Nigeria's banking sector has undergone a significant transformation with the 2026 recapitalisation exercise, which injected N4.65 trillion into the industry. This has resulted in a stronger balance sheet and bigger capital buffers for banks. However, according to DataPro, a credit rating and risk assessment firm, the industry has entered a new phase where meeting regulatory capital requirements is no longer enough. Banks are now required to demonstrate their ability to deploy capital profitably while preserving asset quality.
The recapitalisation exercise has lifted the average Capital Adequacy Ratio (CAR) of banks to 25.5 per cent. However, this stronger capital position came after a major balance-sheet clean-up, with banks writing off about N2.9 trillion in bad loans. This represents about 63 per cent of the fresh capital raised, meaning lenders must now rebuild the quality and profitability of their loan books without repeating the weaknesses that created the previous stock of non-performing loans.
DataPro has identified three major challenges for bank boards in 2027: capital requirements at the holding-company level, weak credit flow to productive businesses, and election-related uncertainty. The proposed Central Bank of Nigeria (CBN) requirement for bank holding companies to maintain a 20 per cent capital buffer could significantly alter how banks deploy their newly raised funds. This could potentially weaken returns on equity, particularly for major banking groups with international operations.
The impact of the new capital requirements could be substantial for banks such as Access Holdings and United Bank for Africa (UBA). DataPro estimates that Access Holdings may need to maintain an additional N656 billion in capital, while UBA may need N416 billion. This means banks will have to strike a delicate balance between satisfying regulatory demands and delivering stronger returns to shareholders.
Despite the banking industry's N180 trillion in assets, lending to the real economy remains relatively weak. DataPro blames this partly on the continued 45 per cent Cash Reserve Ratio (CRR), which requires banks to maintain a large portion of deposits with the CBN. Additionally, Treasury bills offering yields of around 21 per cent provide banks with relatively attractive and lower-risk investment opportunities, creating a "liquidity gravity" that draws funds towards government securities instead of loans to businesses.
The consequences of weak lending are particularly severe for micro, small, and medium enterprises, which account for about 96 per cent of Nigerian businesses but receive less than five per cent of formal bank credit. For banks, aggressive lending after the recapitalisation exercise carries its own danger, as they must expand credit without compromising underwriting standards and recreating another cycle of non-performing loans.
The ultimate test for Nigeria's banking sector will be whether the N4.65 trillion recapitalisation can deliver more than regulatory compliance. DataPro says banks should target cost-to-income ratios below 50 per cent and loan-to-deposit ratios above 65 per cent as they seek to improve efficiency and expand lending. The focus will increasingly be on banks' ability to convert stronger balance sheets into consistent earnings and productive economic activity.
Key points
- Banks must deploy fresh capital profitably while preserving asset quality.
- The proposed CBN requirement for bank holding companies to maintain a 20 per cent capital buffer could weaken returns on equity.
- Banks should target cost-to-income ratios below 50 per cent and loan-to-deposit ratios above 65 per cent to improve efficiency and expand lending.
