By Chinwendu Obienyi
Nigeria’s 65th Independence Anniversary has reignited calls for a banking system that fuels growth, reduces poverty and supports the nation’s push toward self-reliance in an increasingly competitive global economy.
But that is not to say that the banking system has not evolved over the years.
From the colonial-era trading banks of the early 20th century to the tech-driven financial institutions of today, the Nigerian banking sector has mirrored the country’s evolution which has been marked by resilience, reform and reinvention.
However, the story of banking in Nigeria predates independence, with institutions like the British Bank of West Africa (now First Bank) and Barclays (now Union Bank) dominating the landscape in the early 1900s. These banks catered primarily to colonial interests, facilitating trade and supporting expatriate businesses, while local participation was minimal.
Indigenous banking began to take shape in the 1930s and 1940s with the establishment of institutions such as the National Bank of Nigeria and the African Continental Bank. Yet, many early indigenous banks collapsed due to poor regulation and weak management, a foreshadowing of future challenges.
By 1960, when Nigeria gained independence, the banking sector was small but growing. First Bank, Union Bank, and United Bank for Africa (UBA) were the key players and banking services remained urban-centric, largely out of reach for the rural population.
Hence, even though the pre-independence era laid the groundwork, it was post-independence reforms that shaped Nigerian banking into a true national industry.
This is because the years following independence brought rapid expansion. The 1970s oil boom fueled economic growth and spurred the creation of more banks to meet rising demand for credit and foreign exchange. The federal government, through the indigenization policy of 1972 and 1977, acquired stakes in major banks, giving Nigerians greater control over the sector.
This period saw the rise of banks like Afribank and Savannah Bank, and the proliferation of merchant banks. But it also exposed weaknesses in risk management and corporate governance. Easy money from oil revenue encouraged reckless lending, while political interference often trumped prudence.
The 1980s ushered in a wave of deregulation under the Structural Adjustment Programme (SAP), which liberalized the banking sector and led to an explosion in the number of banks. From fewer than 40 in 1986, the number of licensed banks grew to over 120 by the early 1990s.
New-generation banks such as Zenith Bank, Guaranty Trust Bank (GTBank), and Access Bank emerged, introducing customer-friendly services, aggressive marketing, and innovative products that broke the monopoly of older institutions.
However, rapid growth came with a price. Poor risk management, inadequate supervision, and political instability led to widespread distress. By the mid-1990s, dozens of banks were insolvent. The infamous “wonder banks” of the era, which operated Ponzi-like schemes, left thousands of depositors in ruin.
The development forced regulators and operators to rethink the fundamentals of banking in Nigeria and by 2004, the turning point happened. The Central Bank of Nigeria (CBN), under Governor Charles Soludo, introduced sweeping reforms to stabilize the industry with the most notable being the increase in minimum capital requirements from N2 billion to N25 billion, forcing banks to either recapitalise or merge.
This consolidation reduced the number of banks from 89 to 25, creating stronger and more resilient institutions capable of withstanding economic shocks. It also marked the emergence of mega banks such as Access Bank and United Bank for Africa as pan-African players.
Subsequent reforms under Sanusi Lamido Sanusi, including the 2009 bailout of distressed banks and the creation of the Asset Management Corporation of Nigeria (AMCON), further strengthened the sector’s foundations. According to economic and banking stakeholders, these reforms saved the Nigerian banking system from collapse and positioned it for regional dominance.
Digital era
If the Soludo reforms laid the structural foundation, the past decade has been defined by technology. Nigerian banks have embraced digital banking, mobile apps, and fintech collaborations to expand financial access and reduce costs.
Platforms like GTWorld, Zenith’s ZMobile, and Access More have redefined convenience, while the rise of fintech companies like Flutterwave, Paystack, and Opay has blurred the lines between traditional banking and technology-driven financial services.
According to the Nigeria Inter-Bank Settlement System (NIBSS), electronic payment transactions grew from N48 billion in 2012 to over N500 trillion in 2024, highlighting the sector’s digital transformation.
Co-founder, Lidya, a fintech firm, Tunde kehinde, said, “Nigeria is one of the fastest-growing digital banking markets in the world. The competition between banks and fintechs is driving innovation and lowering barriers to financial inclusion.”
Challenges persist
Despite impressive progress, the Nigerian banking industry still faces enduring challenges. For instance, chronic currency devaluation, inflation, and oil dependency continue to test banks’ resilience. The recent foreign exchange liberalization has improved liquidity but increased exposure to FX risks.
Although NPL ratios have improved from the highs of the mid-2010s, sectors like oil and gas still pose significant credit risks for non-performing loans. Furthermore, the financial Inclusion gap still remains. According to the Enhancing Financial Innovation & Access (EFInA) survey, 36 per cent of Nigerian adults remain unbanked, despite mobile banking gains. Additionally, rural communities and low-income earners remain underserved.Also, with increased digitization comes heightened exposure to fraud and cybercrime. Nigerian banks lose billions annually to electronic fraud, according to the CBN.
Possible trajectories
Barring the challenges already mentioned, there are several plausible trajectories to be seen in the banking sector. Specifically, the upcoming 2026 deadline for recapitalisation may lead to fewer but more powerful banks. Mid-tier or smaller banks will either merge, be acquired or downgrade licenses. At the moment, only 14 banks have met the CBN’s recapitalisation directive. Also, it is expected that with extraordinary gains (FX, inflation spread) expected to decline over time, banks will increasingly depend on organic business; lending, trade finance, non-interest income (fees, commissions), services to SMEs, wealth management, digital products.
The CBN under the Cardoso-led administration has so far shown its shrewd discipline and constantly during its address at the post Monetary Policy Committee (MPC) meetings stated that it will do everything within its reach to ensure the sector is stable, adequately capitalized and well governed. However, stricter oversight, higher compliance costs, more stress testing, disclosures and possibly higher taxes or levies may likely impose burdens. Hence, the balance between stability, growth, innovation and customer cost will be delicate.
Experts’ views
Experts and stakeholders agree that the next phase of growth will require bold action. The Group Chief Executive Officer, GTCO, Segun Agbaje, noted that the Nigerian banking system must become more capable of driving growth rather than merely adapting to it.
“This would mean that we have to really invest in technology, strengthen risk management, and deepen financial inclusion”, Agbaje added.
Director, Institute of Capital Market Study at Nasarawa State University and President of Capital Market Academics of Nigeria, Prof Uche Uwaleke, noted that over the past several years, banks have become better in terms of financial intermediation (e.g. availability of banking products, digital banking, payments systems), but argued that lending to the real (productive) sectors; agriculture, manufacturing, infrastructure, is not yet strong enough as the high cost of borrowing, liquidity constraints, and regulatory burdens are hurting that.
“I would agree that the banking sector is more robust than before in terms of better regulation (prudential guidelines), use of technology, improved payments systems, greater financial inclusion. However, these past few years, we are yet to see it transcend to the broad economy.
The growth is “weak and fragile” when looked at more broadly. The banking sector’s strong performance hasn’t translated sufficiently into broader economic output”, he said.
According to him, “when the financial sector underperforms, it drags on GDP growth”. Giving his recommendations, Uwaleke called for more improved collaboration with banks and fintechs. “Right now it should be more of a collaboration and not competition, they can leverage each other’s strengths. The monetary authority can also collaborate with the fiscal authorities to aid this improvement as well as others which is to reduce excess liquidity in the system.
To propel Nigeria’s economy, banks need to move beyond transactional banking to developmental banking. That will mean, we will need to finance infrastructures, support the SMEs and foster innovation, he said.
Conclusion
Although the journey from colonial trading banks to fintech-powered digital platforms has been remarkable, at 65, Nigeria’s banking sector is far from reaching its potential as the future demands more than just adaptation.
For a country aiming to fulfil immense economic promise, the banking sector has the tools and increasingly the mandate to be one of the most powerful levers. But as the country grapples with economic uncertainties, the banking sector’s ability to innovate, include and lead will determine not just its own fate but that of the Nigerian economy itself.
Whether the banks can transform from resilient survivors into proactive drivers of national prosperity, the years coming can only confirm that.
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