Stronger capital lifts Nigerian banks outlook

At the centre of this shift is the Central Bank of Nigeria’s recapitalisation directive, announced in 2024, which requires commercial banks to raise fresh capital by 31 March 2026. The regulator increased minimum capital thresholds across banking licence categories, setting ₦500bn for international banks, ₦200bn for national banks and ₦50bn for regional lenders. The policy aims to bolster financial stability, enhance resilience against external shocks and support Nigeria’s ambition to build a $1tn economy over the coming decade.

Since the announcement, leading lenders including Access Holdings, Zenith Bank, United Bank for Africa, Guaranty Trust Holding Company and First Holdco have moved to shore up capital through rights issues, private placements and public offerings. Several transactions have been oversubscribed, reflecting sustained appetite from domestic institutional investors and, in some cases, offshore participants seeking exposure to Africa’s largest economy.

Chapel Hill Denham analysts argue that the recapitalisation exercise has triggered a broader strengthening of balance sheets. Many banks entered the process with capital adequacy ratios already above regulatory minimums, aided by robust profitability and prudent risk management. The firm notes that retained earnings have played a significant role in cushioning capital positions, even as lenders navigate currency volatility and inflationary pressures.

Nigeria’s macroeconomic environment remains challenging. Inflation has hovered at elevated levels, driven by exchange rate adjustments and subsidy reforms, while policy rates have climbed as the central bank seeks to contain price pressures. The Monetary Policy Committee has raised the benchmark rate multiple times over the past year, pushing borrowing costs higher. Despite this, the banking sector has maintained solid asset quality metrics relative to historical stress periods.

Non-performing loan ratios across tier-one banks have generally remained within regulatory thresholds, supported by disciplined underwriting and selective exposure to higher-risk sectors. Energy, manufacturing and telecommunications continue to attract lending, while banks have tightened risk controls in areas vulnerable to currency mismatches. Analysts say that improved provisioning coverage and diversified income streams, including fees from digital banking and trade finance, have enhanced earnings resilience.

Chapel Hill Denham points to expanding net interest margins as a key driver of profitability. Higher policy rates have allowed banks to reprice assets more quickly than liabilities, widening spreads. Although funding costs have risen, particularly for institutions reliant on wholesale deposits, strong retail franchises have provided relatively stable and low-cost funding bases for market leaders.

Digital transformation has also reshaped competitive dynamics. Investment in mobile platforms, agency banking networks and fintech partnerships has deepened financial inclusion and broadened deposit mobilisation. Nigeria’s youthful, tech-savvy population has accelerated adoption of digital channels, reducing transaction costs and generating non-interest revenue. Analysts contend that scale advantages in technology and branch networks will increasingly differentiate well-capitalised banks from smaller rivals struggling to meet new capital thresholds.

Market performance reflects this evolving narrative. Banking stocks on the Nigerian Exchange have experienced periods of volatility amid broader market swings, yet valuations remain attractive compared with historical averages and peer markets. Dividend yields from leading banks continue to draw local pension funds and asset managers seeking income in a high-inflation environment.

Foreign portfolio flows, which retreated during episodes of currency instability, have shown signs of selective re-engagement as exchange rate reforms gain traction. A more transparent foreign exchange regime, alongside efforts to clear backlogs of unmet dollar demand, has been cited by market participants as a positive development. Analysts caution, however, that sustained macroeconomic stability will be crucial to unlocking larger inflows.

Consolidation remains a possibility as the recapitalisation deadline approaches. Smaller lenders may pursue mergers or strategic alliances to meet capital requirements, potentially reshaping the industry’s structure. Past consolidation waves, notably in the mid-2000s, resulted in stronger institutions with regional footprints. Observers suggest that a similar dynamic could emerge if weaker players opt for combinations rather than standalone capital raising.