The Central Bank of Nigeria (CBN) has cautioned that the ongoing banking sector recapitalisation could heighten concentration risk in Nigeria’s capital market, potentially crowding out non-bank issuers despite the current bullish momentum in equities.
The warning was contained in the apex bank’s report titled “Macroeconomic Outlook for Nigeria, 2026: Consolidating Macroeconomic Stability Amid Global Uncertainty,” which highlighted emerging vulnerabilities across the financial system.
According to the CBN, while the recapitalisation exercise is critical to strengthening banks’ balance sheets and enhancing sectoral resilience, it could skew investor attention disproportionately towards the banking sector.
“Despite the bullish momentum, the capital market could face higher concentration risk from the banking sector, as the ongoing recapitalisation could trigger investor fatigue and crowd out other issuers,” the CBN said.
The bank explained that increased capital-raising activities by deposit money banks may constrain funding access for corporates outside the financial sector, particularly as banks dominate equity issuance during the recapitalisation window.
Although recent improvements in capital adequacy and liquidity ratios have provided buffers for banks, the CBN warned that these gains remain vulnerable to adverse macroeconomic developments.
“An increase in credit losses or foreign exchange illiquidity could erode capital reserves, breach prudential thresholds, and strain liquidity coverage,” the apex bank noted, adding that such pressures could disrupt financial intermediation and weaken market confidence.
The report also identified rising non-performing loans as a medium-to-high risk to the banking system, warning that deteriorating asset quality could weaken earnings and amplify systemic vulnerabilities.
In addition, the CBN flagged exchange rate volatility as a key risk factor, noting that a sharp depreciation of the naira—though considered unlikely—could negatively affect banks’ balance sheets and liquidity positions, while expanding monetary aggregates and intensifying inflationary pressures.
Beyond financial risks, the apex bank raised concerns over cybersecurity threats, citing the high level of interconnectedness within the financial system.
“The high degree of interconnectedness among financial institutions creates a systemic susceptibility, where cyberattacks on systems could propagate data breaches, compromise confidential information, and erode public confidence in the financial system,” the report stated.
On the fiscal front, the CBN warned that Nigeria’s 2026 budget outlook remains vulnerable to oil price and production shocks, given the country’s heavy reliance on oil revenue, projected to account for over 57 per cent of total government revenue.
The bank added that non-oil revenue prospects depend largely on the effective implementation of the Nigeria Tax Act, 2025, noting that weak tax compliance, low public awareness, and administrative gaps could undermine expected revenue gains.
The CBN concluded that sustaining macroeconomic stability amid global uncertainty would require coordinated policy actions to manage financial sector risks, strengthen public finance management, and promote balanced capital market development beyond the banking sector.
