Digitnomics 
BY BLAISE UDUNZE,
Nigeria’s banking industry appears to be booming, largely driven by the policies of the Central Bank of Nigeria (CBN), under Governor Olayemi Cardoso, while the real economy continues to suffocate.
At a time when millions of Nigerians are sinking deeper into poverty, when inflation continues to erode household incomes, when businesses are collapsing under unbearable operating costs, and when migration has become a survival strategy for many young professionals, Nigerian banks are announcing staggering profits, stronger capital positions and unprecedented liquidity growth.
According to the bank’s financial statements, the financial system appears healthy. In reality, the economy where citizens work, trade and survive is gasping for breath.
This growing disconnect between financial sector prosperity and economic suffering now represents one of the gravest threats to Nigeria’s long-term economic stability and its ambition of building a $1 trillion economy.
The numbers are indeed impressive. Nigerian banks’ shareholders’ funds reportedly surged to about N27 trillion following the recapitalisation exercise. The top five banks now command balance sheets estimated at over N164 trillion. Tier-1 banks collectively generated trillions in profits within the first quarter of 2026 alone, while the sector-wide recapitalisation exercise raised over N4.56 trillion.
Ordinarily, such figures should inspire confidence about the future of the economy. Stronger banks are expected to translate into stronger businesses, more jobs, industrial expansion and wider economic opportunities. But Nigeria’s experience is proving otherwise.
Instead of serving as engines of productive growth, banks are increasingly becoming custodians of liquidity trapped within the financial system itself. That is the real danger.
Even as banking liquidity expands sharply, lending to the productive economy remains weak and constrained. Reports indicate that banks parked a record N24.13 trillion with the CBN, while simultaneously increasing investments in government securities and treasury bills because these avenues are safer, more profitable and less risky than lending to businesses operating within Nigeria’s harsh economic climate. This reality exposes a dangerous contradiction.
A developing economy desperately in need of industrialisation, manufacturing growth, infrastructure expansion and job creation cannot afford a banking system that prefers financial safety over productive economic risk.
A sustainable economy cannot thrive where the real sector is starved of funds. Yet this is exactly where Nigeria now stands.
Despite the massive liquidity in the banking system, growth in lending to the private sector continues to lag behind the pace of liquidity expansion. The implication is clear. Financial sector strength is no longer translating into real economic development. This is not how healthy economies function.
Ordinarily, banks in developing economies are expected to operate as catalysts for economic transformation. Across successful economies, commercial banks finance manufacturing, agriculture, innovation, infrastructure and entrepreneurship because those sectors generate jobs, productivity and national wealth.
Small and Medium Enterprises (SMEs), especially, are globally recognised as the backbone of grassroots economic development. Nigeria is no exception.
SMEs account for over 70 percent of registered businesses, contribute nearly half of Nigeria’s GDP and generate between 84 and 90 percent of employment opportunities. Yet despite their overwhelming importance, SMEs reportedly receive barely between 0.5 percent and one percent of total commercial bank lending. That is not merely a policy failure. It is an economic tragedy.
Every denied SME loan is a denied employment opportunity. Every failed business represents another frustrated entrepreneur. Every frustrated entrepreneur becomes another Nigerian contemplating migration.
This is how economic dysfunction transforms into human displacement. The so-called “Japa” phenomenon did not emerge in isolation. It is deeply connected to economic hopelessness. When productive citizens lose faith in their country’s economic future, migration stops being a lifestyle choice and becomes a survival mechanism.
Unbeknownst to the policymakers is that Nigeria cannot realistically build a $1 trillion economy while productive sectors remain financially suffocated.
A closer glance at the trend of events helps to reveal that the danger becomes even more severe when viewed against the backdrop of the recent outcome of the 305th Monetary Policy Committee (MPC) meeting, where the CBN retained the Monetary Policy Rate (MPR) at 26.5 percent in its bid to sustain disinflation and macroeconomic stability.
It is understandable and certain that inflation control is important, but the fact is that at 15.69 percent, inflation remains painfully high and continues to weaken purchasing power. Food prices remain elevated. Transportation costs remain unbearable. Consumer demand is weakening. The middle class is shrinking rapidly.
But maintaining elevated interest rates also comes with painful consequences. Simple arithmetic tells us that higher interest rates mean higher lending costs. Higher lending costs mean higher production costs. Higher production costs worsen inflationary pressures and weaken business survival rates.
