CBN Governor, Mr Godwin Emefiele
CBN to delay $10.4bn loan repayments to lenders over forex scarcity
Global credit ratings firm, Moody’s has disclosed that the Central Bank of Nigeria (CBN) may delay repayments of foreign exchange (forex) to domestic lenders following an acute shortage of U.S Dollars in the country’s economy which has forced it to ration hard currency.
Amid the now scarce local currency notes owing to a newly-introduced Naira redesign policy, the country has grappled with inadequate foreign exchange supply for months. The situation has also forced some foreign airlines to terminate flight operations into the country following failure of the Nigerian government to repatriate their trapped funds.
Rated commercial lenders in Nigeria have placed about $10.4 billion with the CBN in the form of derivative transactions including swaps and forwards, Moody’s analysts including Mik Kabeya and Lynn Merhi said in a report released Thursday.
However, due to the shortage of foreign currency, there is now a risk the CBN may temporarily prolong those contracts beyond their original maturity date, Moody’s said.
“A material delay in repayment could well lead to the banks facing their own foreign-currency shortages and could constrain their ability to repay their own foreign-currency liabilities,” the analysts said.
CBN has had to ration dollars to reduce pressure on its reserves, which declined from a peak of $62 billion 15 years ago to about $36.6 billion in December as crude production in Africa’s biggest oil-producing nation dropped amid rampant theft, vandalism and falling investment. Oil exports account for about 80% of the country’s foreign-exchange income.
Several commercial lenders, conscious of a potential repayment delay, in recent years reduced the duration of the derivative contracts and the size of the amounts placed with the central bank, cutting their tenor to 12 months from 24 months, Moody’s said.
The CBN’s “strong track record” of repaying its foreign-exchange derivative obligations may moderate any roll-over risk, it said.
“Most Nigerian banks have a successful track record of recalling these foreign-currency assets placed with the central bank,” Moody’s said.
