Deutsche Bank has turned bullish on the naira, adding Nigeria to its frontier foreign exchange monitor as the lender sees room for further gains in a currency that has strengthened against the dollar this year.
In a client note published on Monday, the German bank said the naira appears undervalued, with attractive interest rates offering investors an opportunity to earn returns from Nigerian assets while benefiting from a stronger currency.
However, the bank warned that rising government borrowing could undermine the outlook, particularly as Nigeria approaches an election period.
The naira has appreciated by nearly 8 percent against the dollar in 2026, placing it among the top 10 performers out of 144 currencies tracked by Bloomberg, according to the report. The recovery has improved returns for investors holding local currency assets, including government bonds and equities.
Why Deutsche bank is backing the Naira
The bank’s positive outlook rests largely on Nigeria’s interest-rate advantage and the potential for further currency appreciation.
High yields on Nigerian government securities have made the market attractive to foreign portfolio investors seeking returns above those available in many other markets. When these yields exceed inflation, investors can also earn positive real returns, strengthening the appeal of naira-denominated assets.
This strategy, known as a carry trade, involves borrowing or investing in currencies with lower interest rates to take advantage of higher returns elsewhere. For investors holding naira assets, however, currency depreciation can wipe out some or all of those gains.
Deutsche Bank also pointed to foreign-exchange reserves, investor inflows and improved external balances as factors supporting African frontier currencies.
For Nigeria, oil receipts remain important because stronger dollar inflows can improve foreign exchange supply and reduce pressure on the naira. Remittances provide another source of foreign currency.
The bank’s inclusion of Nigeria in its frontier FX monitor puts the naira alongside currencies such as Angola’s kwanza and Ghana’s cedi, reflecting renewed attention to investment opportunities in the region.
Government borrowing poses a risk
Despite its optimism, Deutsche Bank identified Nigeria’s fiscal position as the biggest threat to its currency outlook.
The lender pointed to the Debt Management Office’s bond-issuance calendar for the current quarter as a sign of elevated government borrowing.
Heavy issuance could push up borrowing costs and absorb liquidity that might otherwise flow into other investments. It could also complicate monetary policy if the Central Bank of Nigeria has to maintain high interest rates to support the naira and contain inflation.
The bank also expects government spending to increase ahead of the January elections, raising concerns about the impact of fiscal expansion on the currency.
For investors, the concern is whether the government’s financing needs will remain manageable without creating additional pressure on domestic markets or weakening confidence in the naira.
Deutsche Bank’s position offers a positive signal for Nigeria’s foreign-exchange market, but it does not guarantee further appreciation.
Foreign investors considering Nigerian bonds must weigh the attraction of high yields against the possibility of currency losses. A stronger naira would improve dollar-denominated returns, while a reversal in the exchange rate could quickly reduce them.
The outlook will depend on several factors, including oil revenue, foreign exchange liquidity, inflation, monetary policy and the scale of government borrowing.
For now, Deutsche Bank sees value in the naira and attractive returns in Nigerian assets. The challenge for the market will be sustaining those gains without allowing government borrowing to erode investor confidence.
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