Nigeria’s banking sector is experiencing its most historic revamp since the Soludo era consolidation of 2004, with the Central Bank of Nigeria’s (CBN) mandating lenders to raise capital within a two-year period that will end by March 2026.
International banks must be capitalised with N500 billion ($300 million) and national banks’ capital must reach N200 billion. Private equity’s fraught romance with Nigerian banking is entering a new, regulation-driven chapter. This regulatory order is igniting the hitherto fraught romance between Nigerian banking and deep-pocketed private equity investors who see this as both a lure and a caution due to their experience.
The CBN-induced recapitalisation of 20 years ago had slashed the number of banks from 89 to 25 by raising minimum capital to N25 billion.
Private Equity firms spotted opportunities in an incipient but Post-consolidation promising market and swooped in. While firms like Actis wagered on retail expansion to lead a $134 million investment in Diamond Bank in 2007, others like Emerging Capital Partners backed lenders such as Ecobank and Access Bank. It was a mishmash of returns, however. Actis sold its Diamond stake to Kunoch Holdings in 2014, when shares had plunged by 60 percent, pushed by the global financial crisis and local instability. This culminated in a modest yield or even negative real returns after currency adjustments.
As broader African PE data shows, net internal rates of return (IRRs) averaged around 9 per cent in the last 10 years. Nigerian exits delivered higher multiples of around 10.7x money in startups, but lower multiples in mature sectors like banking because of regulatory risks and economic cycles. But it was not an evenly gruff experience for PEs given a number of successful exits through trade sales or IPOs on the Nigerian Exchange (NGX) that provided liquidity as firms professionalised operations and scaled digital banking, strengthening investor confidence.
Forward to the Present Times Private Equity is active in the present recapitalisation drive. With the CBN’s push triggering patches of M&A frenzy, PE funds targeting minority stakes or full acquisitions to meet capital thresholds. For instance, the 2025 merger of Union Bank and Titan Trust epitomizes how PE-funded deals are consolidating the segment. For instance, Funds from Development Partners International are targeting fintech-adjacent banks as Nigeria’s $1trillion economy ambition and digital growth provides the lure.
Privatr Equities (PE) plays other roles beyond cash. From governance upgrades, risk management, and international networks, PEs assist banks to navigate troubled strategic waters and expand regionally.
Towards a Worthwhile Deal Exit multiples must justify the risk. Typical banking investments aim for 2.5x multiples on invested capital within five to seven years. However, PEs expect premiums from Nigerian investments given the country’s risk arising, for example, from currency slides and policy flips. Analysts peg attractive exits at around 4.5x through trade sales to global players or secondaries to African funds. And with tax reforms raising capital gains to 30 per cent effective 2026, exemptions for startup-linked funds could ice the cake of the deals.
