Bank Recapitalization Policy and Financial Stability in the Nigerian Banking Sector

This study examines the impact of the Central Bank of Nigeria's bank recapitalization policy on financial stability in the Nigerian banking sector. Following the CBN's 2023 announcement of a new minimum capital requirement of 500 billion naira for commercial banks with international authorization, industry stakeholders have debated the policy's implications for banking sector consolidation, credit growth, and systemic stability. This study adopts an ex-post facto research design, using financial data from the published accounts of 14 listed commercial banks on the Nigerian Exchange Group for the period 2021 to 2024. Financial stability is measured using capital adequacy ratio, non-performing loan ratio, return on equity, and liquidity ratio. Time series and panel data regression analysis are applied. Results indicate that higher capital adequacy ratios are significantly associated with improved financial stability across the sampled banks, reducing the probability of distress and improving loan loss absorption capacity. Banks with stronger pre-recapitalization capital bases showed more resilient performance during economic stress periods. The study concludes that the recapitalization policy provides a sound foundation for banking sector stability, but its success depends on the quality of new capital raised and regulatory vigilance over capital adequacy compliance. It recommends that the CBN establish a transparent monitoring framework to ensure that recapitalization funds are genuinely contributed and not artificially inflated through circular transactions.

Keywords: bank recapitalization, financial stability, CBN, capital adequacy, Nigerian banking.