Nigerian banking stocks have experienced a remarkable surge of 12.24% since January 7, driven by several major lenders securing over ₦1 trillion ($662 million) from the stock market to meet new capital requirements. The NGX Banking Index, which tracks banking stocks, was up 12.24% at market close on Friday, February 14, according to data compiled by TechCabal.

The rally in banking stocks is led by GTCO, whose share price closed at ₦63.45 on Friday, up 12.90% since January 7. Zenith Bank shares also closed at ₦51.60, up 4.03% since it announced its raise. This surge in banking stocks comes amid a broader wave of renewed investor confidence in Nigeria's economy, which has quietly attracted foreign investment, bolstered by currency reforms and other measures aimed at stabilizing Africa's largest economy.

The country is seeing increased inflows after painful but necessary reforms to restore stability. According to Bloomberg, Nigeria's sovereign risk spread has fallen to its lowest level since January 2020, erasing the premium accumulated during the pandemic and economic strain that followed.

In March 2024, the Central Bank of Nigeria (CBN) raised the minimum capital threshold for banks tenfold, excluding retained earnings from qualifying capital. This prompted major lenders to tap the stock market for additional funding to meet the new requirement before the 2026 deadline. Since the announcement, GTCO, a banking group with a market capitalization of ₦1.85 trillion, has raised ₦209 billion in the first phase of its recapitalization plan. On January 27, Zenith Bank followed suit, securing ₦350.4 billion through a rights issue and public offer. While these two banks alone have raised over ₦559.4 billion, other financial institutions have also secured funding, pushing the total above ₦1 trillion.

Two market analysts suggest that the rally in banking stocks is also fueled by expectations of improved profitability and stability in the sector. With additional capital, banks are better positioned to expand lending and improve their balance sheets. "The banking stocks will likely continue to remain stable," said Azeez Lawal, managing director of TrustBanc Asset Management Limited. "But we will not see aggressive growth in banking stocks not until they release their audited financial statements and announce dividend payments."

Despite the positive momentum, industry experts caution that sustaining the rally will depend on macroeconomic stability and regulatory clarity. January often sees increased stock market activity, suggesting that the observed growth may not entirely reflect underlying market fundamentals. As the Nigerian economy continues to navigate its path towards stability, the performance of banking stocks will be closely watched by investors and analysts alike.

The surge in banking stocks is a welcome development for Nigeria's economy, which has been working to restore investor confidence and attract foreign investment. As the country continues to implement reforms and stabilize its economy, the performance of its banking sector will play a critical role in shaping its economic trajectory.