…recapitalisation crowds out credit
Nigeria’s biggest banking groups recorded the five lowest loan-to-deposit ratios among leading African lenders in 2025, as recapitalisation requirements and mounting balance-sheet pressures constrained their lending activities, according to a new industry ranking by the Africa Report.
The finding highlights how Nigeria’s banking sector spent much of last year strengthening capital buffers to meet regulatory requirements rather than expanding credit to businesses and households, potentially limiting banks’ contribution to private-sector financing.
The new ranking of 300 Finance Champions found that the five Nigerian groups assessed recorded the lowest loan-to-deposit ratios among 22 banking groups across the continent.
The French publication attributed the weak performance to three major pressures facing Nigerian lenders: mandatory recapitalisation, reversal of foreign-exchange gains post-naira depreciation, and the end of regulatory forbearance on loans.
Read also: Nigerian banks lose ground in Africa’s top banking rankings as African rivals outperform
“The five Nigerian groups also posted the five lowest Loan-to-Deposit Ratios (LDR) in the ranking: they did not lend in 2025, too busy raising capital,” the report said.
In March 2024, the Central Bank of Nigeria (CBN) directed banks with international licences to increase their minimum capital to N500 billion ($377 million) by the end of March 2026, triggering widespread capital-raising exercises across the industry. Over the two years, banks raised nearly N5 trillion, with all tier-one lenders meeting the regulatory requirement.
Although almost all affected banks met the requirement through fresh capital injections, the exercise tied up funds that could otherwise have been deployed for lending. It also weighed on Returns On Equity (ROE), which accounts for 50 percent of the ranking’s profitability index.
First HoldCo’s return on equity fell from 24.2 percent in 2024 to 4.2 percent in 2025, while United Bank for Africa’s declined from 22.4 percent to 10.6 percent. Access Holdings also recorded a decline from 18.5 percent to 14.7 percent.
Currency gains and bad loans add to pressure
The report identified the naira’s appreciation as another factor affecting Nigerian banks’ earnings in 2025.
The currency strengthened from N1,535 to N1,436 against the dollar during the year, reversing some of the gains lenders had previously recorded from foreign-exchange movements.
Guaranty Trust Holding Company, for instance, reported a N477.8 billion reduction in gains on derivative instruments in its annual report as a result of the currency movement.
The end of regulatory forbearance on loans also forced lenders to recognise exposures that had not been repaid on time, contributing to a deterioration in asset quality.
The sector’s non-performing loan ratio increased from 4.2 percent in January to 7.51 percent in December.
First HoldCo recorded the sharpest deterioration among the groups assessed, with its non-performing loan ratio rising from 10.2 percent to 18 percent, the highest in the ranking.
Its capital adequacy ratio stood at 10.95 percent, below the Central Bank’s required 15 percent threshold, according to the report.
Read also: African banks face pressure to turn record capital into stronger lending
Zenith and Access offer contrasting performances
However, Zenith Bank and Access Holdings performed relatively better than their domestic peers, reflecting earlier efforts to strengthen their balance sheets and improve operational efficiency.
Zenith Bank, which ranked second overall, recapitalised as early as January 2025 and wrote off N1.24 trillion ($855 million) in losses on doubtful exposures, compared with N96.5 billion ($ 66.6 million) in 2024.
The exercise helped bring its non-performing loan ratio down to 3.8 percent.
Access Bank maintained its NPL ratio at 2.8 percent, while reducing its cost-to-income ratio from 56.7 percent to 51.7 percent through cost-cutting measures.
The report said the lender’s decision to focus on deposit mobilisation rather than loosen its lending criteria helped preserve its asset quality.
Despite the pressures, the findings point to a broader challenge for Nigerian lenders as the recapitalisation exercise moves beyond raising fresh capital towards deploying those funds to support economic activity.
With banks having strengthened their capital positions, their ability to expand credit while maintaining asset quality and profitability will become increasingly important in determining their competitiveness against African peers.
Bunmi holds a degree in Economics from the University of Lagos and has over eight years of experience in content writing and journalism. Her career spans roles as a financial and business journalist at BusinessDay Media and TechCabal, and as Head of Research at SBM Intelligence, an Africa-focused market intelligence and strategic consulting firm. She also served as Editor at Finance in Africa, a subsidiary of Businessfront and is currently Assistant Editor, Finance (Africa), at BusinessDay.
