Over the past two decades, Nigeria has witnessed successive waves of reform across critical sectors: taxation, power, healthcare, education, aviation, anti-corruption, and ICT. However, one sector remains central to the success of all others: the banking and financial services industry. Without a robust, well-regulated, and inclusive banking sector, no modern economy can flourish. The recent moves by the Central Bank of Nigeria (CBN) to implement sweeping reforms, most notably, the fresh recapitalisation drive, signal a renewed attempt to deepen public trust, increase financial access, and bolster macroeconomic stability.
Why banking reform matters
Banking reform is not an abstract regulatory exercise; it is an economic necessity. It aims to curb bank failures, strengthen corporate governance, improve access to credit, and increase the global competitiveness of indigenous banks. In a world shaped by financial interdependence and digital transformation, banking reform is also a bulwark against the risks of globalisation: currency shocks, capital flight, and illicit financial flows.
“Public confidence in this system will determine whether citizens keep their money under mattresses or invest in formal economic opportunities.”
Nigeria’s history of banking reform reveals a continuous search for resilience. From the early days of regulation to the post-COVID adjustments, each phase has aimed to reposition the banking sector for efficiency, accountability, and growth.
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A historical trajectory of reforms
1. Regulation and indigenisation (1958–1985):
This period marked the establishment of the Central Bank of Nigeria (CBN) and the formulation of regulatory frameworks to ensure sectoral stability.
2. Market deregulation (1986–1993):
Driven by the Structural Adjustment Programme (SAP), this era introduced market liberalisation. The number of commercial banks increased from 28 in 1985 to 66 by 1993, alongside technological advances like the adoption of Magnetic Ink Character Recognition (MICR) for check processing.
3. Guided deregulation (1994–1998):
Interest rates were fully deregulated in 1986, and the minimum paid-up capital for banks was raised significantly—eventually reaching ₦2 billion.
4. Universal banking (1999–2003):
Commercial banks were permitted to operate as one-stop shops for merchant banking, insurance, mortgages, and pension services.
5. Bank consolidation (2004–2010):
Under Professor Charles Soludo, the CBN introduced a landmark reform that reduced the number of banks from 89 to 25 through forced mergers and recapitalisation, raising the minimum capital requirement to ₦25 billion.
6. Restructuring and sanitisation (2011–2014):
This era saw the nationalisation of failing banks like Bank PHB, Spring Bank, and Afribank. The Asset Management Corporation of Nigeria (AMCON) also emerged to address toxic assets.
7. Pre-COVID era (2015–2019):
The concept of Deposit Money Banks (DMBs) became mainstream, and financial inclusion received increased attention from regulators.
8. Post-COVID period (2023–Present):
Current reforms include the termination of pandemic-era forbearance policies, new foreign exchange guidelines, and the introduction of a recapitalisation program requiring banks to significantly raise their capital base.
Forms of reform in the financial services sector
Banking reform in Nigeria takes three principal forms:
External (Regulatory) reform: Mandated by the CBN or other regulatory bodies. Examples include the Soludo-era consolidation or the current recapitalisation effort.
Internal (Institutional) reform: Driven by individual banks. Outsourcing, digital transformation, and branch rationalisation are internal reforms aimed at cost efficiency and service delivery.
Global (International) reform: Driven by global compliance and best practices. Nigeria’s adoption of the International Financial Reporting Standards (IFRS) is a case in point, aligning local reporting with international norms.
The gains and pains of reform
Reform inevitably comes with trade-offs. On the positive side, reforms enhance technological innovation, encourage responsible lending, improve regulatory oversight, and create jobs through expanded operations. They also boost investor confidence and attract foreign direct investment.
However, reforms also have their drawbacks. They may disproportionately favour certain sectors, result in job losses through branch closures, and penalise legacy debtors. Additionally, regulatory lapses may arise as institutions adjust to new standards.
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Looking ahead: Reform as a national imperative
Change is inevitable, and reform is the engine of sustainable progress. For Nigeria to meet its aspirations of becoming a regional economic powerhouse, banking reform must be pursued not as an occasional intervention but as an ongoing process. A stable and inclusive banking system is the bedrock of national development. Public confidence in this system will determine whether citizens keep their money under mattresses or invest in formal economic opportunities.
As stakeholders, from policymakers to bankers, regulators, and the public, we must all play our part in ensuring that reforms do not merely exist on paper but translate into real economic transformation.
Dr. Kingsley Ndubueze Ayozie FCA is a public affairs analyst and chartered accountant. He writes from Lagos.
