurity threats are increasing as digital banking expands
• Consumer complaints about charges and service downtime persist
• Cost-to-income ratios remain high for some Tier-2 banks

Experts warn that while recapitalisation strengthens the structural core, banks must continue improving customer service, operational efficiency, and credit innovation.

The Road Ahead

Analysts expect the following trends to shape Nigeria’s banking sector over the next 12–18 months:

1. More mergers and acquisitions among mid-sized banks
2. Greater adoption of AI-driven credit risk tools
3. Expansion of dollar-based products for high-net-worth clients
4. Growth in agency banking targeting rural communities
5. Improved mortgage and consumer-finance products

The CBN is expected to release updated supervisory guidelines in 2026 to consolidate progress.

Early evidence shows that Nigeria’s banking recapitalisation programme is achieving its intended results. Banks are stronger, liquidity is healthier, investor sentiment is improving, and the financial system is becoming more resilient. The next challenge is ensuring that these reforms translate into more accessible credit, stronger business growth, and improved customer experiences.