The Central Bank of Nigeria has cautioned that the ongoing banking sector recapitalisation could increase concentration risk in Nigeria’s capital market, potentially crowding out non-bank issuers, despite the current bullish momentum in equities.

The warning is contained in the Macroeconomic Outlook for Nigeria, 2026: Consolidating Macroeconomic Stability Amid Global Uncertainty, where the apex bank highlighted emerging vulnerabilities across the financial system.

According to the CBN, the recapitalisation exercise, while critical to strengthening banks’ balance sheets and enhancing resilience, may skew investor attention disproportionately towards the banking sector.

“Despite the bullish momentum, the capital market could face higher concentration risk from the banking sector, as the ongoing recapitalisation could trigger investor fatigue and crowd out other issuers,” the CBN said in the report.

The Bank explained that increased capital-raising activities by deposit money banks could limit funding access for corporates outside the financial sector, particularly as banks dominate equity issuance during the recapitalisation window.

While recent improvements in capital adequacy and liquidity ratios provide buffers for banks, the CBN warned that these gains remain vulnerable to adverse macroeconomic developments.

“An increase in credit losses or foreign exchange illiquidity could erode capital reserves, breach prudential thresholds, and strain liquidity coverage,” the apex bank said, noting that such conditions could disrupt financial intermediation and weaken market confidence.

The report also flagged rising non-performing loans as a medium-to-high risk to the banking system, warning that asset quality deterioration could weaken earnings and amplify systemic vulnerabilities.

In addition, the CBN identified exchange rate volatility as a key risk factor, stating that a sharp depreciation of the naira, though considered unlikely, could negatively affect banks’ balance sheets and liquidity positions while expanding monetary aggregates and heightening inflationary pressures.

Beyond financial risks, the apex bank also raised concerns about cybersecurity threats, citing the high level of interconnectedness within the economic system.

“The high degree of interconnectedness among financial institutions creates a systemic susceptibility, where cyberattacks on systems could propagate data breaches, compromise confidential information, and erode public confidence in the financial system,” the report stated.

On the fiscal side, the CBN warned that Nigeria’s 2026 budgetary outlook remains vulnerable to oil price and production shocks, given the heavy reliance on oil revenue, which is projected to account for over 57 per cent of total government revenue.

The bank added that while non-oil revenue prospects hinge on the successful implementation of the Nigeria Tax Act, 2025, weak tax compliance, low awareness, and gaps in tax administration could undermine revenue performance.

The CBN concluded that sustaining macroeconomic stability amid global uncertainty would require coordinated policy actions to manage financial sector risks, strengthen public finance management, and ensure balanced capital market development beyond the banking sector.