Beyond Price Stability: How CBN Reforms Reshaped Banking, Payments and Credit to the Real Sector Since 2023
By Decisionmakers Online
When the Central Bank of Nigeria began its policy reset in 2023, the public conversation focused almost entirely on inflation and the exchange rate. Those were the most visible fires. But behind the headlines, the Bank was also undertaking a quieter, equally consequential overhaul of the financial system itself — how banks are capitalized, supervised, how payments move, and how credit reaches the real economy. Three years on, the impact of those reforms is becoming clear: a banking sector that is better capitalized and more resilient, a payment system that is faster and more inclusive, and a credit environment that, while tighter, is more targeted.
The starting point in 2023 was fragile. Years of development finance interventions and regulatory forbearance had left deep questions about the true health of bank balance sheets. Regulatory forbearance, granted during COVID-19 and extended to cushion borrowers, allowed banks to restructure loans without classifying them as non-performing. It kept reported NPL ratios low, but it also masked underlying asset quality problems. At the same time, the capital base of many banks had not been reviewed in 15 years, even as the economy grew, risks became more complex, and the naira depreciated. A bank that was considered “well capitalized” in 2010 was no longer fit to finance large infrastructure, energy, or manufacturing projects in 2024. Fintech growth had also outpaced regulation, creating both innovation and risk. Financial inclusion had improved, but large segments of SMEs, agriculture and manufacturing still struggled to access affordable credit. Then came subsidy removal and FX unification, which squeezed liquidity and raised borrowing costs across the board. The CBN’s challenge was to strengthen the system without triggering instability.
The first pillar of the reset was a forbearance cleanse. The Bank ended COVID-era loan restructuring concessions and directed banks to conduct a full asset quality review. Loans that had been kept on life support under forbearance were either properly provisioned or moved to NPL status. Prudential guidelines were tightened and the Cash Reserve Ratio was pushed to 45% to mop up excess liquidity. This forced banks to recognize losses and raise provisions. It was painful in the short term and contributed to slower credit growth, but it gave depositors, investors and regulators a true picture of the sector’s health. Without this cleanse, any recapitalization would have been building on a weak foundation.
The second, and most structural pillar, was bank recapitalization. In March 2024, the CBN announced new minimum capital requirements for commercial, merchant and non-interest banks, the first major raise since 2005. The move was framed around three objectives: strengthen resilience to shocks, increase the capacity of banks to fund big-ticket projects, and align the banking sector with the government’s $1 trillion economy ambition.
The new capital thresholds were significant. For banks with international authorization, the minimum paid-up capital rose from ₦50 billion to ₦500 billion. For national banks, from ₦25 billion to ₦200 billion. For regional banks, from ₦10 billion to ₦50 billion. Merchant banks went from ₦15 billion to ₦50 billion, and non-interest banks with national licenses from ₦10 billion to ₦20 billion. Banks were given 24 months, until March 31, 2026, to meet the new requirements through a mix of equity injection, retained earnings, rights issues, and mergers and acquisitions.
The implications have been immediate and wide-ranging. First, it triggered a wave of capital raising. By mid-2025, over ₦2.3 trillion in fresh capital had been raised through the capital market, with tier-1 banks leading the process. This has lifted capital adequacy ratios well above regulatory minimums and given banks bigger buffers to absorb credit losses. Second, it is driving consolidation. Smaller banks that cannot meet the thresholds alone are exploring mergers or moving down to regional licenses. That will likely reduce the number of banks but increase the average size and capacity of those that remain. Third, it changes what banks can do. With larger capital bases, banks can now underwrite bigger loans to power, transportation, housing and manufacturing without breaching single obligor limits. This is critical if private sector investment is to fill gaps left by constrained fiscal spending.
But recapitalization also comes with trade-offs. Meeting the new thresholds has been expensive. Banks have had to slow discretionary lending to preserve capital and meet investor expectations. That, combined with high policy rates above 27%, has made credit more expensive and less available for SMEs in the short term. There is also the risk of overbanking in some segments. If too much capital chases too few bankable projects, it could lead to asset bubbles or a decline in lending standards once the deadline pressure eases. The CBN has tried to manage this by pairing recapitalization with tighter supervision and stress testing.
Parallel to this was the deepening of the payment system. Since 2023, the CBN has accelerated open banking frameworks and strengthened oversight of fintechs and payment service providers. The eNaira was repositioned as infrastructure for government payments and financial inclusion. More impactful has been the expansion of instant payments and interoperability. NIBSS data shows transaction volumes on NIP and USSD channels continued to rise even as cash became more expensive post-subsidy. The Bank also tightened KYC requirements while making it easier for agents to onboard customers in rural areas. The result is a payment ecosystem that is less dependent on physical cash and more resilient to shocks — a critical buffer when inflation was eroding purchasing power.
The third piece is credit to the real sector. Here the trade-offs are sharpest. As the MPC raised rates above 27%, lending rates crossed 30%. That inevitably slowed loan growth, especially for SMEs and manufacturers who had relied on concessionary intervention funds that were now discontinued. The forbearance cleanse compounded this, because banks became more cautious in extending new loans until they had fully cleaned their books. The CBN’s view was deliberate: stop subsidized lending that distorted risk pricing, and instead let banks lend based on proper credit assessment and stronger capital bases. To cushion the impact, the Bank shifted toward targeted interventions through commercial banks rather than direct lending — facilities focused on agriculture, manufacturing and export-oriented firms, with stricter monitoring.
It has not been a perfect transition. Credit to the private sector grew more slowly in 2024. But the quality of credit improved. With forbearance removed and capital bases stronger, banks became more disciplined in assessing borrowers. More credit began flowing through formal channels rather than through opaque intervention windows. Financial inclusion also kept rising as the Bank partnered with agents, fintechs and microfinance institutions. For the first time in years, the financial system looked less like a tool for fiscal policy and more like an intermediary that prices risk and allocates capital.
The broader outcome is a financial system that is more stable, better capitalized, and more market-driven. Portfolio inflows rose to $3.2 billion in 2024, partly because investors saw banks with cleaner books and stronger buffers. Dollarization in deposits slowed as confidence in naira assets returned. FX volatility eased, which reduced the currency risk that had made banks hesitant to lend to manufacturers.
None of this solves Nigeria’s structural problems. Infrastructure gaps, insecurity and weak contract enforcement still limit how much credit can productively flow to agriculture and SMEs. But by combining a forbearance cleanse with recapitalization, stronger supervision, better payments and risk-based lending, the CBN has rebuilt the foundation.
The lesson of the last three years is that financial system stability is not just about avoiding bank failures. It is about honesty in reporting, adequacy in capital, efficiency in payments, and discipline in credit allocation. Recapitalization was key because it ensures the banking sector has the size and strength to finance growth when macroeconomic conditions improve.
The naira may still be adjusting. Inflation may still be above target. But the banking sector is stronger because its weaknesses were faced, not hidden. It is also bigger and better capitalized to fund the next phase of growth. Payments are more inclusive. And credit — though more expensive — is now allocated with fewer distortions. If fiscal policy and structural reforms keep pace, that foundation can support sustainable expansion. If not, the financial system will at least be better positioned to withstand the next shock.
