The foreign inflow of capital into the banking sector fell to as low as $140 million in the second quarter of 2020, the lowest inflow since the first quarter of 2017. This contrasts sharply with the $2.9 billion inflow reported in the first quarter this year
The report was contained in the Capital Importation report published by the National Bureau of Statistics, as seen by Basevibes. Nigeria has suffered foreign currency shortages since the crash in oil prices triggered an outflow of foreign portfolio investments out of the country.
The outbreak of the pandemic has also affected foreign investments into emerging markets like Nigeria as investors flee to the safety of the risk-free assets in the United States. Some of the outflows have also been redirected to the United equities markets which have surged on the back of a tech bubble despite the pandemic.
2Why the drop?
The drop in inflow into the banking sector is believed to be a fallout of the global economic crisis which has limited banking sector requirement for foreign investments either as debt or equity.
- The drop in inflow into the sector also correlates with the drop recorded in the money markets and equity.
- For example, inflows into these sectors fell to $533.9 million in the second quarter from $4.5 billion reported in the previous quarter.
- According to Basevibes records, no bank has approached the Euro bond market since the pandemic started as the sector focuses on containing loan losses to shore up capital adequacy.
- In contrast, banks have resorted to commercial papers and bonds taking advantage of the low-interest-rate environment to raise capital.
- Another reason is the foreign currency risk associated with foreign currency-denominated capital in a deteriorating economy that is exposed to further devaluation and credit risks.