CPPE urges CBN to focus on reconnecting banks to real economy

Centre for Promotion of Private Enterprises, CPPE, has expressed concern on the CBN not focussing on linking banks lending to the real economy.

He said that the capital strength of banks has been achieved through recapitalization but real sector linkages remain weak.

According to him while recapitalisation has significantly strengthened the capacity of banks to absorb shocks, support large-ticket transactions and enhance financial system stability, the critical question now is whether this stronger banking system will sufficiently support the real economy. 

“The evidence suggests that this linkage remains weak. Private sector credit as a percentage of GDP in Nigeria is still only about 17% as of 2025, compared to a sub-Saharan African average of about 25% and approximately 34% for lower-middle-income countries.

Peer economies such as South Africa (57.5%), Mauritius (69.8%) and Cape Verde (66.3%) demonstrate significantly stronger financial intermediation.

“This gap underscores a persistent structural disconnect between the financial system and productive sectors of the economy

“Severe credit constraints in the real economy: the situation is even more concerning when disaggregated across key segments of the economy. 

“Consumer credit in Nigeria remains extremely low at about 7% of total credit, compared to a sub-Saharan African average of 15–25%. This weak consumer credit environment constrains domestic demand and limits growth prospects across multiple sectors.

“More critically, credit to small and medium enterprises (SMEs) is alarmingly low. SME credit accounts for only about 1% of total credit, compared to an average of about 5% in sub-Saharan Africa. 

“This is particularly troubling given that SMEs contribute approximately 50% of GDP and over 80% of employment, with an estimated financing gap of about ₦48 trillion [according to PWC].

This represents one of the most significant weaknesses in Nigeria’s financial architecture.

“The Next Phase of Reform: Deepening Financial Intermediation – With recapitalisation largely achieved, the CPPE urges the Central Bank of Nigeria and the fiscal authorities to prioritise the next critical phase of reform—reconnecting the banking system to the real economy.

“This should include deliberate policy measures to:Increase private sector credit as a percentage of GDP to at least 30% in the medium term; De-risk lending to SMEs through credit guarantees and improved credit infrastructure; Strengthen monetary policy transmission to ensure lower policy rates translate to real sector lending; Incentivise long-term financing for productive sectors.

“Promote a more balanced sectoral allocation of credit; Expand access to consumer credit to stimulate aggregate demand; and address the crowding-out effects of public sector borrowing.”

The CPPE’s Executive Director, Dr Muda Yusuf in a statement on recapitalization issued by the Centre said the exercise has been notably orderly, non-disruptive and confidence-enhancing with an indication that 32 banks have already met the new minimum capital requirements as at Friday 27th March 2026.

Dr Muda said the successful implementation of the policy by CBN marks a significant milestone in the ongoing effort to strengthen the resilience, stability and capacity of the Nigerian banking system, saying that the exercise has been notably orderly, non-disruptive and confidence-enhancing. 

Adding that there was no reports of depositor losses, forced mergers, job losses or erosion of shareholder value. 

“This marks a significant improvement over past consolidation episodes and reflects stronger regulatory capacity, improved market discipline and greater resilience within the banking system.

“The Centre for the Promotion of Private Enterprise (CPPE) commends the Central Bank of Nigeria (CBN) for the successful implementation of the bank recapitalisation programme as the exercise draws to a close.

This marks a significant milestone in the ongoing effort to strengthen the resilience, stability and capacity of the Nigerian banking system”, he said.