Banks, BDCs’ recapitalisation signals strong, resilient financial system

The ongoing recapitalisation of banks and elapsed capital raising for Bureaux De Change (BDCs) point to Central Bank of Nigeria’s determination to entrench strong and resilient financial system. The Central Bank of Nigeria (CBN) Governor Olayemi Cardoso has continued to drive his vision to uphold regulatory excellence and strengthen Nigeria’s financial system. For analysts, high regulatory standards are crucial in protecting Nigeria’s financial ecosystem and ensuring its alignment with global best practices.

The elapsed recapitalisation deadline for Bureaux De Change (BDCs) and ongoing capital raising exercise for banks are geared towards achieving resilient and stronger financial system for Nigeria.

The emergence of stronger and bigger banks is one of the crucial benefits expected from the recapitalisation exercises.

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For the Central Bank of Nigeria (CBN), achieving sustainable economic growth requires strong support from the financial system. The financial sector regulator is, therefore, keen on aligning monetary and fiscal policies to achieve government’s vision of growth for businesses and $1 trillion economy size for the country.

The CBN had on March, 28, 2024 announced a two-year bank recapitalisation exercise for banks which commenced on April 1, 2024, and is expected to end on March 31, 2026.

The recapitalization plan requires minimum capital of N500 billion, N200 billion, and N50 billion for Commercial Banks with International, National, and Regional licenses respectively.

Others included merchant banks N50 billion; non-interest banks with national license N20 billion and non-interest banks with regional license will now have N10 billion minimum capital. The 24-month timeline for compliance ends on March 31, 2026.

The CBN had also raised BDCs minimum capital requirements significantly in May 2024, mandating N2 billion for Tier 1 licenses and N500 million for Tier 2, up from the previous N35 million threshold. The apex bank maintains elapsed June 3, deadline set for BDCs to achieve new minimum capital requirements stays.

According to the apex bank, it remains committed to ensuring transparency, stability, and compliance in the foreign exchange market and will continue to engage with all relevant stakeholders in accordance with its statutory mandate.

CBN Governor, Olayemi Cardoso, had explained that bank recapitalization ensures that lenders are well-capitalized, enabling them to take on greater risks, particularly in underserved markets. With stronger capital bases, banks can provide more loans and financial products to Micro Small and Medium Enterprises (MSMEs), rural communities, and other vulnerable segments that have previously struggled to access formal financial services.

Cardoso said the recapitalisation policy not only strengthens financial stability but also serves as a catalyst for inclusive growth.

“By enabling banks to extend more credit to MSMEs, we enhance job creation and productivity. Furthermore, with increased capital, banks can invest in technology and innovation, crucial for driving digital financial services such as mobile money and agent banking. These technologies are key to breaking down geographic and economic barriers, bringing financial services to even the most remote areas,” he stated.

He said Nigeria has what it takes to deepen financial inclusion, and support the growth of business and economy. He said the recapitalization exercise will also support government’s efforts to achieve $1 trillion economy.

The CBN further underscored the importance of banking recapitalisation as a major catalyst for the achievement of the $1 trillion economy agenda of the government.

President, Association of Bueaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, said BDCs will continue to remain the third level of the forex market and ensure the closing of the gap between the official and parallel market rate.

ABCON had earlier called on the CBN to review the minimum capital base for tier-1 operators to N500 million and tier-2 operators to N100 million, a suggestion that was declined.

Banking sector remains robust

Cardoso explained that the banking sector remains robust with key indicators reflecting a resilient system.

“The non-performing loan ratio remains within the prudential benchmark of five per cent, showcasing strong credit risk management. The banking sector liquidity ratio comfortably exceeds the regulatory floor of 30 per cent, a level which ensures banks are maintaining adequate cash flow to meet the needs of customers and their operations. The recent stress test conducted also reaffirmed the continued strength of our banking system,” he said.

“I am pleased to note that a significant number of banks have raised the required capital through right issues and public offerings well ahead of the 2026 deadline! I believe that the banking sector is in a strong position to support Nigeria’s economic recovery by enabling access to credit for MSMEs and supporting investment in critical sectors of our economy,” he said.

The Group Managing Director of United Bank for Africa (UBA), Mr. Oliver Alawuba, described the CBN ongoing bank recapitalisation policy as both timely and essential in positioning the financial system to meet the demands of a growing and globally competitive economy.

According to Alawuba, the initiative is expected to boost the resilience of the banking sector by strengthening its capacity to withstand economic shocks such as inflation, currency volatility, and global geopolitical disruptions. He noted that the policy will also place Nigerian banks on a stronger footing to finance the country’s long-term economic transformation, including funding of large-scale infrastructure and industrial projects.

Alawuba stressed that the recapitalisation policy goes beyond regulatory compliance. It is a forward-looking strategy aimed at equipping Nigerian banks to operate at the scale and sophistication required by a trillion-dollar economy. He said the move would enhance the sector’s ability to support both traditional economic drivers such as oil and gas, agriculture, and manufacturing, as well as emerging sectors like fintech, green energy, and infrastructure development.

“Nigerian banks need adequate capital buffers to meet the evolving demands of these sectors. Without this, the industry cannot effectively rise to the challenge,” he said.

Alawuba pointed out the sharp contrast between Nigerian banks and their counterparts in more advanced economies, where bank assets typically range between 70 to 150 percent of Gross Domestic Product (GDP). In Nigeria, bank assets accounted for just 11.97 percent of GDP as of 2024, a gap he said must be addressed if the country’s financial system is to align with international standards.

He commended the CBN’s recent directive mandating a significant increase in minimum capital thresholds, describing it as a recognition of the urgent need for stronger financial institutions capable of delivering on national priorities such as infrastructure expansion, digital transformation, inclusive financial services, and economic diversification.

Alawuba concluded that a robust, well-capitalised banking sector is critical for Nigeria’s aspiration to become a one trillion-dollar economy, and the recapitalisation drive is a step in the right direction to achieve that goal.

Fostering compliance

By fostering a strong culture of compliance and strengthening risk management frameworks, the Central Bank of Nigeria (CBN’s) leadership goal remains to protect Nigeria’s financial sector while ensuring its resilience and credibility locally and internationally.

To achieve these goals, the apex bank has reaffirmed its commitment to maintaining a transparent and resilient financial system by reinforcing regulatory compliance and risk management across Nigerian financial institutions.

The financial sector regulator recently held a high-level Mandatory Compliance and Anti-Money Laundering (AML) Training Workshop in collaboration with Citi, in Lagos.

During the event, the Special Adviser to the CBN Governor on Compliance, Ms. Shola Phillips, emphasised the need for strict adherence to global banking standards to sustain confidence in Nigeria’s financial sector.

“Regulators expect financial institutions to maintain dynamic, risk-based AML/CFT programmes that are responsive to the evolving financial environment. Proactive engagement with regulatory developments and the integration of innovative compliance solutions are essential for institutions to meet these expectations effectively,” Phillips stated.

The training, attended by compliance officers, trade operations specialists, and correspondent banking teams from various financial institutions, provided critical insights into global regulatory trends, emerging financial risks, and strategies for sustaining correspondent banking relationships.

Managing Director of Citi’s Correspondent Banking Group, Siobhan Ni Ealaithe, highlighted the critical role of robust governance frameworks in mitigating risks. She underscored the necessity of Know Your Customer (KYC), Know Your Business (KYB), and Know Your Transaction (KYT) protocols in preventing illicit financial activities.

Stephanie Bailey, Head of EMEA AML Risk Management for Foreign Correspondent Banking, provided a stark assessment of financial crime risks, noting that over $3 trillion in illicit funds flow through the global financial system annually. She urged financial institutions to strengthen due diligence measures, leverage technology-driven risk assessments, and uphold transparency in all transactions.

Speaking recently to bankers, Cardoso said the ethics and professionalism of bankers and treasurers are under constant scrutiny.

According to him, the apex bank introduced the FX Global Code for all authorized dealers and market participants to ensure full compliance with regulations.

He urged the Chartered Institute of Bankers of Nigeria (CIBN) to take the lead in upholding and demonstrating the highest standards in the industry.

“At the Central Bank, we have intensified surveillance of market activities to ensure compliance and eliminate bad actors who attempt to undermine the system. Together, we must build a market based on strong governance and transparency. As regulators, we will maintain a zero-tolerance approach to compliance violations,” he said.

Banking sector remains robust

Cardoso explained that within the banking sector, the sector remains robust with key indicators reflecting a resilient system.

“The non-performing loan ratio remains within the prudential benchmark of five per cent, showcasing strong credit risk management. The banking sector liquidity ratio comfortably exceeds the regulatory floor of 30 per cent, a level which ensures banks are maintaining adequate cash flow to meet the needs of customers and their operations. The recent stress test conducted also reaffirmed the continued strength of our banking system,” he said.

To ensure that our banking system can effectively support the growth of our economy, efforts to strengthen banks’ capital buffers were announced in 2023 with a two-year implementation window.

“I am pleased to note that a significant number of banks have raised the required capital through right issues and public offerings well ahead of the 2026 deadline! I believe that the banking sector is in a strong position to support Nigeria’s economic recovery by enabling access to credit for MSMEs and supporting investment in critical sectors of our economy,” he said.

In the same vein, Other Financial Institutions (OFIs) hold significant potential to drive productivity and economic growth by expanding access to credit and financial services for underserved individuals and businesses.

To unlock this untapped potential, the CBN aim to strengthen key institutions—particularly Primary Mortgage Banks (PMBs) and Microfinance Banks (MFBs)—to enhance their efficiency and impact.

“Our strategy includes implementing model mortgage foreclosure laws to stimulate lending and reduce delinquency, integrating PMBs and MFBs into the GSI platform to minimize non-performing loans, and leveraging Development Finance Institutions (DFIs) more effectively to provide increased on lending facilities to well-managed OFIs,” he said.

Cardoso explained that the Nigerian payments ecosystem has been ahead of many advanced economies, yet has not always received the recognition it deserves.

He said that many innovations that other countries are only now experiencing have been part of our system for years. We must celebrate these successes, as they contribute to building our global reputation. ‎