The Central Bank of Nigeria (CBN) implemented a recapitalization policy for commercial banks in 2024, in a circular released on March 28th. This policy mandated banks to increase their minimum capital base to a specified level within a set timeframe. The decision was aimed at strengthening the banking sector, enhancing financial stability, and fostering economic growth.

The implementation started on April 1st and commercial banks have a 24-month window, till March 31st, 2026 to comply with this directive. So far, what has been the effect of this directive on FX inflow? 

While the recapitalization policy has undoubtedly strengthened the Nigerian banking sector, its direct impact on FX inflow has been mixed. While some of the anticipated benefits have materialized, other factors have also influenced FX flows.

• Increased Investor Confidence: The policy has indeed boosted investor confidence in the Nigerian economy, leading to increased foreign direct investment (FDI) flows.
• Improved Financial Stability: A stronger banking sector has enhanced financial stability, making Nigeria a more attractive destination for foreign capital.
• Increased Remittance of FX inflow: In July 2024, FX Inflow remittance peaked at $553 million an all-time high performance of 130% increase from the corresponding period in 2023.

The central bank attributed the substantial growth in remittance receipts to policy measures introduced, including the bank recapitalization policy, granting licenses to new International Money Transfer Operators (IMTOs), implementing a willing buyer-willing seller model, and enabling timely access to naira liquidity for IMTOs.

Conclusion

The CBN recapitalization policy has been a positive step towards strengthening the Nigerian banking sector. While it has contributed to increased investor confidence and financial stability, its direct impact on FX inflow has been influenced by various factors, both domestic and global. To further enhance FX inflows, Nigeria must address other economic challenges and create a more conducive environment for foreign investment.