Banks Draw Majority of Capital Inflows Amid Ongoing Reforms

Nigeria’s banking sector has emerged as the top destination for capital inflows into the country, attracting more than half of total foreign investment in the first half of 2025. This development comes on the back of ongoing financial reforms aimed at stabilising the economy, boosting investor confidence, and deepening the financial sector.

According to the latest data released by the National Bureau of Statistics (NBS), the banking industry accounted for the largest share of capital inflows, outpacing other sectors such as telecommunications, manufacturing, and agriculture. Analysts say the dominance of banks in attracting investment reflects both the sector’s central role in the economy and the reforms being implemented by monetary authorities.

The report shows that capital importation into Nigeria during the period was driven by portfolio investments, foreign direct investment (FDI), and other forms of inflows. Of these, a substantial portion flowed directly into banking institutions, underscoring the sector’s attractiveness as a safe and profitable entry point for foreign investors.

Financial experts note that the Central Bank of Nigeria’s (CBN) foreign exchange reforms, including efforts to unify exchange rates, reduce currency volatility, and liberalise the forex market, have made the sector more appealing. These measures, alongside regulatory support for recapitalisation and digitalisation, are believed to have positioned banks as a stable channel for investors seeking exposure to Africa’s largest economy.

Commenting on the trend, economist and investment analyst, Dr. Kemi Okafor, said: “Investors naturally gravitate towards banks because they are not only intermediaries but also beneficiaries of reforms. The FX market liberalisation, in particular, has restored confidence in the ability of banks to manage capital inflows efficiently. This explains why they now account for more than half of the total inflows into Nigeria.”

The sector’s dominance has also been attributed to ongoing recapitalisation initiatives. In April 2025, the CBN announced new minimum capital requirements for commercial banks, giving them a deadline of 2026 to raise additional funds. This directive has triggered fresh investments as banks seek to strengthen their capital base in line with regulatory standards.

Foreign portfolio investors, in particular, have responded positively to these changes. With yields on Nigerian government securities rising and the naira showing signs of relative stability, many investors have channelled their funds through local banks. These inflows have provided banks with liquidity to expand credit to the private sector, support trade, and enhance profitability.

Despite these gains, concerns remain about the concentration of capital inflows in one sector. Analysts warn that overreliance on banking inflows could expose the economy to vulnerabilities if investor sentiment shifts. They argue that while banks are critical, Nigeria must also work to attract sustained investments into manufacturing, agriculture, infrastructure, and energy to drive long-term development.

A senior research analyst with a Lagos-based investment firm, who preferred not to be named, explained: “The banking sector cannot be the only magnet for capital inflows. If we want inclusive growth, inflows must also target job-creating sectors. Heavy concentration in one sector means that any shock affecting banks could spill over into the broader economy.”

The NBS data also revealed that while capital importation improved compared to last year, the overall volume remains below pre-pandemic levels. Foreign direct investment, in particular, continues to lag behind, as many investors prefer portfolio investments that offer quick returns but do not create long-term infrastructure or employment.

The Federal Government has acknowledged these concerns and pledged to broaden the scope of reforms to make other sectors more attractive. Policies are being developed to encourage public-private partnerships in infrastructure, reduce bottlenecks for manufacturers, and incentivise agribusiness. Officials insist that Nigeria’s large market and natural resources provide enough opportunities for diverse investments if structural challenges are addressed.

The banking sector, meanwhile, has assured stakeholders that it will continue to support economic recovery. The Bankers’ Committee recently announced that member banks were working on new credit schemes for small and medium enterprises (SMEs), technology start-ups, and housing projects. They believe that channeling capital inflows into productive ventures will help spread the benefits across the wider economy.

Industry observers say that the continued inflow of funds into banks is a vote of confidence in Nigeria’s financial system at a time when other emerging markets are struggling to attract foreign investment. However, they caution that sustaining this momentum requires consistent policies, political stability, and improvements in the ease of doing business.

The performance of banks on the Nigerian Exchange (NGX) has also mirrored these inflows, with several listed lenders reporting strong earnings and improved investor interest. Analysts predict that if current reforms are sustained, banks will continue to dominate capital inflows in the short term, while other sectors gradually adjust to attract their share of investment.

As Nigeria navigates its economic reforms, the dominance of banks in capital importation highlights both progress and challenges. While it underscores the resilience of the financial sector, it also points to the urgent need for diversification. For now, banks remain the primary gateway for foreign investors, holding more than half of the country’s capital inflows.