Nigeria’s foreign exchange reserves have climbed to US$46.7 billion, their highest level in seven years, giving the country its strongest external buffer since 2018 and renewing optimism about macroeconomic stability.
The Central Bank of Nigeria said the increase reflects stronger crude oil earnings, renewed foreign portfolio inflows, Eurobond proceeds, higher diaspora remittances, and improvements in the balance of payments. At current levels, the reserves provide about 10.3 months of import cover, offering policymakers more room to manage shocks, stabilise the naira, and fund critical imports. On the surface, the numbers signal recovery after years of FX scarcity and repeated drawdowns. Yet within Nigeria’s banking sector, the mood is measured rather than celebratory. Lenders see progress, but they question how durable the gains really are.
“The headline looks good for confidence,” said Zaynab Ajayi, a Relationship Manager at Access Bank. “But banks always ask where the dollars are coming from and how reliable those sources are.”
For most lenders, the answer remains familiar. Reserve growth is still heavily tied to oil related inflows. Crude exports, NNPC remittances, and oil backed transactions account for a large share of foreign exchange entering the system. That dependence leaves the buffers exposed to forces beyond domestic control.
“Oil prices are volatile and production risks never go away,” Ajayi said. “If receipts fall, liquidity tightens almost immediately. We have seen that pattern repeatedly.”
Pipeline vandalism, theft, ageing infrastructure, and OPEC quotas continue to threaten output. A small disruption can quickly reduce inflows and pressure the interbank market. A treasury executive at a tier one bank described the link plainly. “When oil money slows, dollar supply dries up fast. Banks become defensive and pricing adjusts upward. That risk has not disappeared just because reserves are higher.”
As a result, lenders still price FX risk conservatively. Long tenor dollar loans remain scarce, and many banks shorten maturities to protect their balance sheets.
“We cannot assume today’s reserve level is permanent,” the executive added. “So we structure our books cautiously.”
Recent foreign exchange reforms have improved transparency and liquidity. The CBN has reduced administrative allocation and strengthened price discovery at the Investors and Exporters window. Banks confirm that transactions are smoother and rates better reflect market conditions.
“Compared to a few years ago, access is clearer and more predictable,” said Ifeoluwa Joshua, an FX trader in Lagos. “That has restored some confidence.”
Foreign portfolio investors have also returned, attracted by higher yields and improved repatriation conditions. Their inflows have supported the reserve build up and eased pressure on the naira. Still, banks draw a sharp distinction between temporary and durable capital.
“Most of these flows are short term portfolio funds,” Joshua said. “They can leave at the first sign of policy uncertainty. That is not the same as long term investment.”
For manufacturers and import dependent firms, liquidity gaps persist. Trade finance clients still struggle to access dollars consistently.
“Businesses call us every day looking for FX,” Ajayi noted. “So sentiment has improved, but confidence is not deeply anchored yet.”
Higher reserves nonetheless strengthen the central bank’s ability to manage volatility. With more buffers, the CBN can intervene to smooth sharp exchange rate movements and reduce panic driven depreciation.
“Reserves give the regulator credibility,” the treasury executive said. “Speculators are less aggressive when they know the central bank has capacity to supply dollars.”
But banks remain wary of election year pressures. Political cycles typically increase fiscal spending, raise import demand, and unsettle investors.
“Election periods usually bring speculative demand for FX,” Ajayi said. “Reserves help, but policy consistency matters just as much as the numbers.”
Another contributor to the reserve build up has been the reduction in fuel imports following subsidy removal and the rise of domestic refining. Lower petrol imports have reduced dollar demand and eased pressure on the external account. Banks acknowledge the benefit but see it as defensive.
“Cutting imports saves FX, but it does not generate new earnings,” Ajayi explained. “Exports are what create lasting strength.”
Export growth in agro processing, solid minerals, manufacturing, and services is considered more durable because it produces recurring inflows and supports jobs and credit expansion. Despite stronger reserves, exchange rate disparities persist. Parallel market premiums remain, and some firms still source dollars outside formal channels. For banks, this signals incomplete market clearing and lingering confidence gaps.
“If supply truly matched demand, those distortions would fade,” Ajayi said. “The fact that they remain shows the system is improving but not fully normalised.”
Across the industry, the consensus is cautious optimism. Rising reserves are viewed as stabilising, not transformational. They provide breathing space but do not solve structural weaknesses such as poor infrastructure, high energy costs, and limited export capacity.
“Reserves buy time,” Ajayi said. “What we do with that time is what determines whether the gains last.”
Banks argue that deeper reforms are still required, including stronger export financing, reliable power, fiscal discipline, and deeper FX markets with hedging tools. Only then will lenders feel comfortable extending long term credit and reducing risk premiums. Until that happens, Nigeria’s US$46.7 billion stockpile will remain a buffer rather than a breakthrough. The milestone is real, but for banks on the front lines of the FX market, caution still outweighs celebration.
