CPPE Flags ‘Severe Disconnect’ Between Banks and Real Sector as CBN Wraps Up Recapitalisation

The Centre for the Promotion of Private Enterprise (CPPE) has hailed the Central Bank of Nigeria (CBN) for what it describes as a “successful, non-disruptive and confidence-enhancing” bank recapitalisation exercise, as the programme nears completion. 

As at Friday, evidence from the exercise shows that 32 banks have met the new minimum capital requirements, with no reported depositor losses, forced mergers, job cuts or erosion of shareholder value — an outcome the CPPE says marks a clear departure from previous consolidation episodes.

While acknowledging the recapitalisation as a major milestone in strengthening the resilience, stability and shock-absorbing capacity of the banking system, CPPE warns that the financial sector remains weakly linked to the real economy. Private sector credit stands at about 17% of GDP, well below the sub-Saharan African average of 25% and far behind peer economies such as South Africa, Mauritius and Cape Verde. Consumer credit constitutes just 7% of total lending, SME credit a mere 1%, despite SMEs contributing roughly half of GDP and over 80% of employment, and facing an estimated ₦48 trillion financing gap.

The CPPE highlights structural distortions in credit allocation: about 55% of bank lending is short term (under one year), with only 25% extending beyond three years, a pattern ill-suited to sectors like manufacturing, agriculture, infrastructure and real estate. Sectorally, 55% of credit flows to services, while manufacturing receives 14% and agriculture 5%, a configuration that the group says contradicts Nigeria’s ambitions for economic diversification and industrialisation.

Identifying high government borrowing, tight monetary policy, elevated interest rates, stringent collateral requirements and incentives favouring short-term, low-risk financial investments as key barriers, CPPE calls for a “next phase” of reform focused on deepening financial intermediation. 

It recommends policy measures to lift private sector credit to at least 30% of GDP in the medium term, de‑risk SME lending through guarantees and better credit infrastructure, incentivise long-term finance for productive sectors, rebalance sectoral credit allocation, expand consumer credit, and tackle the crowding-out effects of public sector borrowing.

“The recapitalisation programme has strengthened the resilience of Nigeria’s banking system,” said CPPE Chief Executive Officer Muda Yusuf. “But the ultimate test of success is not just stronger balance sheets—it is whether banks support investment, enterprise, job creation and economic transformation. At this critical juncture, the priority must shift from capital adequacy to economic impact. Nigeria needs not just stronger banks, but banks that work for the economy.”