Nigeria's Banking Sector Under Scrutiny: Implications for Investor Confidence and Regulatory Risk

The Nigerian banking sector is navigating a pivotal moment as a high-stakes parliamentary investigation into unauthorized account deductions intensifies scrutiny of major commercial banks. This probe, targeting institutions such as GTBank, Zenith Bank, and Access Bank, has sparked debates about regulatory oversight, reputational risk, and the broader implications for investor confidence. With the House of Representatives' Ad-hoc Committee demanding immediate compliance and threatening sanctions for non-cooperation, the sector faces a reckoning that could redefine its operational and compliance frameworks.

Regulatory Risks and the Shadow of the Parliamentary Probe

The investigation, led by Committee Chair Kelechi Nwogu, has summoned bank CEOs to appear in person and submit extensive documentation within a four-day window to avoid penalties. The focus on unauthorized deductions-ranging from illegal charges to unapproved transactions-has exposed systemic vulnerabilities in banking practices. According to a report by AllAfrica, the committee has emphasized that these actions violate customer trust and contravene legal norms, demanding transparency and accountability.

For banks, the immediate regulatory risk lies in potential sanctions, including fines or operational restrictions, should they fail to comply. However, the broader challenge is reputational. Civil servants and public employees, who are among the affected groups, represent a significant portion of the banking sector's client base. A loss of trust in these institutions could lead to customer attrition, reduced deposit inflows, and long-term damage to brand equity.

Investor Confidence: A Delicate Balance

While the parliamentary probe introduces short-term uncertainty, Nigeria's financial regulators are simultaneously advancing reforms aimed at bolstering investor confidence. The Securities and Exchange Commission, under Director-General Dr. Emomotimi Agama, has introduced market reforms such as shorter settlement cycles (T+2 for equities, with plans for T+1 and T+0) to align with global standards. These measures aim to reduce counterparty risk and enhance liquidity, potentially attracting foreign capital.

However, the stock market has shown mixed signals. In November 2025, the Nigerian Exchange (NGX) experienced a sharp decline, partly attributed to investor anxiety over a proposed 30% Capital Gains Tax and policy uncertainties. The parliamentary investigation, coupled with these fiscal debates, has created a volatile environment. Yet, the government's reassurances on fiscal policy and economic stability have spurred modest recovery, indicating resilience in the face of regulatory turbulence.

The Investment and Securities Act (ISA) 2025 further underscores the government's commitment to regulatory clarity. By expanding the SEC's oversight to digital-asset exchanges and introducing mechanisms like the expanded Investor Protection Fund, the Act aims to address gaps in market governance. For foreign investors, these reforms signal a maturing regulatory ecosystem, though the ongoing probe may temper optimism in the near term.

Reputational Damage and the CBN's Response

The Central Bank of Nigeria (CBN) has introduced targeted measures to mitigate reputational risks in the banking sector. The Exposure Draft of the Guidelines on the Treatment of Dud Cheques and Guidelines on Handling Authorisation Push Payment (APP) Fraud reflect a proactive stance. Notably, the APP Fraud guidelines shift liability for fraudulent transactions from consumers to banks, mandating reimbursement within 48 hours. This not only protects customers but also compels banks to strengthen fraud detection systems, potentially raising operational costs.

Additionally, the CBN's Agent Banking Guidelines impose exclusivity on agents and enforce stricter due diligence, aiming to curb fraudulent activities while promoting financial inclusion. These measures, while necessary for restoring public trust, may increase compliance burdens for banks already grappling with the parliamentary investigation.

Strategic Implications for Capital Allocation

For investors, the interplay of regulatory risks and reforms necessitates a nuanced approach. In the short term, capital may flow toward banks with robust compliance frameworks and diversified client bases, as these institutions are better positioned to weather reputational fallout. Conversely, banks implicated in the probe-particularly those with weak governance structures-could see outflows and higher borrowing costs.

Longer-term, the regulatory reforms, if effectively implemented, may enhance the sector's attractiveness. The transition to T+1/T+0 settlement cycles and the ISA 2025's investor protections could align Nigeria's market with global benchmarks, drawing institutional investors seeking emerging-market exposure. However, the success of these reforms hinges on consistent enforcement and the resolution of ongoing investigations.

Conclusion

Nigeria's banking sector stands at a crossroads. The parliamentary probe into unauthorized deductions has exposed critical weaknesses in regulatory oversight and corporate governance, while concurrent reforms signal a path toward modernization. For investors, the challenge lies in balancing the immediate risks of reputational damage and policy uncertainty with the long-term potential of a reformed financial ecosystem. As the Ad-hoc Committee's findings emerge and regulatory frameworks evolve, the sector's ability to adapt will determine its trajectory in the years ahead.