Banks face pressure to turn N4.65tn recapitalisation into business loans

Nigerian banks are facing pressure to translate the N4.65tn raised through the recapitalisation exercise into increased lending to businesses, particularly manufacturers, following concerns that stronger capital bases have yet to deliver the financing needed to expand domestic production.

The Chief Executive Officer of the Nigerian Economic Summit Group, Tayo Aduloju, said bank credit to manufacturers had fallen by about 34 per cent, from N8.5tn in December 2024 to N5.6tn, despite the successful completion of the recapitalisation programme.

The NESG boss said the decline in loans to manufacturers raised questions about how effectively banks were deploying their expanded capital to support productive activities and industrial development.

Aduloju spoke at the Chartered Institute of Bankers of Nigeria’s 2026 Fellowship Investiture in Lagos, where industry leaders discussed how the additional capital raised by banks could support Nigeria’s industrial transformation.

According to him, lending remains concentrated in a few sectors, with oil and gas, finance and insurance accounting for about 46 per cent of bank credit, while manufacturing receives only 8.7 per cent.

“Trade has overtaken manufacturing. So, ladies and gentlemen, we are financing import and distribution of goods more readily than their production in Nigeria,” he said.

The NESG chief executive said the imbalance meant that financing was flowing more readily into the importation and distribution of goods than into businesses that produce them locally.

He also highlighted the relatively low level of credit available to the Nigerian private sector, saying it represented only 13 per cent of Gross Domestic Product, compared with 38.1 per cent in lower-middle-income countries.

Aduloju identified high borrowing costs, liquidity constraints, lending risks and the short duration of available financing as major obstacles preventing businesses from accessing bank loans.

He said lending rates ranged from 19 per cent for prime borrowers to 32.6 per cent for other customers, while Treasury bills offered returns of about 15.5 per cent without credit risk.

The difference in returns, he suggested, made government securities more attractive to banks than lending to businesses, particularly where borrowers carried higher credit risks.

He also warned that increasing government borrowing was putting additional pressure on private-sector access to credit.

According to him, credit to the government increased by 63 per cent in the year to September, strengthening the competition between public-sector borrowing and business financing.

“When the sovereign borrows at this pace, it’s not a competition with business. It’s no competition. Government will win,” he said.

The concerns come after the banking sector mobilised N4.65tn in fresh capital through the recapitalisation programme, with 33 banks meeting the new capital requirements, according to the CIBN President and Chairman of Council, Dele Alabi.

Alabi said the recapitalisation had provided the banking industry with a stronger foundation to support economic growth, but argued that the real test would be how effectively the new capital was deployed.

He said the success of the exercise should be measured by its contribution to new industries, expanding businesses, improved infrastructure, thriving small and medium-sized enterprises and sustainable jobs.

The CIBN president said Nigeria had an opportunity to direct the stronger banking capacity towards manufacturing, agriculture, infrastructure, energy and technology.

Lagos State Governor, Babajide Sanwo-Olu,  urged banks to develop financing models that provide affordable, long-term funding for businesses.

He said manufacturers needed capital to acquire machinery, expand production and compete in international markets, while agricultural processors required financing for storage, processing and distribution.

Sanwo-Olu noted that these investments often took time to generate returns, requiring banks to develop lending arrangements that reflected the realities of businesses without compromising prudent risk management.

He also called on commercial banks to make credit more accessible to smaller enterprises, support industrial clusters, finance equipment acquisition and strengthen supply chains.