IMF endorses CBN recapitalisation as buffers strengthen banks

The International Monetary Fund has endorsed Nigeria’s bank recapitalisation, noting that stronger capital buffers are enhancing resilience, stabilising the financial system, and positioning the economy against global shocks, OKECHUKWU NNODIM writes

The International Monetary Fund has recognised the strategic importance of Nigeria’s recently concluded bank recapitalisation exercise, stating that the programme is already yielding positive results. The Fund noted that the initiative, implemented by the Central Bank of Nigeria under the leadership of Olayemi Cardoso, was a timely and appropriate policy decision, particularly against the backdrop of persistent volatility in global oil supply.

According to the IMF, such uncertainties in the global economy make it essential for financial institutions to maintain strong capital buffers capable of absorbing shocks during periods of stress. It explained that a well-capitalised banking system enhances the capacity of banks to support monetary policy objectives, including inflation control, while also sustaining economic growth projections over the medium term.

The Fund further indicated that Nigeria’s strengthened banking sector is now better positioned to support its two-year growth outlook, with the IMF projecting steady expansion and improved macroeconomic stability. It added that the recapitalisation has reinforced confidence in the country’s financial system and created a stronger foundation for economic resilience.

This year is expected to stand out as one of the most significant for Nigeria’s financial sector in over a decade. The period has been marked by the emergence of more resilient banks, rising external reserves projected to reach about $51bn by the end of the year, and a renewed commitment by policymakers to achieve single-digit inflation.

These developments are part of the broader, long-term gains arising from ongoing fiscal and monetary reforms designed to strengthen both the financial system and the wider economy. The IMF acknowledged these reforms during the 2026 Spring Meetings of the World Bank and the IMF held in Washington, DC, describing the recapitalisation as a major milestone for Nigeria’s economy.

The Fund endorsed Nigeria’s banking sector reform, noting that the increased capital buffers are already playing a vital role in shielding the financial system from external shocks. It emphasised that maintaining strong fiscal positions remains critical for emerging economies seeking to navigate volatile global capital flows and reduce exposure to sudden market disruptions, especially amid ongoing oil price fluctuations linked to the Middle East crisis.

Speaking during the presentation of the Global Financial Stability Report at the meetings, the IMF Financial Counsellor and Director of the Monetary and Capital Markets Department, Tobias Adrian, stated that the benefits of recapitalisation become most evident during periods of economic stress.

He explained that ensuring banks are adequately capitalised is a cornerstone of global financial stability, particularly at a time when economies are facing heightened uncertainty.

He said, “Concerning bank recapitalisation, it is in times of stress where the value of bank capital really comes to the fore. So, what we are aiming at for global financial stability is a banking sector that is capitalised against adverse shocks.”

Adrian further noted that the capital raised by Nigerian banks would be particularly valuable in safeguarding the financial system during turbulent periods, as it strengthens their ability to withstand external pressures.

He said: “Of course, it’s in times of stress where the value of bank capital really comes to the fore, right? So, what we are aiming for is a banking sector that is capitalised against adverse shocks. So yes, bank recapitalisations are very welcome and are paying off, particularly in times of stress.”

Also speaking at the presentation of the World Economic Outlook, the IMF Economic Counsellor and Director of the Research Department, Pierre-Olivier Gourinchas, outlined Nigeria’s growth prospects over the next two years. He projected that the Nigerian economy would expand by 4.1 per cent in 2026 and 4.3 per cent in 2027.

Gourinchas observed that the global economy, which has been disrupted by the outbreak of war in the Middle East, rising commodity prices, firm inflation expectations, and tighter financial conditions, is expected to grow at 3.1 per cent in 2026 and 3.2 per cent in 2027.

In the case of Nigeria, he pointed to the impact of rising oil prices on the cost of living, as well as the sensitivity of inflation expectations within the economy. He stressed the need for policymakers to remain flexible and carefully manage trade-offs, particularly in areas such as defence spending, while laying the groundwork for sustained economic recovery.

He explained that after navigating higher trade barriers and elevated uncertainty in the previous year, global economic activity now faces a significant test due to the Middle East conflict.

“Assuming that the conflict remains limited in duration and scope, global growth is projected to slow to 3.1 per cent in 2026 and 3.2 per cent in 2027. Global headline inflation is projected to rise modestly in 2026 before resuming its decline in 2027,” he said.

The IMF also noted that while central banks cannot directly control global energy prices, financial markets have already adjusted to expectations of higher policy rates. It added that, provided inflation expectations remain well anchored, central banks may adopt a cautious approach in the near term while staying alert to evolving risks.

The Fund advised that policymakers must clearly communicate their readiness to act decisively when necessary to maintain price stability. It further noted that exchange rates should generally be allowed to adjust, enabling central banks to concentrate on their core mandates.

However, the IMF cautioned that many countries no longer have the fiscal space to absorb shocks easily. Where intervention is required to support vulnerable populations, it is recommended that targeted and temporary measures align with medium-term plans to rebuild fiscal buffers, while avoiding actions that could fuel inflation.

It added that in the event of a sharp tightening of financial conditions or a significant deterioration in global economic activity, monetary and fiscal authorities should be prepared to adjust their policies to support growth and protect the financial system, alongside appropriate liquidity measures.

The recapitalisation of Nigeria’s banking sector represents the most far-reaching reform since the 2005 consolidation exercise, modernising regulatory frameworks and strengthening risk management practices. The initiative reflects coordinated efforts between the Central Bank of Nigeria, the Ministry of Finance, and the capital market.