Nigeria’s ₦4.65 Trillion Banking Reset: Can Stronger Banks Deliver Cheaper Credit & Sustainable Growth?
By FIDELUS ZWANSON
Beyond Recapitalisation: Nigeria’s Banks Confront the Challenge of Sustainable Growth
NIGERIA’S banking sector has completed one of its most significant capital-strengthening exercises in recent years. Yet, as lenders adjust to the new regulatory and economic environment, a more difficult question has emerged: will stronger banks translate into stronger financial performance and greater support for the wider economy?
The Central Bank of Nigeria’s recapitalisation exercise, which concluded on 31 March 2026, enabled banks to raise approximately ₦4.65 trillion in fresh capital.
The exercise was intended to strengthen financial institutions, improve their capacity to absorb economic shocks and equip them to finance larger transactions. It also formed part of the broader effort to position the banking industry to support economic growth.
However, the first nine months of 2026 have exposed the difficulties involved in turning additional capital into sustainable profits.
Several banks remain profitable, while some have recorded substantial earnings growth. Nevertheless, higher funding costs, credit impairments, operating expenses and regulatory obligations have complicated the industry’s outlook.
The emerging financial results suggest that recapitalisation has strengthened the sector’s capital base without automatically resolving its profitability challenges.
A stronger capital base does not guarantee stronger earnings
The financial performance of four major banking groups illustrates the difference between capital strength and earnings growth.
First HoldCo, Guaranty Trust Holding Company (GTCO), Access Holdings and Zenith Bank jointly recorded approximately ₦3.39 trillion in profit before tax during the first nine months of 2026.
This represented a 12.9 per cent increase from approximately ₦3 trillion in the corresponding period of 2025.
However, the individual results reveal different financial experiences.
First HoldCo reported profit before tax of ₦911.24 billion, representing a 60.84 per cent increase. Access Holdings recorded an 8.3 per cent rise to ₦667.36 billion.
Zenith Bank’s profit before tax increased by just 1.24 per cent to ₦928.80 billion. GTCO, on the other hand, recorded a decline from ₦900.80 billion to ₦879.90 billion.
These figures show that the industry’s aggregate performance does not reflect the circumstances of every institution. While some banks have expanded their earnings significantly, others are struggling to maintain previous levels of profitability.
For investors, the distinction is important. A bank’s ability to raise capital is not the same as its ability to generate recurring income, manage expenses and deliver sustainable shareholder returns.
Moreover, the source of earnings matters. Exceptional gains from foreign exchange transactions, for example, may produce impressive results in a particular period without providing a dependable foundation for future growth.
The next stage of banking reform must therefore focus on the quality of earnings rather than the size of capital raised alone.
The legacy of troubled loans remains a major obstacle
One of the most immediate challenges facing lenders is the need to clean up their balance sheets.
For years, regulatory forbearance allowed banks certain concessions in managing troubled credit exposures. These measures helped financial institutions respond to economic disruptions, including the COVID-19 pandemic and subsequent macroeconomic pressures.
However, the withdrawal of those concessions has forced lenders to recognise previously deferred credit losses and strengthen their provisioning positions.
Financial analyst Stephen Iloba explained that the reversal of forbearance has compelled banks to confront legacy asset-quality problems that had previously received regulatory relief.
The exercise has carried a substantial financial cost.
Proshare’s industry analysis estimated that loan write-offs associated with the reversal of forbearance reached approximately ₦2.9 trillion. That represents about 62 per cent of the fresh capital raised through recapitalisation.
The comparison raises a fundamental question about the immediate economic impact of the capital-raising exercise. While the new capital strengthens banks’ ability to absorb losses, the recognition of old credit problems means that lenders cannot necessarily deploy all their financial resources towards new lending opportunities.
The industry’s non-performing loan ratio also stood at 9.94 per cent at the end of March 2026, compared with the CBN’s five per cent prudential benchmark.
Such a figure highlights the importance of asset quality in determining whether recapitalisation can produce lasting improvements.
Banks must identify borrowers with genuine repayment capacity, strengthen loan monitoring and improve recovery processes. Otherwise, new credit expansion could generate another cycle of impaired loans.
This challenge is particularly relevant to businesses operating in sectors affected by high production costs, currency instability and difficult market conditions.
Oil and gas, manufacturing and agriculture remain important to the economy, but businesses in these sectors may require carefully structured financing rather than indiscriminate credit expansion.
Therefore, the quality of lending will be just as important as the volume of loans banks provide.
Monetary tightening has created a funding-cost dilemma
The CBN’s monetary policy stance has also influenced the profitability of financial institutions.
The Monetary Policy Rate remained at 26.5 per cent for much of the period under review before the September 2026 reduction to 23 per cent.
Higher interest rates can provide banks with opportunities to earn more from loans and investments. However, they also increase the cost of attracting deposits.
Banks compete for funds, particularly from corporate customers and institutional investors who can negotiate more attractive deposit rates.
As a result, interest expenses may rise faster than interest income.
Economist Cyril Amkpa explained that the difference between what banks earn from loans and investments and what they pay depositors becomes increasingly difficult to maintain when funding costs rise.
GTCO’s financial results provide an illustration. Its interest income increased by five per cent to ₦1.29 trillion during the first nine months of 2026.
However, interest expenses rose by 27.7 per cent to ₦356 billion. Consequently, the group’s net interest income declined by 1.7 per cent to ₦935.88 billion.
The figures demonstrate that higher lending and investment income does not necessarily translate into stronger net interest earnings.
Research by Chapel Hill Denham also indicated that five of seven major listed banks experienced narrower net interest margins in the first half of 2026.
This trend presents a strategic challenge. Banks must determine how to maintain attractive returns without placing excessive pressure on borrowers or paying unsustainable rates to depositors.
Reserve requirements & the availability of credit
The Cash Reserve Requirement represents another important consideration in the relationship between monetary policy and bank profitability.
The CRR determines the proportion of qualifying deposit liabilities that banks must maintain with the CBN. The supplied industry analysis puts the requirement for deposit money banks at 45 per cent during the period under review.
According to Amkpa, this requirement restricts the amount of deposit funds banks can freely deploy towards lending and other income-generating investments.
Consequently, lenders must manage the cost of deposits while complying with regulatory requirements that limit the use of some of those funds.
The situation becomes more complicated when interest rates are high. Banks may face rising deposit costs while a substantial portion of their deposit liabilities remains unavailable for unrestricted lending.
However, the CRR also serves a monetary policy purpose. By influencing liquidity in the financial system, the CBN uses reserve requirements as part of its efforts to manage inflation and maintain financial stability.
The policy challenge is therefore to balance monetary control with the need to ensure that viable businesses can access adequate financing.
For Nigeria, that balance matters because the economy requires substantial investment in production, infrastructure, agriculture, manufacturing and other productive sectors.
The end of extraordinary foreign exchange gains
Another major change in the banking industry’s earnings structure is the declining contribution of foreign exchange-related gains.
During periods of substantial naira depreciation and exchange-rate adjustments, some banks benefited from foreign exchange revaluation, trading activities and related transactions.
Those gains contributed significantly to reported earnings in previous financial periods.
However, the contribution has gradually declined. Coronation Merchant Bank’s banking sector review indicated that foreign exchange and trading gains fell from 38 per cent of sector operating income in 2023 to 14 per cent in 2025.
This development is forcing banks to rely more heavily on traditional banking activities.
Lending income, transaction charges, commissions and other recurring services must now provide a greater proportion of the industry’s earnings.
The adjustment could encourage stronger institutions to improve their core banking operations. However, it also exposes lenders that relied heavily on exceptional foreign exchange-related income.
Sustainable profitability will increasingly depend on customer relationships, effective lending, efficient payment systems and the ability to provide competitive financial services.
Tax obligations & technology costs are reshaping operations
The pressure on earnings extends beyond funding and credit costs.
Following exceptional foreign exchange gains recorded by some banks during the currency adjustment period, the government introduced a windfall tax targeting extraordinary foreign exchange profits.
Although the measure sought to capture part of those exceptional earnings, it also affected the amount available to shareholders.
At the same time, banks are spending more on personnel, digital infrastructure, cybersecurity, regulatory compliance and administrative operations.
The expansion of digital banking has increased the need for secure and reliable technology systems. Financial institutions must invest in fraud prevention, data protection, customer verification and operational resilience.
Furthermore, rising inflation has increased the cost of maintaining branches, employing skilled professionals and delivering financial services.
These expenses can erode the benefits of revenue growth. A lender may report higher income but experience weaker growth in its final earnings after accounting for interest expenses, impairments, taxes and administrative costs.
This makes cost management an important component of the post-recapitalisation strategy.
Banks must invest in technology and innovation without allowing operating expenses to grow faster than the income those investments generate.
Can recapitalisation support Nigeria’s productive economy?
Beyond the financial results of individual institutions, the broader purpose of recapitalisation remains important.
A stronger banking system should be better positioned to absorb economic shocks, finance larger transactions and support long-term investment.
However, the benefits will depend on whether banks can translate their stronger capital positions into responsible lending to productive businesses.
Small and medium-sized enterprises, manufacturers, agricultural businesses and infrastructure developers require financing that matches the realities of their operations.
Yet lenders must also protect depositors and shareholders by ensuring that credit decisions reflect borrowers’ repayment capacity.
The challenge is to expand access to finance without weakening asset quality.
Iloba emphasised that recapitalisation was primarily intended to strengthen banks’ ability to absorb losses and support economic growth. It was not designed to guarantee an immediate surge in profits.
That distinction should guide expectations among investors, regulators and policymakers.
The success of the exercise should be assessed over time through improvements in capital adequacy, asset quality, lending capacity, financial resilience and sustainable earnings.
The next phase requires discipline & strategic adjustment
Nigeria’s banking industry now faces a different set of priorities.
First, lenders must strengthen credit-risk management and address existing non-performing loans. Second, they must improve deposit mobilisation and manage funding costs more effectively.
Additionally, banks need to control operating expenses, invest strategically in technology and diversify their sources of recurring income.
Regulators must also maintain a careful balance between monetary stability and the availability of credit to productive sectors.
For investors, headline profit growth should not be the only measure of performance. The quality of earnings, net interest margins, impairment charges, capital adequacy and operating efficiency deserve equal attention.
Ultimately, recapitalisation has provided Nigerian banks with a stronger financial foundation. However, the real value of that foundation will depend on how effectively they use it.
The industry must now demonstrate that stronger balance sheets can support better lending decisions, more resilient operations and sustainable returns.
The next measure of success will therefore not be how much capital banks have raised, but how effectively they convert that capital into lasting financial strength and meaningful economic contribution.
