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IMPACT OF CBN BANKING SECTOR RECAPITALIZATION POLICY (2024–2026) ON THE PERFORMANCE AND STABILITY OF DEPOSIT MONEY BANKS IN NIGERIA

Abstract

The Central Bank of Nigeria (CBN) introduced the Banking Sector Recapitalization Policy in March 2024, mandating deposit money banks to increase their minimum capital bases by March 2026 to enhance financial resilience amid economic challenges such as inflation and volatility. This study examines the policy’s impact on the performance and stability of deposit money banks in Nigeria, focusing on indicators like capital adequacy ratios, non-performing loans, liquidity, and operational efficiency. Drawing on historical data and recent reforms, the research highlights how recapitalization strengthens banks’ ability to absorb shocks, improves risk management, and boosts investor confidence, while addressing potential challenges for smaller institutions. The findings suggest positive outcomes for overall banking soundness, with implications for economic growth. Key objectives include assessing short-term effects on profitability and efficiency, moderated by capital and liquidity requirements.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study
The Nigerian banking sector has undergone periodic reforms to enhance stability, resilience, and financial intermediation. Recapitalization policies have been particularly significant in consolidating the sector and strengthening its role in economic development. The Central Bank of Nigeria’s (CBN) recent policy, announced on March 28, 2024, mandates deposit money banks to substantially increase their minimum capital bases within a 24-month period ending March 31, 2026 (Mustapha, 2024). This initiative follows previous efforts, including the 2005 recapitalization that elevated the minimum capital requirement from N2 billion to N25 billion, resulting in a reduction of banks from 89 to 25 and marked improvements in asset quality and lending capacity (Sanusi, 2010).

The 2024-2026 recapitalization framework establishes distinct minimum capital thresholds based on licensing categories: N500 billion for international commercial banks, N200 billion for national commercial banks, and N50 billion for regional commercial banks (Oliogu, 2025). These requirements apply specifically to paid-up capital and share premium, excluding other components such as shareholders’ funds or Additional Tier 1 capital, while maintaining capital adequacy ratios (CAR) of 15% for international banks and 10% for others (Iwedi et al., 2024). This policy responds to contemporary macroeconomic challenges, including an inflation rate of 31.7% recorded in February 2024, and aligns with international regulatory standards such as Basel III, which prioritizes enhanced capital buffers for risk mitigation (Basel Committee on Banking Supervision, 2011).

Financial stability indicators from 2009 to 2024 demonstrate progress, with CAR at 12.3%, non-performing loans (NPLs) at 4.15%, and liquidity ratios at 42.7% by 2024 (CBN, 2024). Nevertheless, persistent economic vulnerabilities highlight the need for policy interventions to reinforce sector resilience. Academic research suggests that such reforms improve banks’ loss-absorption capacity, mitigate systemic risks, and facilitate credit expansion, as evidenced by the post-2005 increase in private sector credit to GDP, which reached 19.6% in 2009 (Abdul-Maliq et al., 2024). The current recapitalization strategy seeks to counteract inflationary capital erosion while enabling banks to support Nigeria’s economic ambitions, particularly in light of the nation’s comparatively low credit-to-GDP ratio of 14.1% in 2022 against the BRICS average of 90.7% (World Bank, 2023).

1.2 Statement of the Problem
The Nigerian banking sector has witnessed notable progress, yet systemic vulnerabilities persist, particularly concerning elevated non-performing loans (NPLs), liquidity constraints, and insufficient capital buffers, rendering banks susceptible to macroeconomic shocks, as evidenced during the 2020 recession and subsequent inflationary surges (Iwedi et al., 2024). The 2024 recapitalization initiative aims to address these structural weaknesses; however, smaller financial institutions encounter significant hurdles in capital mobilization, heightening risks of consolidation, regulatory downgrades, or insolvency—outcomes that may destabilize the broader financial ecosystem (Oliogu, 2025). Furthermore, disparities in capital adequacy persist: while systemic banks consistently exceed the 15.3% regulatory threshold as of 2024, sector-wide capital deficits approximating N4.2 trillion threaten operational resilience, with smaller banks demonstrating markedly lower profitability (1–2% ROA) compared to their larger counterparts (3–4% ROA) (Adegbie et al., 2025). Absent rigorous analysis, the policy’s implications for critical indicators—such as cost-to-income ratios (64% sector average in 2024) and credit expansion (10% nominal growth in 2024) remain speculative, underscoring the exigency of this investigation (Eltweri et al., 2024).

1.3 Objectives of the Study

The main objective is to evaluate the impact of the CBN’s 2024-2026 Banking Sector Recapitalization Policy on the performance plus stability of deposit money banks in Nigeria. Specific objectives include:

1. Assess the policy’s effects on capital adequacy plus risk management practices.
2. Examine changes in operational efficiency.
3. Analyze implications for financial stability indicators like non-performing loans plus liquidity ratios.
4. Identify challenges. Recommend strategies for effective implementation.

1.4 Research Questions

1. How does the recapitalization policy affect capital adequacy plus risk management practices in Nigerian banks?
2. How does the recapitalization policy change operational efficiency in Nigerian banks?
3. How does the recapitalization policy influence financial stability indicators like non-performing loans plus liquidity ratios in Nigerian banks?
4. How does the recapitalization policy reveal challenges? How does the recapitalization policy support strategies for effective implementation in Nigerian banks?

1.5 Significance of the Study

This study provides insights for policymakers, such as the CBN, on refining recapitalization strategies to minimize disruptions while maximizing stability (Abdul-Maliq et al., 2024). Bank managers can use findings to optimize capital-raising approaches, enhancing performance amid reforms. Academically, it contributes to literature on banking reforms in emerging economies, supporting future research on Basel III compliance (Basel Committee on Banking Supervision, 2011). Economically, it underscores the policy’s role in boosting credit to achieve growth targets (World Bank, 2023).

1.7 Scope of the Study

The study focuses on deposit money banks in Nigeria, covering the 2024-2026 recapitalization period. It examines performance indicators (e.g., ROA, CAR) and stability metrics (e.g., NPLs, liquidity) using data from 2011-2024, with projections based on policy implementation.

1.8 Limitations of the Study

Data availability may be constrained by the policy’s recency, relying on secondary sources and preliminary indicators. Potential biases in self-reported bank data and external economic variables (e.g., inflation) could influence generalizability. Future studies may incorporate post-2026 data for longitudinal analysis.

1.9 Definition of Terms

• Recapitalization: The process of increasing a bank’s capital base through equity injections or mergers to meet regulatory requirements (CBN, 2024).
• Capital Adequacy Ratio (CAR): A measure of a bank’s capital relative to risk-weighted assets, ensuring loss absorption (Basel Committee on Banking Supervision, 2011).
• Non-Performing Loans (NPLs): Loans in default or close to default, indicating asset quality (Iwedi et al., 2024).
• Operational Efficiency: The ability to maximize output while minimizing costs, measured by ROA and cost-to-income ratios (Adegbie et al., 2025).
• Financial Stability: The resilience of the banking system to shocks, supported by adequate capital and liquidity (Oliogu, 2025).

References

Abdul-Maliq, Y. O., Henry, Y., & Oje, T. A. (2024). Bank recapitalization in Nigeria: Why again so soon? African Banking and Finance Review Journal, 14(14), 35–51. https://www.abfrjournal.com/index.php/abfr/article/view/220

Adegbie, A. F., Oyeyemi, G. O., & Kameel, A. K. (2025). Capital adequacy and financial performance of listed deposit money banks in selected Sub-Sahara African countries. International Journal of Accounting, Finance and Risk Management, 10(3), 121-136. https://doi.org/10.11648/j.ijafrm.20251003.1

Basel Committee on Banking Supervision. (2011). Basel III: A global regulatory framework for more resilient banks and banking systems. Bank for International Settlements.

Central Bank of Nigeria (CBN). (2024). Annual Report and Statement of Accounts. Abuja: CBN.

Dikko, M. U., Alifiah, M. N., & Abdullahi, S. A. N. I. (2021). Does bank recapitalization affect the performance of the banking sector? The empirical evidence. Journal of Sustainability Science and Management, 16(3), 164-186.

Eltweri, A., Sawan, N., Al-Hajaya, K., & Badri, Z. (2024). The Influence of Liquidity Risk on Financial Performance: A Study of the UK’s Largest Commercial Banks. Journal of Risk and Financial Management, 17(12), 1-23. https://doi.org/10.3390/jrfm17120580

Isitoah, A. P., & Onuorah, A. C. (2025). Effect of bank’s financial resilience predictors on economic stability in Nigeria. IIARD International Journal of Banking and Finance Research, 11(2), 156–173.

Iwedi, M., Edeh, C. E., & Oriakpono, E. A. (2023). Bank-specific factors and financial performance of deposit money banks in Nigeria. International Journal of Management Information Systems, 27(1), 1-23.

Iwedi, M., Onah, C. E., & Leera, K. S. (2022). Non-performing loans and bank stability in Nigeria. Journal of Banking and Finance Research, 8(2), 45-67.

Iwedi, M., Wachukwu, I. P., & Barisua, P. S. (2024). CBN recapitalization policy and banking system soundness in Nigeria. International Journal of Management Information Systems, 28(4), 89-110. https://doi.org/10.5296/ijmis.v28i4.22338

Mustapha, H. (2024). Review of Minimum Capital Requirements for Commercial, Merchant, and Non-Interest Banks in Nigeria. https://www.cbn.gov.ng/Out/2024/CCD/Recapitalization_MARCH_2024.pdf

Oliogu, E. O. (2025). 2024 Recapitalization Directives and the Nigerian Banking Industry: A Policy Imperative. International Journal of Innovative Finance and Economics Research, 13(3), 80-86.

Sanusi, L. S. (2010). The Nigerian banking industry: What went wrong and the way forward. Convocation Lecture, Bayero University, Kano.

World Bank. (2023). World Development Indicators. Washington, DC: World Bank.