By Anne Mureithi

Provision of banking services in Africa continues to undergo profound digital transformation where most transactions are conducted virtually via digital devices and cash moved electronically. Mobile banking, fintech innovation, and cross-border digital payments have reshaped how individuals and businesses consume financial services.

In Nigeria and across the continent face, banks face sharp scrutiny from expanding regulatory landscape, including Anti-Money Laundering (AML), combating the financing of terrorism (CFT) and combating the financing of proliferation (CPF) that involves disrupting funds for weapons of mass destruction (WMD) through targeted financial sanctions.

With increased cross border trade, everyone including governments look upon banks to provide Know Your Customer (KYC) services, fraud risk management, and increasingly adhere to stringent data protection and privacy regulations as well as Environmental, Social, and Governance (ESG) reporting standards.

Compliance is no longer a back-office obligation, and this calls for increased investments in technology, particularly Artificial Intelligence (AI) and Machine Learning (ML) to enable banks to meet compliance requirements.

This is important as local traders want a banking partner who offers one-stop shop services on compliance matters. For banks, this is a competitive advantage, a core capability, and a source of differentiation. By embedding compliance into product and process design, banks can meet regulatory obligations efficiently while fostering innovation through a compliance-by-design approach.

In March 2025, the Central Bank of Kenya published the results of a survey on AI adoption in the banking sector, revealing moderate uptake, with 50% of respondents indicating some level of implementation. The survey found that among institutions that had adopted AI and machine learning, the leading applications were credit risk assessment (65%), cybersecurity (54%) and customer service (43%), followed by e-KYC (41%) and fraud risk management (40%).

These findings underscore significant untapped potential for AI to transform customer experience and strengthen risk management, particularly in AML and compliance monitoring. As intra-Africa trade continues to increase, compliance teams within banks must play a leading role in establishing strong governance, ensuring transparency, and preparing institutions for emerging regulatory expectations.

The Central Bank of Kenya has confirmed that it is in the final stages of developing a Guidance Note on Artificial Intelligence, with 95% of surveyed institutions having requested formal regulatory direction. The anticipated principles-based framework will focus on governance, risk management, transparency, and the ethical use of AI, laying the foundation for responsible innovation in the financial sector.

AI and ML models offer practical solutions to compliance challenges by learning and tracking typical behavioural patterns by customer, product, and corridor, flagging anomalies such as unusual counterparties, transaction values, or routing patterns in cross-border flows. These tools can also generate more accurate and complete assessments of ongoing customer due diligence and customer risk, which can be updated to account for new and emerging threats in real time.

By detecting potential violations of normal customer profiles in data or groups of customers with higher-risk characteristics, AI has streamlined priorities towards high-risk cases and reduced the time spent on false positives. This capability is increasingly critical as transaction volumes and complexity grow. Such technological advances transform compliance from a costly obligation into a strategic advantage.

Customers do not need to know one another to execute a transaction since AI-powered identity authenticates customer identity through document scanning, biometric verification and mobile-based identity solutions. These solutions have also enabled banks to onboard new customers remotely without the need to visit a physical bank to fill in registration details.

Accounts are fully secure and only users who pass the mobile-based identity verification are allowed access thereby preventing fraud. This also supports financial inclusion by enabling access to financial services for individuals who struggle to provide adequate identification documents for opening bank accounts.

In addition, Regulatory Technology (RegTech) solutions enable financial institutions to monitor regulatory developments, map obligations across their operations, conduct initial gap assessments, ensure that policies and procedures are always up to date and streamline regulatory reporting.

This capability is particularly valuable for pan-African institutions in ensuring agility while responding to regulatory changes across multiple jurisdictions. With its presence in 34 African countries, Ecobank advocates for harmonised payment systems and regulatory frameworks as a catalyst for accelerating intra-African trade.

Regional regulatory alignment further amplifies these gains. As African regulators work towards greater harmonisation of standards, banks with pan-African footprints are uniquely positioned to bridge local realities with global expectations, enabling smoother cross-border transactions and reducing friction for businesses operating across multiple markets.

The convergence of digital innovation and regulation presents an opportunity to support regional integration and strengthen public confidence. Banks that integrate compliance into their digital strategies, invest in ethical AI, enforce strong governance, and actively engage regulators will be best positioned to compete, facilitate trade, and protect financial integrity.

On an Africa-wide platform, traders from Nigeria want a synchronised platform that provides them with end-to-end solutions. Say Ecobank Group’s AML monitoring and sanctions screening capabilities within its SWIFT payment infrastructure ensure that all cross-border payment messages undergo real-time compliance checks prior to fund settlement.

With increased intra-Africa trade that rides on online platforms, accelerated digitalisation of cross-border transactions, timely, efficient, and secure payment processing is paramount. Real-time compliance monitoring is a non-negotiable cornerstone of safeguarding the integrity of international payment flows.

Ultimately, the future of banking in Africa will be defined by how institutions harness technology to meet regulatory obligations, deter financial crime, and foster trust among businesses, consumers, and public institutions alike. Compliance is no longer a constraint on growth; it is a foundation for sustainable innovation, regional integration, and long-term confidence in Africa’s financial system.

Ms Mureithi is a director in charge of compliance at Ecobank, Central, Eastern and Southern Africa (CESA)

By Blaise Udunze

Nigeria’s economy will be experiencing yet another round of reform; after the new tax implementation, the banking sector recapitalisation exercise will begin within less than three months until the March 31, 2026, deadline. The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, disclosed that 27 banks have tapped the capital market via public offers and rights issues.

The figures show that of 21 the 37 commercial, merchant, and non-interest banks in the country have met or exceeded the revised minimum capital thresholds of N500 billion for internationally authorised banks, N200 billion for national banks, N50 billion for regional banks, and N10-20 billion for non-interest banks. With the developments above, policymakers are betting that stronger balance sheets will help banks withstand macroeconomic shocks, finance growth, and restore confidence in the financial system. On the surface, the logic is sound, capital matters. But history warns us that capital alone is not a cure-all.

Nigeria has been here before, going by the 2004-2005 era of the then-governor of CBN, Charles Soludo, whose banking consolidation dramatically reduced the number of banks from 89 to 25 and created national champions. Yet barely five years later, the system was back in crisis, requiring regulatory intervention, bailouts, and the creation of the Asset Management Corporation of Nigeria (AMCON) to absorb toxic assets. The lesson here is clear, which revealed that recapitalisation that ignores structural weaknesses merely postpones failure.

If the current exercise is to succeed, the CBN must use it not only to raise capital but to repair the deeper fault lines that have long undermined the stability, credibility, and effectiveness of Nigeria’s banking sector.

More Capital isn’t Always Better Capital

The first and most critical issue is the quality of capital being raised. Disclosures made by the banks have shown that the combined capital base of about N5.142 trillion is already locked in by lenders across the different licence categories. Bigger numbers on paper mean little if the capital is not genuinely loss-absorbing. In past recapitalisation cycles, concerns emerged about funds being raised through related parties, short-term borrowings disguised as equity, or complex arrangements that ultimately recycled the same risks back into the system.

This time, the CBN must insist on transparent, verifiable sources of capital. Every naira raised should be traceable, free from conflicts of interest, and capable of absorbing real losses in a downturn. Otherwise, recapitalisation becomes an accounting exercise rather than a resilience-building one.

Why Corporate Governance Remains the Achilles’ Heel

Perhaps the most persistent weakness in Nigeria’s banking sector is corporate governance failure. Many bank crises have not been caused by macroeconomic shocks alone, but by poor board oversight, insider abuse, weak risk culture, and excessive executive power.

Recapitalisation provides a rare regulatory leverage point. The CBN should use it to reset governance standards, not just capital thresholds. Boards must be independent in substance, not just in form. Being one of the critical aspects of the banking challenge, insider lending rules should be enforced without exception. Risk committees in every financial institution must be empowered, not sidelined by dominant executives.

Without the apex bank fixing governance, new capital risks become fresh fuel for old excesses.

The Unresolved Burden of Non-Performing Loans (NPLs)

Data from the CBN’s latest macroeconomic outlook showed that the banking industry’s Non-Performing Loans ratio climbed to an estimated 7 percent, pushing the sector above the prudential ceiling of 5 percent. Nigeria’s banking sector continues to be drowned with high volumes and recurring non-performing loans (NPLs), and this is often concentrated in sectors such as oil and gas, power, and government-linked projects. Though with the trend of events, one may say that regulatory forbearance has helped maintain surface stability in the sector, no doubt it has also masked underlying vulnerabilities.

The truth is that a credible recapitalisation exercise must confront this reality head-on. Loan classification and provisioning standards should reflect economic truth, not regulatory convenience. Banks should not be allowed to carry impaired assets indefinitely while presenting healthy balance sheets to investors and the public.

Transparency around asset quality is not a threat to stability; it is a foundation for it.

How Foreign Exchange Risk Quietly Amplifies Financial Shocks

Few risks have damaged bank balance sheets in recent years as severely as foreign exchange volatility. Many banks continue to carry significant FX mismatches, borrowing short-term in foreign currency while lending long-term to clients with naira revenues.

During periods of FX adjustment, these mismatches can rapidly erode capital, no matter how well-capitalised a bank appears on paper. Recapitalisation must therefore be accompanied by tighter supervision of FX exposure, stronger disclosure requirements, and realistic stress testing that assumes adverse currency scenarios, not best-case outcomes.

Ignoring FX risk is no longer an option in a structurally import-dependent economy.

Concentration Risk and the Narrow Credit Base

Another long-standing weakness is excessive concentration risk. A disproportionate share of bank lending is often tied to a small number of large corporates or government-related exposures. While this may appear safe in the short term, it creates systemic vulnerability when those sectors face stress.

At the same time, the real economy, particularly SMEs and productive sectors, remains underfinanced because, over the years, Nigeria’s banks faced significant concentration risk, particularly in the oil and gas sector and in foreign currency exposure, while grappling with a narrow credit base characterised by limited lending to the private sector. This is due to high credit risk and tight monetary policy. Owing to this trend, recapitalisation should therefore be in alignment with policies that encourage credit diversification, improved credit underwriting, and smarter risk-sharing mechanisms, and not the other way round.

Therefore, it will be right to say that banks that grow larger but remain narrowly exposed do not strengthen the economy; they amplify its fragilities.

Risk Management in a Volatile Economy

The recurring inflation shocks, interest-rate swings, fiscal pressures, and external shocks are frequent features, not rare events, which show that Nigeria is not a low-volatility environment.

Currently, the Nigerian banking sector’s financial performance and investment returns are equally affected by various risks, including credit, liquidity, market, and operational risks.

Today, many banks still operate risk models that assume stability rather than disruption. Time has proven that risk management is essential for mitigating these risks and ensuring stability and profitability.

The apex bank must ensure that the recapitalisation process mandates robust, Nigeria-specific stress testing, and banks must demonstrate resilience under severe but plausible scenarios. This includes sharp currency depreciation, interest-rate spikes and sovereign stress. It must evolve from a compliance function to a strategic discipline.

Transparency and Financial Reporting

Investors, depositors, and analysts must be able to understand banks’ true financial positions without navigating a lack of transparent disclosures or creative accounting. Hence, public trust in the banking sector depends heavily on credible financial reporting.

The CBN should use recapitalisation to strengthen the International Financial Reporting Standard enforcement, disclosure standards, and audit quality. In championing this course, banks’ financial statements should clearly reflect capital adequacy, asset quality, related-party transactions, and off-balance-sheet exposures. Transparency is to enable confidence, not about exposing weakness.

Regulatory Consistency and Credibility

Policy credibility has been one of the greatest challenges for Nigeria’s financial regulators.

Abrupt changes, unclear timelines, and inconsistent enforcement undermine investor confidence and weaken reform outcomes.

Recapitalisation must be governed by clear rules, predictable timelines, and consistent enforcement. Both domestic and foreign investors need assurance that the rules of the game will not change midstream. Regulatory credibility is itself a form of capital.

Consumer Protection and Banking Ethics

While recapitalisation focuses on banks’ balance sheets, the public experiences banking through fees, service quality, dispute resolution, and ethical conduct. Persistent complaints about hidden charges and poor customer treatment erode trust in the system and a stronger banking sector must also be a fairer and more accountable one. It must be noted that strengthening consumer protection frameworks alongside recapitalisation will help rebuild public confidence and reinforce financial inclusion goals.

Too Big to Fail and How to Resolve Failure

Looking at what is obtainable in the system, larger, better-capitalised banks can also become systemically dangerous if failure resolution frameworks are weak. This requires that recapitalisation should therefore be accompanied by credible plans for resolving distressed banks without destabilising the entire system or resorting to taxpayer-funded bailouts, which has been the norm in the Nigerian banking sector today. The cynic might say that recapitalisation simply made big banks bigger and empowered dominant shareholders. However, a more prospective approach invites all stakeholders, including regulators, customers, civil society and bankers themselves, to co-design the next chapter of Nigerian banking; one that balances scale with inclusion, profitability with impact, and stability with innovation.

Clear resolution mechanisms reduce moral hazard and reinforce market discipline.

A Moment That Must Not Be Wasted

Recapitalisation is not merely a financial exercise; it is a governance and trust reset opportunity. If the CBN focuses solely on capital numbers, Nigeria risks repeating a familiar cycle of apparent stability followed by crisis.

The banking sector can lay a solid foundation that truly supports economic transformation if recapitalization is used to address governance failures, asset quality, FX risk, transparency, and regulatory credibility.

Nigeria does not just need bigger banks. It needs better banks, institutions that are resilient, transparent, well-governed, and trusted by the public they serve. Hence, it must be a system that creates a more robust buffer against shocks and positions Nigerian banking as a global competitor capable of funding a $1 trillion economy, as the case may be.

This recapitalisation moment must be about building durability, not just size. The cost of missing that opportunity would be far greater than the cost of getting it right.

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

By Blaise Udunze

Millions of Nigerian citizens are watching with cautious anticipation as the federal government begins implementing its far-reaching 2026 tax reforms. This is to say that the official assurances that the new tax regime will be fairer, simpler, and more humane, as relished by the proponents of the reforms, are being listened to by both low-income workers, small business owners, professionals, and informal sector participants.

Still, behind the optimism is a familiar worry shaped by past experience that reminds us that taxation without accountability undermines both governance credibility and the legitimacy of the tax system, thereby making it hard to believe in.

For many Nigerians, the question is not whether taxes should be paid, but whether the state has earned the moral authority to demand them, judging by the lack of accountability over the years.

The Nigerian Tax Act and the Nigerian Tax Administration Act, two of the four pillars of the 2026 reforms, came into force on January 1, reshaping how individuals and businesses are taxed. According to proponents of the reforms, particularly the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Dr. Taiwo Oyedele, the changes are deliberately pro-poor and pro-growth. Workers earning below N800,000 annually are exempted from personal income tax. Basic food items, healthcare, education, and public transportation have been removed from the VAT net. Small companies with turnovers of N100 million or less are exempt from corporate income tax, capital gains tax, and the new development levy. Multiple tax laws have been consolidated into a unified code to reduce duplication, confusion, and harassment.

On paper, these reforms acknowledge Nigeria’s economic distress and signal a genuine attempt to lighten the burden on the majority of citizens. However, Nigeria’s tax crisis has never been about tax rates alone.

Nigerians have lived through decades of taxation that did not translate into visible development, social welfare, or improved quality of life, as this has succinctly shown that it is fundamentally about trust. No matter how progressive, for this singular reason, Nigerians see the announcement of the reforms via a long memory of disappointment and failure, while Nigerians have increasingly become vocal in demanding accountability from government at all levels, and social media has played a powerful role in amplifying public scrutiny in recent years.

Images and videos of the alleged lavish lifestyles of public office holders and their families are alarming and circulate widely, reinforcing the perception that public funds are misused or siphoned for private gain. While not all such claims are verified, the damage lies in the perception itself since governance credibility suffers when citizens believe that those entrusted with public resources live far above the realities of the people they govern.

The Nigerian Constitution, while not explicitly mandating accountability in narrow terms, establishes in Section 14 that the security and welfare of the people shall be the primary purpose of government. The state is expected to manage the economy in a manner that ensures maximum welfare, freedom, and happiness of citizens on the basis of social justice and equality. The provisions made in Section 22 further empower the media and arm it to the teeth to hold the government accountable to the people and beyond constitutional provisions, Nigeria voluntarily signed up to global transparency initiatives such as the Extractive Industries Transparency Initiative, domesticated through the NEITI Act of 2007. Over the period, NEITI has helped improve disclosure in the extractive sector, as its mandate does not extend to tracking how revenues are spent, leaving a critical accountability gap.

This gap is most evident in the lived experience of Nigerian taxpayers. Intrinsically, the average Nigerian does not experience taxation as a collective investment in shared prosperity. Instead, taxation feels like an added burden layered on top of already crushing personal responsibilities. Nigerians generate their own electricity through generators, source water privately, pay for security, indirectly fund road maintenance through vehicle repairs, and bear healthcare and education costs out of pocket. When citizens pay taxes and still bear the full cost of survival, taxation begins to resemble organized extraction rather than civic contribution.

For instance, the stories of Mr. George and Mr. Kunle reflect this reality. Mr. George, is an earned salary worker who has personal income tax deducted monthly through PAYE. Meanwhile, George also pays for electricity, security, water, road repairs, and private schooling. What about Mr. Kunle, who is a small business owner and chooses not to pay taxes voluntarily with the belief that the government has failed to meet its obligations and other rights? Their frustration is widely shared. According to the IMF, only about 10 million Nigerians out of a labour force of 77 million are registered taxpayers. This low compliance is not a product of ignorance alone, but of a deeply broken social contract.

Over the years, successive governments have attempted to address low compliance through amnesty schemes such as the Voluntary Asset and Income Declaration Scheme. Though these initiatives temporarily expanded the tax base, their long-term impact remains questionable because compliance driven by fear of penalties or temporary incentives does not endure where trust is absent. In Nigeria, tax compliance is often compelled rather than voluntary, just as we are about to experience in this new regime, enforcement tends to replace persuasion. This approach may generate short-term revenue, but it weakens legitimacy and fuels resistance.

Academic studies on taxation and accountability in Nigeria reinforce this conclusion. While global literature suggests a strong relationship between government accountability and voluntary tax compliance, Nigeria’s experience has been distorted by weak institutions and limited political legitimacy. This should be noted by the policymakers that where citizens perceive government as unaccountable, coercion increases, collection costs rise, and evasion becomes normalized. Hence while, the result is a vicious cycle in which low trust breeds low compliance, prompting harsher enforcement that further erodes trust.

Other jurisdictions offer valuable lessons. For instance, today, a country like Sweden has one of the highest tax-to-GDP ratios in the world with remarkably high compliance rates, and this has been the norm despite imposing steep personal income taxes. The reason is simple, in the sense that transparency and visible benefits are not far-fetched. Citizens know how their taxes are spent and experience the returns through quality education, healthcare, social security, and public services. Taxation is viewed not as punishment but as a shared investment. In China, targeted tax deductions for healthcare and education similarly align taxation with social needs, reinforcing compliance through perceived fairness.

Nigeria’s challenge is not to replicate these systems mechanically, but to internalize their core principle that enables the people to comply willingly when they believe the system works and that everyone is treated fairly.

This principle is being tested anew by the recent controversy surrounding the Federal Inland Revenue Service’s (now branded as Nigeria Revenue Service) appointment of Xpress Payments Solutions Limited as a Treasury Single Account collecting agent. Though framed as a technical step toward modernizing digital tax infrastructure, the quiet nature of the appointment, coupled with limited public disclosure, has reignited fears of revenue capture and cartelization. Critics have drawn parallels with past private-sector dominance over state revenue systems, warning against concentrating sensitive national revenue functions in private hands without clear safeguards.

Former Vice President Atiku Abubakar’s reaction captured the broader public unease. He raised an alarm while warning against what he described as the nationalization of a revenue collection model that had previously raised serious transparency concerns and the Nigeria Revenue Service (NRS) has insisted that Xpress Payments is merely an additional option and not an exclusive gatekeeper, the controversy highlights a deeper issue, which authenticates the fact that in a climate of low trust, silence, and lack of clarity, suspicion. Even well-intentioned reforms can falter if citizens feel excluded from the process.

With broader concerns about governance, accountability, and democratic integrity in society, this moment coincides with it. Even the recent calls by leaders such as Rotimi Amaechi and civil society organizations like ActionAid Nigeria underscore the growing demand for responsible, transparent and people-oriented leadership as being raised from different quarters. Governance indices consistently rank Nigeria poorly on accountability, while poverty, unemployment and insecurity remain widespread. That is what, in such a context, asking citizens to trust the tax system without first restoring confidence in governance is unrealistic and unattainable.

At the core of the debate lies a fundamental moral question: when does a government have the right to tax its citizens? Taxation is not charity and it is not magic. It is a contract. Citizens surrender a portion of their income so the state can provide security, infrastructure, justice, and essential services that individuals cannot efficiently provide on their own. When this exchange functions, taxation feels legitimate. When it fails, taxation feels coercive.

No doubt, legally, the Nigerian state retains the power to tax, but morally, legitimacy depends on performance. Security is foundational. Infrastructure enables productivity. The government must understand that healthcare and education protect human capital, while transparency ensures fairness. And, when these pillars are weak, taxation loses its ethical grounding. All that Nigerians demand is not perfection; they demand evidence that their sacrifices matter.

As the implementation of the new tax reforms takes root, Nigeria stands at a defining moment. The reforms offer an opportunity to reset the social contract around taxation, broaden the tax base, and reduce dependence on dwindling oil revenues. But the point being flagged is that reform without accountability will only reproduce old failures in new forms. To buttress this further, taxation without accountability, as being practiced in the past, will invariably undermine governance credibility and erode the legitimacy of the tax system.

And, as the scripture says, you cannot put “old wine in a new wineskin.” Failure to adhere to this instruction will lead to combustion. Yesterday’s methods or mindsets on taxation will rupture new strategies, which cannot thrive or survive because of a lack of accountability.

If the government is serious about improving voluntary compliance, it must go beyond policy announcements. Hence, must demonstrate transparent use of tax revenues, strengthen oversight institutions, limit monopolistic control over revenue collection, and communicate clearly and consistently with citizens. Most importantly, it must deliver tangible improvements in the daily lives of all Nigerians.

When citizens see roads fixed, hospitals working, schools improving, and security strengthened, compliance will follow. Voluntary tax compliance is not an act of generosity; it is a rational response to trust. Fix the system, restore confidence, and Nigerians will pay, not because they are forced, but because the contract finally makes sense.

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