Following a successful banking sector recapitalisation that raised N4.65 trillion within 24 months, former Central Bank of Nigeria Deputy Governor Tunde Lemo has warned of a potential bubble forming in Nigeria's capital market. Lemo, who is Chairman of Lambeth Capital Limited and Flutterwave, urged the CBN under Governor Olayemi Cardoso to strengthen macro-prudential policies and regulatory oversight. He expressed concern that increased bank capital could lead to excessive lending, inflating share prices and creating speculative risks. The recapitalisation saw 72.55 per cent of funds sourced locally and 27.45 per cent internationally, meeting new minimum capital requirements of N500 billion, N200 billion, and N50 billion for international, national, and regional commercial banks respectively. Lemo stressed the importance of stress testing and contingency planning to safeguard financial stability. He noted that while the CBN has refocused on its core mandate since adopting narrow banking, vigilance is needed to prevent misuse of depositors' funds in proprietary trading. "They should keep an eye on that so we don't build another bubble that will bust later," he said in an interview with THISDAY. Lemo added that macro-prudential tools should be adjusted according to economic cycles, building buffers in boom periods to withstand downturns. He called for immediate action, stating, "Stress testing has to do with a situation where I have this level of non-performing assets, suppose the economy goes down further and there are problems, and a spike in my non-performing assets."
Tunde Lemo's warning carries weight not just because of his tenure at the CBN, but because he is speaking from experience—having overseen critical reforms during past financial transitions. His specific concern about bubbles forming post-recapitalisation points to a recurring pattern: periods of financial strengthening often unleash lending surges that regulators struggle to contain. The fact that banks raised N4.65 trillion, with over 72 per cent from local investors, suggests strong domestic confidence—but also concentrates risk within the national financial system.
This isn't merely about market overheating; it's about how quickly capital can shift from stability to speculation when incentives misalign. Lemo's emphasis on macro-prudential policies—like adjusting reserve buffers during booms—reveals a deeper issue: Nigeria's financial regulators often act reactively, not preemptively. The call for immediate stress testing and interbank contingency planning indicates existing gaps in systemic coordination, even as banks grow larger and more interconnected.
For ordinary Nigerians, especially retail investors and small depositors, a market bubble burst would erode savings and credit access, hitting middle-class households and small businesses hardest. With more local capital now tied to the banking sector, the stakes of mismanagement have never been higher. This moment fits a broader trend: Nigeria repeatedly strengthens institutions in response to crisis, but rarely sustains vigilance in calm periods—setting the stage for the next one.
