The Centre for the Promotion of Private Enterprise has raised concerns that Nigeria’s banking recapitalisation drive has yet to translate into stronger credit delivery to the real economy. While banks are expanding their capital base, the think tank argues that lending patterns remain structurally weak and misaligned with productive sectors.
In its latest assessment, the CPPE noted that the core problem is not simply the volume of capital in the banking system, but how that capital is deployed. It stressed that increased bank capital has not automatically improved access to finance for businesses, particularly in manufacturing, agriculture, and small enterprises.
“A major concern remains the weak transmission mechanism between monetary policy adjustments and actual lending rates in the real economy,” the CPPE stated.
Despite ongoing recapitalisation, banks are still cautious in extending credit. Structural constraints continue to limit lending, including high reserve requirements, elevated cost of funds, and persistent macroeconomic risks. These factors have kept borrowing costs high, discouraging investment in productive activities.
“Despite reductions in the MPR, lending rates to businesses remain elevated due to structural factors,” the report added.
The organisation also pointed to a broader imbalance in credit allocation. Financial flows are still concentrated within the banking system and short-term instruments rather than being channelled into sectors that drive long-term growth. This pattern reflects deeper inefficiencies in the financial intermediation process.
Data reviewed by the CPPE indicate that capital inflows and financial resources are largely directed toward portfolio investments and financial services, with limited spillover into real sector expansion. This trend reinforces a cycle where liquidity grows within the financial system without generating proportional gains in employment, productivity, or industrial output.
The group warned that such a structure creates a disconnect between financial sector strength and real economic performance. It emphasised that recapitalisation alone cannot resolve this gap without complementary reforms.
“Without stronger capital flows into industry, agro-processing, logistics, energy, and export-oriented manufacturing, the broader economy will see limited gains in employment, productivity, and inclusive growth.”
Another concern is the persistence of risk aversion among banks. Even with improved liquidity conditions, many lenders prefer low-risk government securities or deposits with the central bank rather than extending credit to businesses. This behaviour reflects both regulatory pressures and uncertainty in the operating environment.
Analysts note that Nigeria’s credit-to-GDP ratio remains significantly below global benchmarks, underscoring the depth of the problem. The limited scale of credit expansion suggests that financial deepening has not kept pace with the needs of the economy.
The CPPE therefore called for targeted policy actions to address these structural issues. It recommended easing liquidity constraints, improving credit risk frameworks, and reducing distortions caused by government borrowing. Without such measures, the benefits of recapitalisation may remain largely confined to bank balance sheets.
In conclusion, the think tank maintained that stronger banks do not automatically translate into stronger economic outcomes. The effectiveness of recapitalisation will ultimately depend on whether it drives meaningful credit expansion into productive sectors. Until then, Nigeria risks sustaining a financial system that is liquid but insufficiently supportive of real sector growth.
