Effect of Foreign Direct Investment on the Development of the Nigerian Banking Sector

Foreign direct investment in the Nigerian banking sector introduces capital, managerial expertise, and technology that can deepen financial intermediation and institutional capacity. This study examines the effect of foreign direct investment on the development of the Nigerian banking sector for the period 2005 to 2022. Secondary data were sourced from the Central Bank of Nigeria Statistical Bulletin, the National Bureau of Statistics, and the UNCTAD World Investment Report. Banking sector development was measured by bank credit-to-GDP ratio, financial access index, and total bank assets as a percentage of GDP. Foreign direct investment was measured by total inflows into the financial services sector. Control variables included gross domestic product per capita, inflation rate, and institutional quality index. Ordinary least squares and generalised method of moments estimators were employed. Results showed a significant positive long-run effect of foreign direct investment on the bank credit-to-GDP ratio (coefficient = 0.18, p < 0.05) and total bank assets (coefficient = 0.24, p < 0.01). Foreign bank entry was associated with improvements in credit information quality and banking technology infrastructure. The study concludes that foreign direct investment meaningfully contributes to banking sector depth and access in Nigeria, but its benefits are concentrated in urban metropolitan markets. Policy recommendations include incentive frameworks to direct foreign banking investment into underserved geopolitical zones, particularly North East and North West Nigeria. Keywords: foreign direct investment, banking sector development, financial intermediation, Nigeria, credit-to-GDP