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By Merit Ibe
The Centre for the Promotion of Private Enterprise (CPPE) has said that while bank recapitalisation has strengthened the resilience of Nigeria’s banking system, private sector credit relative to GDP remains low at about 17 per cent as of 2025.
This is below the sub-Saharan African average of about 25 per cent and approximately 34 per cent for lower-middle-income countries. The centre noted that this gap highlights a persistent disconnect between the financial system and the productive sectors of the economy.
In its policy brief entitled “Bank Recapitalisation: Strong progress but urgent need to reconnect banks to the real economy, CPPE Director, Dr Muda Yusuf, commended the Central Bank of Nigeria (CBN) for successfully implementing the recapitalisation programme, describing it as a milestone in strengthening banking sector stability.
However, he stressed that stronger capital positions have not translated into sufficient support for the real economy.
“The critical question now is whether this stronger banking system will sufficiently support the real economy. The evidence suggests that this linkage remains weak,” Yusuf said.
He noted that peer economies such as South Africa, Mauritius and Cape Verde demonstrate significantly stronger financial intermediation, with private sector credit levels of 57.5 per cent, 69.8 per cent and 66.3 per cent of GDP respectively.
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According to him, the situation is more concerning when broken down across sectors. Consumer credit accounts for only about seven per cent of total credit in Nigeria, compared to 15–25 per cent across sub-Saharan Africa. This, he said, limits domestic demand and constrains growth.
Credit to small and medium enterprises (SMEs) is even lower, at about one per cent of total credit, compared to around five per cent in the region. This is despite SMEs contributing about 50 per cent of GDP and over 80 per cent of employment, with an estimated financing gap of about N48 trillion.
Yusuf also highlighted structural issues in credit distribution, noting that about 55 per cent of bank lending is short-term, while long-term credit accounts for only about 25 per cent. He said this pattern does not align with the financing needs of sectors such as manufacturing, agriculture, infrastructure and real estate.
Sectoral allocation is also skewed, with services receiving about 55 per cent of total credit, compared to 14 per cent for manufacturing and just five per cent for agriculture.
He attributed the weak credit flow to factors including high government borrowing, tight monetary policy, elevated interest rates, stringent collateral requirements for SMEs and incentives that favour short-term investments.
The CPPE urged the CBN and fiscal authorities to prioritise reconnecting banks to the real economy. Recommended measures include increasing private sector credit to at least 30 per cent of GDP in the medium term, de-risking SME lending through credit guarantees, incentivising long-term financing, improving sectoral balance and expanding consumer credit.
The centre noted that while recapitalisation has strengthened banks’ balance sheets, the real test of success will be the extent to which the financial system supports 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,” the centre said.
