By Blaise Udunze

The Olayemi Cardoso-led Central Bank of Nigeria’s 24-month compliance timeline for the recapitalization of Nigeria’s banking system is about to conclude on March 31, 2026, which is framed as an unavoidable solution to systemic fragility, weak balance sheets, and the demands of a larger, more complex economy. Bigger capital, regulators argue, will produce stronger banks.

Though First Bank may have met the CBN’s N500 billion minimum requirement, the latest financials from Femi Otedola-led First HoldCo Plc, which is the parent of Nigeria’s oldest commercial bank, offer a sobering counterpoint, revealing that capital alone cannot cure structural weakness, governance failure, or deep-rooted risk management flaws. If capital is the answer, what exactly is the problem?

What is truly astonishing to many is that beneath the headline growth in earnings lies a financial institution struggling with collapsing earnings quality, surging credit impairments, volatile fair-value exposures, and rising operating inefficiencies. First HoldCo’s numbers are not merely a company-specific disappointment; they are a mirror reflecting the deeper fault lines within Nigeria’s financial system and a warning that recapitalisation, in its current form, risks becoming another cosmetic reset rather than a genuine reform.

On the surface, the topline appears encouraging. The figures showed that gross earnings rose by 17.1 percent to N2.64 trillion in the nine months to 2025, while interest income surged by over 40 percent to N2.29 trillion. Figuring it out, investors, depositors, and analysts understand that these figures, however, are largely the product of a high-interest-rate environment driven by aggressive monetary tightening. They reflect repricing, not necessarily improved lending quality or superior balance-sheet strength. In an economy under strain, rising interest income often signals the transfer of macroeconomic stress from borrowers to banks, rather than sustainable growth.

This becomes evident once attention shifts from revenues to profitability. The performance disclosed that profit before tax declined by 7.3 percent to N566.5 billion, while profit after tax fell nearly 13 percent to N458 billion. Earnings per share dropped by a steep 27.7 percent, a sharper decline than headline profit suggests, pointing to dilution pressures and reduced value accruing to shareholders. More striking still is the full-year picture, where profit after tax from continuing operations collapsed by about 92 percent, plunging to N52.7 billion from N663.5 billion in the prior year. Such a dramatic fall cannot be explained by temporary volatility; it is the consequence of long-suppressed risks finally surfacing.

The most damaging of these risks is asset quality. The most critical figure is the impairment charges that rose by nearly 69 percent in the nine months to N288.9 billion, and by over 75 percent on a full-year basis to N748 billion, and invariably, these numbers tell a story of borrowers buckling under FX exposure, weak cash flows, and a deteriorating operating environment. They also raise uncomfortable questions about credit underwriting standards, concentration risk, and the effectiveness of internal risk controls in earlier lending cycles. After impairments, much of the benefit from higher interest income evaporated, exposing the fragility of earnings built on stressed credit.

Compounding this weakness was a sharp reversal in fair-value accounting. First HoldCo recorded a net loss of N87 billion on financial instruments measured at fair value, a stark contrast to the N549 billion gain recorded a year earlier. Due to this outcome, larger chunks of shareholders’ value were wiped out because this single swing accounted for a negative variance of over N636 billion year-on-year.

The episode highlights a dangerous dependence on market revaluations and FX-driven gains to prop up earnings, as seen that the moment conditions turn, paper profits vanish just as quickly, raising questions about the transparency, sustainability and economic substance of reported results.

Non-interest income provided little cushion. In the nine months to 2025, it declined by 44.5 percent, falling from N618.7 billion to N343.7 billion. While net fees and commission income rose by about 25 percent, the increase was too small to offset the collapse in other income lines. The result is a revenue base that is narrow, volatile, and overly exposed to market swings. Recapitalising banks without addressing this lack of income diversification simply amplifies vulnerability.

At the same time, operating costs surged. Operating expenses climbed by nearly 40 percent to N942.7 billion, while other operating expenses jumped over 43 percent on a full-year basis. Inflation, FX depreciation, energy costs, and technology spending all played a role, but the deeper issue is efficiency. Costs are rising far faster than sustainable income, eroding margins and weakening internal capital generation at precisely the moment banks are being asked to shore up capital buffers. Injecting fresh capital into institutions with broken cost structures does not resolve inefficiency; it merely postpones the inevitable days.

These financial stresses revive longstanding concerns about governance and risk culture in Nigeria’s banking system. Large impairment charges and valuation reversals do not emerge overnight. They accumulate through years of weak credit governance, excessive sector and obligor concentration, insider-related exposures, inadequate stress testing, and regulatory forbearance. Recapitalisation does not answer the most important questions: who gets credit, how risks are approved, how boards exercise oversight, and whether management is truly accountable. Without reform in these areas, more capital simply provides a thicker cushion for future losses.

Foreign exchange risk remains the system’s most dangerous and least resolved fault line. Currency devaluation inflates asset values and boosts interest income on paper, while simultaneously crushing borrowers with FX-denominated obligations. Banks may book translation or revaluation gains even as credit quality deteriorates beneath the surface. This contradiction fuels earnings volatility and undermines confidence in financial reporting. A stronger capital base does not neutralise FX mismatch risk; only disciplined risk management, credible macro policy, and transparent reporting can.

Perhaps most troubling is what First HoldCo’s results imply about regulatory credibility. Many of the impairments and valuation losses reflect risks that were visible long before they crystallised in the income statement. When losses arrive suddenly and in clusters, concerns from different quarters are raised and markets begin to question whether supervision is proactive or merely reactive. Recapitalisation without restoring trust in regulatory oversight risks being interpreted as an admission that deeper problems remain unaddressed and by extension, this erodes trust in the system and a stronger banking sector must also be a fairer and more accountable one.

Nigeria has travelled this road before. Bigger banks and higher capital thresholds have previously delivered reassuring headlines, only for familiar weaknesses to resurface in new forms. First HoldCo’s numbers demonstrate that capital adequacy, while necessary, is far from sufficient. Without the CBN confronting governance failures, asset quality deterioration, concentration risk, FX exposure, transparency gaps, and weak risk culture, recapitalisation risks will become another exercise in delay rather than reform.

The uncomfortable truth is that real stability requires more than fresh equity. It demands honest loss recognition, credible financial reporting, disciplined credit practices, diversified income streams, and regulators willing to enforce standards consistently. Until these missing pieces are addressed, recapitalisation will remain what it too often has been in Nigeria’s financial history, as a larger buffer for the same old problems, and a temporary comfort masking unresolved fragilities.

Blaise, a journalist and PR professional, writes from Lagos, can be reached via: [email protected]

Economic and Financial Crimes Commission (EFCC) has called for the suspension and prosecution of deposit banks, Fintechs and microfinance banks aiding and abetting fraudsters in defrauding Nigerians through fraudulent schemes.

Wilson Uwujaren, director of Public Affairs of the Commission, made the call in Abuja, on the sidelines of a recent news briefing about negligence and compromise of the financial institutions that cost victims billions of naira.

Uwujaren said that the commission uncovered widespread compromise within Nigeria’s financial system, involving an N18.7 billion investment scam and fraudulent transactions of N162 billion in cryptocurrencies.

He accused one new-generation bank, six Fintechs and some microfinance banks of aiding and abetting fraudsters in laundering their proceeds.

“It is worrisome that investigations by the commission showed that cryptocurrency transactions to the tune of N162 billion passed through a new generation bank without any due diligence.

“Investigations also showed that a single customer maintained 960 accounts in the new generation bank, and all the accounts were used for fraudulent purposes.”

He said that the financial institutions clearly compromised banking procedures and allowed the fraudsters to safely change their ill-gotten gains into digital assets and move them to safe destinations.

“The Commission is calling on regulatory bodies to bring financial institutions to compulsory compliance with regulations in the areas of Know Your Customers (KYC), Customer Due Diligence (CDD), Suspicious Transaction Reports (STRs) and others.

“Deposit money banks, Fintechs and microfinance banks found to be aiding and abetting fraudsters should be suspended and referred to the EFCC for thorough investigation and possible prosecution,” he said.

He said that the scams of N18.7 billion were in two categories, adding that the first was a syndicate of fraudsters that employed an airline discount scheme to lure their victims.

The second one, according to him, involved a company named Fred and Farid Investment Limited, simply called FF Investment, which lured Nigerians into a bogus investment arrangement.

“The modality of the fraudsters in the airline scam involved a string of carefully devised airline discount information that any unsuspecting foreign traveller will fall for.

“What they do is to advertise a discount system in the purchase of flight tickets of a particular foreign carrier.

“The payment module is designed in such a way that their victims would be convinced that the payment is actually made into the account of the airline.

“No sooner is the payment made than the passenger’s entire funds in his bank account are emptied.”

He said that over 700 victims had fallen into the trap of fraudsters through the scheme with a total loss of N651.1 million.

Uwujaren said that the commission succeeded in recovering and returning N33.63 million to victims of the scam and cautioned Nigerians to be more vigilant.

The second scheme, according to him, involved a company named Fred and Farid Investment Limited, simply called FF Investment, which lured Nigerians into bogus investment arrangements.

“More than 200,000 victims have been defrauded in this regard.  A total sum of N18.1 billion was raked in through nine companies offering diverse investment packages.”

Uwujaren said that foreign nationals are behind the schemes, with three Nigerian accomplices who have been arrested and charged in court.

Fitch Ratings has downgraded African Export-Import Bank’s (Afreximbank) Long-Term Issuer Default Rating (IDR) to ‘BB+’ from ‘BBB-’.

Fitch also downgraded Afreximbank’s Short-Term IDR to ‘B’, from ‘F3’, and the long-term ratings on the bank’s global medium-term note programme and debt issuance to ‘BB+’, from ‘BBB-’.

The global rating institution subsequently withdrew the bank’s ratings.

In a statement posted on its website, Fitch explained that the downgrade “reflects our revision of Afreximbank’s policy importance risk to ‘medium’ from ‘low’ following the announcement of an agreement on Ghana’s debt to Afreximbank in the context of Ghana’s broader restructuring”.

It said, “This has led us to revise our assessment of Afreximbank’s business profile to ‘high risk’ from ‘medium risk’, which resulted in an overall business environment notching of -3 (-2 previously).”

Essentially, a BB+ /Stable rating from Fitch is considered non-investment grade, also known as high-yield or “junk”.

The statement added, “Fitch has chosen to withdraw the ratings for commercial reasons. Fitch will no longer provide ratings or analytical coverage for the bank.”

In arriving at its decision, Fitch stated, “Afreximbank and Ghana announced in December 2025 that they had reached an agreement in principle with respect to Afreximbank’s $750 million sovereign loan to Ghana.

“The IMF stated that the deal is in line with the comparability of treatment under Ghana’s official creditor committee. We view this as evidence that Afreximbank did not benefit from its preferred creditor status (PCS).”

It said, “While we had not previously given any uplift in our solvency assessment for PCS, the de-facto preferential treatment in a broader sense that Afreximbank, along with most other multilateral development banks, benefit from was previously factored into our assessment of the bank’s policy importance.

“The bank’s inclusion in Ghana’s restructuring underlines its weakening policy importance, in our view.”

The rating institution also said, “Our latest assessment of Afreximbank’s ‘high’ business profile risk underpins the ‘high risk’ quality of governance assessment, and ‘high’ strategy risk.

“The ‘high risk’ business environment assessment reflects the bank’s exposure to a ‘high risk’ operating environment with weak credit quality, low income per capita and high political risk in the countries of operation.”

It explained that the ratings were driven by the bank’s Standalone Credit Profile (SCP) of ‘bb+’, reflecting the lower of the solvency (bbb+) and liquidity (a) assessments and its ‘high risk’ business environment.

The statement added that the solvency assessment balanced the bank’s ‘strong’ capitalisation and ‘moderate’ risk profile.

Fitch stated, “Afreximbank’s ‘bbb+’ solvency assessment reflects both ‘strong’ capitalisation and ‘moderate’ solvency risks. Our assessment of capitalisation is underpinned by a ‘moderate’ usable capital to risk-weighted assets (21 per cent at end-2024) ratio, a ‘strong’ equity to assets and guarantees ratio (19 per cent) and ‘excellent’ internal capital generation.

“The ‘moderate’ solvency risks assessment reflects ‘high’ credit risk, ‘weak’ risk management policies, ‘low’ concentration risk and ‘very low’ equity risk.

“Afreximbank’s ‘a’ liquidity assessment reflects the ‘strong’ quality of treasury assets, measured by the share of treasury assets rated ‘AA-’ to ‘AAA’ (50 per cent at end-2024 and we expect it to remain above the ‘strong’ threshold of 40 per cent), and a ‘moderate’ liquidity buffer (defined as liquid assets-to-short-term debt, at 95 per cent at end-2024).

“The bank’s liquidity profile is enhanced by its access to capital markets and diversified funding sources, including credit lines ($2.1 billion, of which $0.6 billion was committed at end-2024) and collateral deposits. The short duration of the loan portfolio also contains liquidity needs.”

Fitch also stated that it “assesses shareholders’ capacity to support Afreximbank at ‘bb-’, based on the average rating of key shareholders (ARKS) accounting for more than 50 per cent of the bank’s capital.

“The sovereign upgrades of Egypt and Nigeria, Afreximbank’s two largest shareholders, in April 2025 improved the ARKS to ‘B+’ from ‘B’.

“Credit risk mitigants on callable capital (covering 40 per cent of $4.3 billion) enhance the support capacity by one notch to ‘bb-’.

“The support assessment also reflects the ‘strong’ propensity of shareholders to support the bank, which has been consistently demonstrated by ongoing capital injections and dividend reinvestments.”