Banks Capture Majority of Capital Inflows as Economic Reforms Boost Investor Confidence

Nigeria’s banking sector attracted more than half of total capital inflows into the country in the first half of 2025, underscoring its central role in the nation’s economic reform agenda and growing investor appetite for financial services.

Data from the National Bureau of Statistics (NBS) reveal that the financial institutions sector accounted for over 52 percent of the $3.21 billion in total capital importation recorded between January and June 2025. This dominance reflects the continued confidence of foreign investors in Nigeria’s banking system despite macroeconomic headwinds and policy adjustments.

According to the NBS report, foreign portfolio investments in Nigerian banks surged on the back of monetary policy tightening, exchange rate liberalisation, and ongoing reforms in the foreign exchange market introduced by the Central Bank of Nigeria (CBN). The reforms, analysts say, have improved transparency and deepened liquidity in the financial system, making Nigerian banks an attractive destination for capital.

CBN Governor, Olayemi Cardoso, has repeatedly emphasised the importance of a stable financial sector in supporting Nigeria’s broader economic transformation. Speaking at a recent banking conference in Lagos, Cardoso noted that the CBN’s policy direction aims to strengthen bank capitalisation, enhance risk management frameworks, and improve foreign investment flows.

“Our banking sector remains one of the most resilient in Africa. Through prudent regulation, strategic reforms, and commitment to transparency, we are positioning Nigerian banks to be globally competitive and capable of financing critical sectors of the economy,” Cardoso said.

Industry observers believe that the strong inflows into banks are partly due to investor interest in Nigeria’s growing digital finance and payment services market. With the rapid adoption of mobile banking, fintech partnerships, and electronic payment platforms, banks have expanded their revenue streams beyond traditional lending.

Foreign direct investment (FDI) into the banking sector has also been buoyed by mergers, acquisitions, and recapitalisation moves. Some top-tier banks have announced plans to raise fresh capital to meet the CBN’s new minimum capital requirements, further boosting investor sentiment.

However, while the banking sector enjoys a dominant share of capital inflows, other critical sectors such as manufacturing, agriculture, and infrastructure have lagged behind. Manufacturing, for instance, accounted for less than 15 percent of total inflows during the period, raising concerns over the uneven distribution of investment across the economy.

Economists warn that while banks serve as critical intermediaries for channeling capital, excessive concentration of foreign investment in one sector may limit the economy’s diversification goals. Dr. Abiola Adebayo, an economic development specialist, stressed that reforms should also focus on improving the investment climate for non-financial sectors.

“The banking sector is doing well in attracting capital, but we need to see a more balanced inflow across sectors. Infrastructure, agriculture, and manufacturing are where we can generate jobs and drive sustainable growth. Reforms must address the bottlenecks that make these sectors less attractive to investors,” Adebayo explained.

The Federal Government has pledged to broaden the scope of investment reforms to include tax incentives, streamlined business registration processes, and improved access to land for industrial development.

Minister of Finance and Coordinating Minister of the Economy, Wale Edun, stated that attracting diversified investments remains a priority under President Bola Tinubu’s economic renewal plan. “We are working to ensure that reforms benefit all sectors. Banks are gateways for capital, but we must ensure these inflows translate into real sector growth,” Edun said.

In addition to capital inflows, Nigerian banks have also benefited from the rising interest rate environment, which has boosted yields on fixed-income securities. This has attracted more foreign portfolio investors seeking higher returns compared to other emerging markets.

Nevertheless, analysts caution that global economic uncertainties, including fluctuating commodity prices, inflationary pressures, and geopolitical risks, could slow investment momentum in the second half of 2025.

The Nigerian Stock Exchange has also played a role in attracting foreign interest in the banking sector. Shares of major lenders such as Zenith Bank, Access Holdings, and GTCO have posted double-digit gains this year, reflecting investor optimism over profitability and growth prospects.

Despite these positives, challenges remain. The banking sector still contends with non-performing loans, foreign exchange volatility, and regulatory compliance costs. Moreover, the high cost of capital in Nigeria continues to hinder lending to small and medium-sized enterprises (SMEs), limiting their capacity to contribute significantly to GDP.

To address this, the CBN has reiterated its commitment to targeted lending programmes aimed at supporting priority sectors such as agriculture, renewable energy, and manufacturing. The apex bank believes that leveraging banks’ access to foreign capital can stimulate economic diversification and inclusive growth.

Looking ahead, financial experts suggest that sustaining capital inflows into Nigeria will require consistency in policy implementation, political stability, and enhanced infrastructure. Investor confidence, they say, is built over time through credible and transparent governance.

As Nigeria pushes ahead with its reform agenda, the banking sector’s role as a magnet for foreign capital is expected to remain strong. However, ensuring that the benefits of these inflows extend beyond the financial sector to the wider economy will be key to achieving long-term prosperity.