Measures announced on 20 February by the Central Bank of Nigeria, CBN, may ease some of the severe foreign currency shortages faced by the commercial banks, Fitch Ratings has said.
The CBN on Monday announced it will start selling $1 million every week to retail customers through their banks.
In a statement on Wednesday, Fitch said the most important aspect of the CBN’s announcement is a plan to normalise the foreign exchange interbank market.
The statement reads: “The intention is to clear the backlog of overdue foreign currency obligations owed by banks to international creditors. These are primarily trade finance obligations owed to correspondent banks.
“In addition, the CBN will no longer have a say in how banks on-lend the foreign currency they access from it. Banks previously had to demonstrate that funds were being directed to priority sectors of the economy. The CBN says that providing foreign currency to the manufacturing sector is still a priority, but with restrictions eased, larger banks with greater access to foreign currency will be free to lend to the smaller banks whose access to international funding is restricted. The CBN has also stated its intention to increase intervention in the FX interbank market to increase supply.
“The CBN has also reduced the maximum waiting times for banks to take delivery of foreign currency through its forward sales contracts to 60 days from 180. The first of these forwards was announced yesterday for $500 million, with banks reported to have bought around $371 million in one-month and two-month forwards. This should help banks make more timely payments to creditors, speeding up the flow of currency to importers and helping the economy.”
The statement further pointed out that, “The CBN’s initiatives are an important boost for banks as access to foreign currency liquidity is tight and banks have struggled to meet their foreign currency obligations. Nigeria is highly dependent on imports and Nigerian banks have long provided trade finance facilities to importers. Currency scarcity and exchange rate weakness have made it harder for importers reliant on naira-denominated cash flows to service US dollar-denominated trade finance lines, forcing some banks to restructure their obligations with international correspondent banks last year. Correspondent creditor banks agreed to maturity extensions and were duly compensated for this.”