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By Maduka Nweke
The N4.65 trillion injected into Nigeria’s banking industry through the 2026 recapitalisation exercise will only deliver meaningful results if banks can turn the additional capital into productive lending and sustainable earnings, credit rating agency, DataPro, has said.
The agency said the unwinding of pandemic-era regulatory forbearance had triggered an aggressive cleanup of banks’ balance sheets, resulting in N2.9 trillion in loan write-offs.
According to DataPro, the write-offs effectively consumed about 63 per cent of the fresh capital raised by the banks, making capital productivity the major risk issue for the industry going into 2027.
The agency stated this in the first edition of its Risk Quarterly Magazine, released at the weekend as part of its October monthly rating brief, which examined the 2027 outlook for the Nigerian banking industry following the recapitalisation exercise.
DataPro said the recapitalisation had lifted the industry’s average capital adequacy ratio to a strong 25.5 per cent, but warned that the stronger capital position had come at a significant cost.
It identified three major structural challenges that bank boards would have to manage in 2027, starting with what it described as a regulatory capital squeeze.
The agency said the Central Bank of Nigeria’s proposed 20 per cent holding-company buffer could tie up significant amounts of capital at the non-operating parent level, potentially reducing banks’ returns on average equity.
It said the impact would be particularly significant for internationally licensed banking groups, with Access Holdings and United Bank for Africa facing estimated additional capital requirements of N656 billion and N416 billion respectively.
DataPro also identified what it called a “productive credit trap”, saying that despite banks holding about N180 trillion in total assets, lending to the real economy remained constrained.
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It attributed the situation partly to the 45 per cent cash reserve requirement maintained by the CBN and treasury bill yields of about 21 per cent.
According to the agency, the combination has created a “liquidity gravity” that encourages banks to place funds in relatively risk-free government securities rather than lend to businesses.
It noted that micro, small and medium enterprises, which account for about 96 per cent of businesses in Nigeria, continue to receive less than five per cent of formal bank credit.
The agency also identified election-year macroeconomic volatility as a major challenge for banks in 2027.
It said the liquidity surge expected in the fourth quarter of 2026 ahead of the election cycle would coincide with the CBN’s recent 350-basis-point cut in the Monetary Policy Rate from 26.5 per cent to 23 per cent.
While describing the rate cut as a major policy shift, DataPro said the unchanged CRR would continue to limit significant expansion in private-sector credit.
It added that banks would also have to contend with uncertainties associated with the election cycle before the full benefits of monetary easing could be felt.
DataPro stressed that meeting the new minimum capital requirements would no longer provide banks with a competitive advantage, but would instead become a basic requirement for operating in the industry.
It said the market in 2027 would increasingly favour banks capable of converting their enlarged balance sheets into sustainable earnings and quality credit.
“The banks’ success will be measured strictly by the ability to optimise cost-to-income ratios below 50 per cent, push loan-to-deposit ratios above 65 per cent, and prove that post-recapitalisation credit underwriting can withstand an election cycle without generating a new wave of toxic assets,” the agency said.
