A Disconnect in the Banking System
Nigeria’s banking sector continues to post record-breaking profits, yet the real economy especially small businesses and manufacturers struggles to breathe. This contradiction raises a critical question:
Are Nigerian banks financing growth or simply financing themselves?
Recent data suggests the latter may be closer to reality.
The Numbers Tell the Story: Credit to Nigeria’s private sector declined to about ₦72.5 trillion in 2025, down from earlier highs, Lending has shown a downward trend, despite policy effortsmeanwhile, government borrowing is rising, encouraging banks to favor “risk-free” lending In simple terms: Banks are choosing safe profits over productive risk. Economists argue that Nigerian banks are increasingly focused on Treasury Instruments and Government Securities, avoiding SMEs due to perceived credit risk, Prioritizing short-term returns over long-term growth
An Abuja-based economist, Dr. Chika Okafor, notes: “Banks are more comfortable lending to the government than the private sector. So private sector will continue to struggle.
The SME Reality: Growth Starved of Capital
Evidence shows that Bank lending has a direct impact on SME growth yet access to credit remains one of the biggest barriers to expansion even more concerning is poor loan monitoring and lack of guidance, this often lead to business failure. But this exposes a deeper issue, financing alone is not enough, guidance is missing beyond Loans the missing Link is Banking Intelligence. Nigerian banks largely operate a Lend and Leave Model: 1. Disburse loans, 2. Demand repayment , 3. Penalize default
But modern SME financing requires more: Business Advisory Support, Cash flow planning, Financial structuring, Sector-specific insights
2. Post-Funding Monitoring: There is need to track utilization of funds, detect early warning signs, Prevent loan failure
3. Entrepreneur Education, Financial literacy, Management capacity building
The Missing Regulator: Where the Central Bank Must Step In.
While banks must take responsibility, the role of the Central Bank of Nigeria is critical and currently incomplete. For years, regulatory focus has leaned heavily toward recapitalization exercises which is Balance sheet strengthening, prudential ratios and compliance these are important but insufficient. A stronger banking system is meaningless if it does not translate into a stronger real economy.
What the CBN Must Now Enforce: Experts argue that the next phase of banking reform must shift from Capital adequacy to economic impact
1. Mandatory SME Lending Thresholds: CBN should require banks to allocate a defined percentage of their portfolio to manufacturing, SMEs, Agro-industrial sectors
2. Post-Loan Monitoring Frameworks: Banks should not just lend but Report utilization, Provide periodic business assessments, Show measurable impact, Embedded Business Support Services every commercial bank should maintain:
a. SME Advisory Desks and support units, b. Business Development Units, c. Financial Education d. Partner with Development Institutions.
3. Incentives and Penalties: The Apex can Reward banks that support real sector growth, It can penalize excessive reliance on government securities
4. Shift From Recapitalization to Real-Sector Results: Recapitalization no doubt improves: Bank size, Shock absorptionbut it does not automatically improve: Industrial output, Job creation, SME survival so the focus must evolve.
There is nothing wrong with profitability. But there is a problem when Banks declare record profits while businesses face credit starvation, banking must go beyond, profit reporting to: Production financing, Enterprise development, Economic transformation.
Conclusion: Banking must return to its core mission. It is time for a new banking mandate Nigeria cannot industrialize without financing and financing without structure, monitoring, and education will continue to fail. Banks must move from “profit declaration” to “production facilitation” and the Central Bank must enforce that transition.
Final Thought, If recapitalization builds stronger banks, then Regulation must ensure those stronger banks build a stronger economy until that happens SMEs will struggle, Manufacturing will stagnate, Growth will remain shallow, If Nigerian banks truly want to prove their strength, they must do more than publish profits. They must build businesses.
Nigeria does not just need bigger banks It needs better banking
