CBN Warns Bank Recapitalisation Could Boost Market Concentration

The Central Bank of Nigeria (CBN) has warned that the ongoing recapitalisation of the banking sector could heighten concentration risk in Nigeria’s capital market, potentially crowding out non-bank issuers, despite current bullish trends in equities.

The caution appears in the CBN’s Macroeconomic Outlook for Nigeria, 2026: Consolidating Macroeconomic Stability Amid Global Uncertainty, which highlights emerging vulnerabilities across the financial system.

According to the report, while recapitalisation is essential for strengthening banks’ balance sheets and boosting resilience, it may disproportionately attract investor attention to the banking sector.

“Despite bullish momentum, the capital market could face higher concentration risk from banks, as ongoing recapitalisation may trigger investor fatigue and limit opportunities for other issuers,” the CBN noted. The apex bank explained that increased capital-raising by deposit money banks could reduce funding availability for corporates outside the financial sector, especially while banks dominate equity issuance during this period.

While improvements in capital adequacy and liquidity ratios provide buffers for banks, the CBN warned that these gains remain sensitive to adverse macroeconomic developments.

“Rising credit losses or foreign exchange illiquidity could erode capital reserves, breach prudential thresholds, and strain liquidity coverage,” the report stated, adding that such scenarios could disrupt financial intermediation and weaken market confidence. It also highlighted rising non-performing loans as a medium-to-high risk, warning that declining asset quality could hurt earnings and increase systemic vulnerabilities.

Exchange rate volatility was also flagged as a key risk, with the CBN noting that a sharp naira depreciation, though unlikely, could negatively impact banks’ balance sheets and liquidity, expand monetary aggregates, and intensify inflationary pressures.

Beyond financial concerns, the report emphasised cybersecurity risks, noting that the high interconnectedness of the financial system could allow cyberattacks to trigger data breaches, compromise confidential information, and undermine public confidence.

On the fiscal side, the CBN cautioned that Nigeria’s 2026 budget remains vulnerable to oil price and production shocks, given that oil revenue is projected to account for over 57 per cent of total government revenue. Non-oil revenue prospects, it noted, depend on effective implementation of the Nigeria Tax Act, 2025, but weak compliance, low awareness, and administrative gaps could undermine collections.

The CBN concluded that sustaining macroeconomic stability amid global uncertainty will require coordinated policy measures to manage financial sector risks, strengthen public finance management, and ensure balanced capital market development beyond the banking sector.