The ongoing recapitalisation by banks is squeezing out manufacturers and other small businesses as they endeavour to raise fresh funds, writes TEMITOPE AINA
Experts express mixed views on the recapitalisation’s impact on the banking sector, with some optimistic about long-term benefits and others sceptical about immediate effects on lending practices and interest rates. As the process unfolds, the challenge remains to balance capital adequacy with the needs of SMEs, which are critical to Nigeria’s economic growth.
As the country’s banking sector undergoes a sweeping recapitalisation process, small and medium-sized enterprises are feeling the pinch. The Central Bank of Nigeria’s directive for banks to shore up their capital base has led to tightened lending conditions, raising concerns over financial inclusion and access to credit for the country’s vital SME sector.
Bold directive
In March, the CBN announced new capital requirements for the country’s banks, aimed at strengthening financial institutions and achieving President Bola Tinubu’s $1tn economic target. The directive raised the minimum capital requirement to N500bn for commercial banks with international authorization from the N25bn threshold in 2005. The apex bank pegged the new capital requirement for national banks at N200bn and N50bn for regional banks.
The move is intended to provide a robust buffer against economic shocks, positioning Nigerian banks to withstand global uncertainties better. However, while the big players in the banking sector, such as Zenith Bank, Access Bank, and Guaranty Trust Holding Company have swiftly initiated capital-raising strategies, smaller banks are struggling to keep pace.
Winners and stragglers
The recapitalisation drive has created a clear divide between stronger, well-capitalised banks and those struggling to meet the new requirements.
Fidelity Bank Plc opened its N127.10bn rights issue and public offer, becoming the first bank to go public following the recapitalisation directive of the CBN. It offered to the public 10 billion ordinary shares of 50 kobo each at N9.75 per share and a rights issue of 3.2 billion ordinary shares of 50 kobo each at N9.25 per share.
Zenith Bank has also started the process of raising N290bn in fresh capital through rights issues and public offers to bolster its expansion efforts. The bank issued 5.23 billion shares at N36 each to existing shareholders and 2.77 billion shares at N36.50 each to the public.
GTCO has announced a plan to raise N400.5bn by issuing nine billion shares at N44.5 per share as part of its strategy to fuel expansion and innovation.
Conversely, smaller banks have faced significant challenges in raising fresh capital. Some are considering one of the options the apex bank gave the lenders for meeting the new capital requirement.
To meet the new capital requirements, the CBN has outlined three options.
The options include the following; banks can raise additional capital through shareholders or investors. This is a common approach where financial institutions seek to attract more investments to meet the higher capital base.
Also, banks that struggle to raise the required capital independently may choose to merge with other banks or acquire smaller institutions to strengthen their financial position.
Lastly, some banks may opt to downgrade their banking licenses. This means a bank could shift from an international to a national or regional license, which comes with lower capital requirements but also limits its operational scope.
Some of the banks have turned to mergers and acquisitions as survival strategies. For example, in August, the CBN gave its nod to the merger of Unity Bank and Providus Bank.
Polaris Bank, which is the management of the apex bank, is also exploring the merger and acquisition option.
Even before the CBN announced the new recapitalisation, Union Bank and Titan Trust Bank successfully merged, though there were allegations of irregularities in the deal.
There were allegations that government money was used in the deal. But Titan Trust Bank has since debunked the allegations.
The bank, in a statement, explained that the transaction followed due process and met all regulatory requirements, including that of the Securities and Exchange Commission and the CBN.
“The acquisition was conducted in the most professional, open, and transparent bidding process. The acquisition was funded by a combination of debt ($300m) and additional equity injection of about $190m which was contributed by TTB’s two major shareholders – Magna International DMCC, and Luxis International DMCC.
“The Certificates of Capital Importation for both the debt and the equity financing evidencing the receipt of these funds into Nigeria by legal means have been made available where requested. The $300m acquisition facility is sourced from Afreximbank and is priced on SOFR with a margin of 6.25 per cent (all together almost 12 per cent pa) and a moratorium period of 30 months. TTB has paid interest on the loan for three interest periods (18 months so far),” Titan Trust Bank narrated.
As the 2026 deadline for the recapitalisation draws nearer, there are likely to be more merger and acquisition deals.
The Nigerian banking sector could experience a wave of consolidation similar to the post-2005 banking reforms, which saw the number of banks shrink from 89 to 25.
Analysts have predicted that the recapitalisation could lead to a more concentrated and competitive market dominated by fewer but stronger institutions.
SMEs bear the brunt
For SMEs, which account for over 48 per cent of Nigeria’s gross domestic product, according to the World Bank, the recapitalisation process has introduced new challenges. With banks focused on meeting the CBN’s capital requirements, lending policies have become increasingly stringent.
The International Finance Corporation estimated that 65 million firms, or 40 per cent of formal micro, small and medium enterprises in developing countries, have an unmet financing need of $5.2tn every year.
In a country where financial inclusion is critical for economic growth, the tightening of credit for SMEs is worrisome. These businesses, often considered the backbone of the economy, rely heavily on accessible financing to thrive.
The current credit squeeze could stifle their growth, particularly in underserved regions where financial services are already limited.
Analysts react
Financial analysts are divided on the broader implications of the recapitalisation process.
The Head of Research, FMDQ Group Plc, Vincent Nwani, viewed the new capital thresholds as realistic given the devaluation of the naira.
He said, “The realistic target set for the banks, for me, these are small money given the fact that Nigerian currency has been devalued for a year now. I don’t think the banks will have problems meeting this requirement.
“This is a difficult time in the country and drive up sale liquidation and it will drive foreign investors. Because banking licence is quite juicy, everyone will do what they can to meet up with this target.”
A Professor of Economics at Babcock University, Olusegun Ajibola, believed that meeting capital requirements needed not necessarily slow down financial inclusion efforts.
He stated, “The banks are carrying the message of encouraging the rural, low-income populace to acquire shares in banks. Some of the rural dwellers and others who are at present financially excluded may become new shareholders in the banks, driving them into the financially included portion of the populace. “Recapitalisation may reduce access to credit initially as SMEs are expected to be crowded out via concentration and diversion of funds to the bank recapitalisation exercise. However, upon completion of the recapitalisation exercise, the recapitalised banks are expected to be in a stronger position to lend to SMEs and allied businesses.”
Ajibola also noted the potential for increased shareholder value, “Recapitalisation may push up shareholder value if the banks can apply the enhanced financial resources to generate profitable and value-adding businesses.”
The former president of the Chartered Institute of Bankers of Nigeria stated that banks must avoid the creation of toxic assets in a desperate attempt to expand the risk asset portfolio.
“The recapitalisation should attract new investors, both local and foreign. However, foreign investors are generally concerned about the safety of their investments and the certainty of policy dimensions. The country needs to improve on security issues and ease of doing business to attract fresh investors into banking and other sectors of the economy.
“Banks should concentrate on all the strategic areas of their operation in the post-recapitalisation era. The board is statutorily responsible for the strategic direction of a bank and must take the lead in this corporate pursuit,” he remarked.
A Professor of Financial Economics at the American University of Nigeria, Leo Ukpong, expressed scepticism about the recapitalisation’s ability to lower interest rates or significantly enhance the competitive edge of Nigerian banks.
He remarked, “Given that recapitalisation implies raising additional equity (stocks) for the bank, invariably the assets (and equity sections) of the balance sheet will increase. Although the balance sheet of commercial banks will increase, it might not necessarily translate to an increase (aggressive) in lending activities or an increase in market share (regional expansion).”
According to the economist, the demand for loans is inversely related to interest rates, adding that if raising more equity capital leads to a decrease in interest rate, there could be an increase in lending.
Ekong added that theoretically, such a relationship was plausible.
“However, that is not the case with the current Nigerian economic realities. The reasons for high interest rates observed in Nigeria are; excessive domestic and external borrowings by the government (state and federal), and financing of government debt by the Central bank itself.
“I am not quite sure what CBN’s broader goals are for the Nigerian banking sector. However, I know that the paramount objective of any Central bank is price stabilisation, or to control inflation.
“Since the inflation experienced in Nigeria principally arises from poor fiscal policy, such as inadequate capacity to produce what we need, which leads to excess importation, and uncontrolled borrowing by the government. The CBN does not have the mandate to fix such problems, and they can do very little in influencing the banking sector to do otherwise,” he averred.
He noted that to measure the success of recapitalisation, there was a need to measure the general decline in interest and inflation rates; and how it impacts the growth of the economy and unemployment.
“I sincerely doubt if this recapitalisation exercise by CBN will produce any strategic comparative advantage to Nigerian commercial banks beyond what they already have in comparison to their West-African peers,” Ukpong posited.
Shareholders’ concerns
The recapitalisation process has also sparked discussions among investors and shareholders. With banks raising fresh capital through rights issues and public offers, there is a growing fear of share dilution. However, some shareholders remain optimistic that the capital raised will ultimately enhance profitability and increase share value in the long term.
A minority shareholder, Ariyo Olugbosun, shared his thoughts, “I believe that some banks will be able to maintain their dividend payments in the long term, even if they can’t sustain the same levels immediately. “The recapitalisation process is likely to create healthier financial institutions, which will lead to more transactional business, the creation of opportunities, and a healthier economy.
“However, in the short term, banks may face challenges in maintaining shareholder returns, as they will need to generate enough profits to pay dividends on the newly issued shares.”
Olugbosun worried that the exercise might lead to share dilution, noting, “Like many shareholders, I am concerned about potential share dilution due to new capital injections.
However, I strongly believe that if the capital raised is used wisely to enhance profitability and ultimately increase the share price, there’s no need to worry. Banks must adhere to the intended purpose of the capital raise, strengthening their financial base and creating opportunities that benefit shareholders in the long run.”
Road ahead
As Nigeria’s banking sector navigates the recapitalisation process, the stakes are high.
Banks must strike a delicate balance between meeting capital adequacy requirements, expanding their operations, and ensuring profitability.
For SMEs, the hope is that once the dust settles, a stronger banking sector will emerge better positioned to support their growth.
The CBN’s recapitalisation directive marks a critical phase in the evolution of Nigeria’s financial institutions. The coming years will reveal whether this bold move will drive the sector towards greater stability and global competitiveness, or if it will widen the gap between the well-capitalised banks and those struggling to keep up—potentially leaving the country’s vital SMEs in a precarious position.
