Nigeria's banking sector has emerged from a sweeping recapitalization drive with stronger balance sheets and renewed investor confidence, yet the promised benefits for the real economy remain largely elusive. While 32 banks have met revised minimum capital requirements, the CPPE said this financial strengthening has not translated into meaningful support for small and medium enterprises, which face a substantial financing gap.
Small businesses—which account for about half of Nigeria's GDP and more than 80% of employment—receive only about 1% of total bank credit, against a sub-Saharan African average of about 5%, the CPPE said. Private sector credit stood at about 17% of GDP in 2025, against averages of about 25% in sub-Saharan Africa and around 34% in lower-middle-income countries.
SHORT-TERM LENDING DOMINATES
The structure of bank lending reveals the core problem. Credit with maturities of less than one year accounts for about 55% of total credit, while long-term credit accounts for only about 25%, the CPPE said. This structure is not aligned with the financing needs of critical sectors such as manufacturing, agriculture, infrastructure and real estate, the CPPE said.
The sectoral allocation reinforces the concern. Services account for about 55% of total bank lending, while manufacturing receives about 14% and agriculture about 5%. The CPPE said this allocation is inconsistent with Nigeria's economic diversification and industrialisation goals.
GOVERNMENT CROWDING OUT PRIVATE SECTOR
The CPPE attributed weak lending partly to high government borrowing, as banks allocate a significant share of their portfolios to relatively risk-free public sector instruments. This has created a persistent crowding-out effect, where private sector borrowers struggle to compete for available funds. The CPPE also cited a tight monetary policy environment and elevated interest rates.
Risk perception presents another barrier. Stringent collateral requirements also limit SMEs' access to credit, the CPPE said.
RECAPITALIZATION WITHOUT REWIRING
Banks are stronger and better capitalized, yet credit remains largely short-term and concentrated in the services sector, the CPPE's figures show. The CPPE also pointed to incentive structures within the financial system that favour short-term, low-risk investments over long-term lending to productive sectors.
The CPPE called for a shift in policy focus from capital adequacy to credit expansion, urging authorities to raise private sector credit to at least 30% of GDP in the medium term.
The recapitalization process, initiated by the Central Bank of Nigeria in 2024, aimed to bolster the resilience of the banking sector amid economic pressures. International and domestic investors participated in rights issues and public offers, enabling several tier-1 banks to exceed the new capital threshold for commercial banks with international authorisation, set at N500 billion.
SMEs, vital to employment and GDP contribution, continue to grapple with access barriers.
CPPE has called for expanded credit guarantees for SMEs, stronger monetary policy transmission, incentives for longer-term lending and less public-sector crowding-out.
“The priority at this stage,” CPPE chief executive Muda Yusuf said, “must shift from strengthening bank balance sheets to ensuring that banks effectively support the real economy.”