FCMB’s Managing Director, Yemisi Edun, has emphasized the importance of bank recapitalization in addressing Nigeria’s significant shortfall in private sector-led credit. Currently, domestic lending to the sector stands at just 13% of GDP, significantly lower than the global average, which often approaches 80% for larger economies.
Industry experts note that the low level of private sector credit poses a substantial challenge to Nigeria’s economic growth. Countries with thriving economies typically experience higher lending rates, facilitating business expansion and development.
Edun highlighted the role of Small and Medium-sized Enterprises (SMEs) in driving employment and economic growth, but these businesses face significant barriers in accessing credit, limiting their potential contributions to GDP. The ongoing recapitalization of banks is expected to enhance their ability to offer affordable loans to SMEs. Edun stated that this will enable SMEs to grow and contribute more effectively to GDP.
For Nigeria to achieve its goal of becoming a $1 trillion economy, the financial services sector must grow faster than the overall economy. Edun noted that financial services currently account for approximately 4.7% of GDP, and to reach 5.5% by 2030, it must grow at an annual rate exceeding 18%. The recapitalization efforts are expected to boost the banking sector’s shareholders’ funds by over 50%, which is vital for this growth.
With a stronger capital base, banks will be better equipped to meet the financing requirements of crucial sectors such as infrastructure and manufacturing. Edun emphasized the necessity of these sectors for Nigeria’s long-term economic advancement.
Beyond traditional lending, Edun advocated for the exploration of alternative financing methods, including joint ventures, venture capital, and loan guarantee schemes. These diverse funding options are crucial for addressing the capital constraints faced by many businesses.
Addressing Nigeria’s infrastructure deficit is a pressing concern, with an estimated annual requirement of $100 billion. Edun suggested that banks collaborate to issue long-term infrastructure bonds and develop public-private partnerships (PPPs) to meet these needs.
Yemisi Edun’s insights at the 17th Annual Banking and Finance Conference underscore the critical need for enhanced private sector credit to support Nigeria’s economic growth. The recapitalization of banks is seen as a pivotal step toward providing the necessary financial resources for SMEs and infrastructure development, essential components for a thriving economy.