Richer Banks, Poorer Economy: The Hidden Crisis in Nigeria’s Financial System By BLAISE UDUNZE

Across Africa, banks are getting larger however not essentially higher. From South Africa’s Standard Bank to Morocco’s Attijariwafa and Egypt’s National Bank, {financial} establishments are boasting report stability sheets, increased Tier 1 capital, and rising regional footprints. According to African Business journal’s 2025 rating of the continent’s prime 100 banks, Africa’s whole Tier 1 capital climbed to $126 billion, up from $120 billion in 2024.

But behind this glowing façade of stability sheet enlargement lies a troubling irony, particularly in Nigeria. Despite being dwelling to a number of the continent’s most seen lenders, Nigeria is lacking from the International Monetary Fund’s newest checklist of Africa’s fastest-growing economies. While Nigerian banks akin to Access Bank, Zenith Bank, UBA, and FBN Holdings function amongst Africa’s prime 20 in property, their affect on actual {economic} development stays painfully restricted.

In less complicated phrases, Nigeria’s banks have gotten richer with out making the economic system stronger.

It is among the defining contradictions of recent Nigerian finance, the place a banking sector retains ballooning in dimension whilst the true economic system struggles to breathe. The IMF tasks Nigeria’s GDP development at 3.9 p.c in 2025, under the 6-8 p.c threshold that defines Africa’s fastest-growing economies. Meanwhile, smaller nations akin to Rwanda, Benin, and Côte d’Ivoire are racing forward, pushed by reforms, industrial development, and investment-friendly insurance policies.

So why is Africa’s largest economic system rising so slowly even with “Africa’s biggest banks” at its helm? The reply lies in how these banks make their cash and the way little of it trickles into productive enterprise.

Nigeria’s main banks have swollen their stability sheets largely via asset revaluations, overseas foreign money changes, and buyer deposits that sit idle or are channeled into risk-free authorities securities. What seems like development on paper typically displays inflationary asset repricing, not expanded lending to producers, agribusinesses, or small and medium enterprises (SMEs).

Three quarters of the business’s celebrated “assets” are literally liabilities owed to the general public. These are deposits that banks briefly maintain, not capital they generated or invested productively. This dependency on depositors’ funds reveals a system that appears wealthy in property however is, in essence, shallow in innovation and weak in capital depth.

A banking system overly reliant on deposits is inherently fragile. Deposits are brief time period and confidence delicate and may flee shortly during times of coverage uncertainty. Unlike fairness or long run capital, they provide little cushion in opposition to shocks. This overdependence creates a false image of liquidity however hides structural weak spot. Nigeria’s banks could look steady, however their foundations are weak, like a tower constructed on shifting sands of depositor confidence moderately than the rock of sustainable capital formation.

Loans to the manufacturing and agricultural sectors stay a small fraction of whole credit score, whereas lending charges typically hover above 27 p.c. Many small companies that type the spine of job creation and innovation nonetheless can not entry inexpensive financing. Instead, banks have mastered the artwork of economic intermediation with out actual interconnection, mobilizing deposits however not reworking them into engines of development.

This disconnect reveals a deeper situation with weak capital effectivity. In a wholesome {financial} system, deposits are transformed into productive loans that stimulate funding, create jobs, and enhance exports. But in Nigeria, the ratio of {bank} loans to GDP stays among the many lowest in Sub-Saharan Africa. Banks seem extra snug storing wealth than stimulating enterprise. Treasury payments and authorities bonds, with minimal threat and first rate yields, have grow to be the popular playground for Nigeria’s banking giants. The result’s a {financial} system that thrives on fiscal inertia moderately than productive dynamism.

Contrast Nigeria’s sluggish development with the dynamism in East Africa, the place banks like Kenya’s Equity Group and KCB are increasing aggressively, driving credit score to actual sectors and supporting regional commerce. East Africa now contributes 21 banks to Africa’s prime 100, up from simply 13 in 2022, reflecting real development in {financial} inclusion and productive lending. While Nigeria’s banks chase continental rankings, Kenya’s and Rwanda’s banks are quietly fueling {economic} revolutions.

Nigeria’s exclusion from the IMF’s checklist of Africa’s fastest-growing economies is symbolic. It tells a narrative of an enormous whose development is more and more superficial. The IMF praised international locations like Rwanda and Benin for fiscal self-discipline, macroeconomic stability, and structural reforms, as these are all areas the place Nigeria continues to wrestle. Despite coverage changes and modest enhancements in non-oil sectors, Nigeria’s economic system stays shackled by inflation, foreign money instability, and coverage uncertainty. These identical constraints discourage banks from taking actual sector dangers.

In impact, the {financial} system mirrors the broader economic system and is massive in dimension, but underperforming in substance. When banks announce trillion-naira asset bases, it makes for good headlines however poor improvement economics. The irony is that asset enlargement with out capital productiveness is like pumping air right into a balloon, which is spectacular in dimension however fragile in substance.

While the Central Bank of Nigeria’s Governor, Yemi Cardoso, insists that the nation’s {economic} reforms are “yielding visible results” and inserting the nation “on the path to stability, inclusiveness, and innovation-driven growth,” proof on the bottom paints a extra sobering image. The CBN’s optimism, although politically handy, contrasts sharply with the structural realities of Nigeria’s {financial} system and the broader economic system.

If reforms had been really delivering inclusive and innovation pushed development, it might be mirrored in stronger credit score entry, industrial productiveness, and improved dwelling requirements, not simply in beneficial rhetoric at international conferences. Yet, Nigeria’s banking sector stays dominated by stability sheet enlargement moderately than productive lending. Three quarters of the business’s celebrated “assets” are literally liabilities to public deposits briefly held, not capital generated via innovation or funding in the true economic system.

This disconnect between {financial} development and real-sector improvement underscores a deeper fragility. Banks proceed to rely closely on short-term deposits whereas shying away from financing manufacturing, agriculture, and small enterprises with the engines of inclusive development. The result’s an economic system the place the numbers look spectacular on paper, however households and industries nonetheless wrestle with excessive borrowing prices, restricted credit score, and declining buying energy.

Far from demonstrating reform-driven resilience, Nigeria’s {economic} construction stays hole on the core of a system wealthy in nominal property however poor in capital depth and innovation. Macroeconomic stability can’t be claimed when inflation hovers round 18.02 p.c, overseas funding inflows stagnate, and job creation lags far behind inhabitants development.

In essence, what the CBN presents as progress is, in lots of respects, statistically false if stability is achieved via financial tightening and alternate charge changes moderately than real {economic} transformation. Until reforms translate into tangible outcomes of inexpensive credit score, industrial renewal, and sustainable job creation, the claims of inclusiveness and innovation-driven development will stay extra aspirational than actual.

For Nigeria’s regulators, analysts, and policymakers, the query is now not how massive the banks’ property seem, however what these property are doing for the economic system. True energy should come from innovation in {financial} intermediation, capital effectivity, and credit score diversification; assist for actual sector development; and regional competitiveness on the African and international stage.

For Nigerian banks to translate asset enlargement into actual {economic} affect, the following frontier should be purposeful intermediation, the place {financial} development feeds productive enterprise, not simply paper wealth. That begins with rethinking the credit score mannequin by lending based mostly on enterprise potential and money move viability, not simply collateral. By partnering with fintechs and improvement establishments, banks can use information pushed credit score assessments to succeed in small producers, agribusinesses, and innovators who drive job creation.

Beyond lending, true energy will come from constructing deeper capital bases and decreasing dependence on short-term deposits. Banks should increase long-term funds via bonds, fairness, and partnerships with pension and insurance coverage establishments to allow them to finance industrial and infrastructure tasks sustainably. Regulators, too, should align incentives with improvement by rewarding banks that channel credit score into productive sectors and penalizing those who merely recycle deposits into authorities securities.

Ultimately, Nigeria’s banking future is determined by a mindset shift from consolation in liquidity to confidence in innovation. The nation doesn’t want banks that solely rely wealth however those who create it. When stability sheet enlargement begins to translate into accessible credit score, inclusive development, and industrial renewal, Nigeria’s banks will stop to be symbols of inflated success and grow to be true devices of nationwide transformation.