Credit standing company Fitch Scores has stated the proposed overseas alternate gateway financial institution introduced by the Central Financial institution of Nigeria may have a destructive affect on the liquidity of Nigerian banks.
This was revealed within the newest Fitch Scores commentary on Nigerian banks.
The apex financial institution's governor, Dr. Olayemi Cardoso, not too long ago introduced plans to introduce a brand new overseas alternate gateway financial institution to ease the nation's foreign money disaster.
In a tv interview, Cardoso stated the CBN “launched a single FCY gateway financial institution to centralize all correspondent banking actions, that are presently dominated by two main banks within the correspondent banking area.”
The gateway financial institution, referred to as the CBN's medium-term plan, is geared toward fixing Nigeria's lingering foreign money drawback by centralizing all correspondent banking actions.
Commenting on the proposal, Fitch Scores stated: “CBN Governor Yemi Cardoso has additionally introduced plans to ascertain an FC gateway financial institution with a view to centralizing correspondent banking operations, whereas claiming {that a} latest audit 2 recognized $.4 billion in foreign money delinquencies. ahead invalid. Fitch believes that these measures by the CBN may adversely affect the liquidity of the banking sector.”
In the meantime, based on Fitch, because of the devaluation of the native foreign money by round 70 p.c because the finish of 2022, credit within the banking sector are anticipated to broaden at a sooner tempo than earlier than the devaluation.
“Fitch expects the ratio of drawback loans within the banking sector (Section 3 loans) to extend at a sooner tempo than earlier than the devaluation, which in itself has already generated vital drawback loans in FC denomination (Section 2 and Section 3 loans ; primarily loans from the oil and fuel sector). ) has been inflated relative to gross loans and core capital and has accentuated credit score focus dangers,” the credit standing company stated.
On the affect of the CBN round banning banks from holding internet lengthy overseas foreign money positions, Fitch stated it might result in additional average depreciation of the naira.
“The Central Financial institution of Nigeria has issued new circulars and made numerous statements to accompany the latest devaluation. One round, issued after the January 31 devaluation, aimed to extend FC provide, banned banks from taking internet lengthy FC positions and set February 1 because the deadline for compliance.
“Internet lengthy FC positions have mitigated the affect of previous devaluations, together with the latest devaluation, on capital ratios as a result of they end in revaluation positive factors within the overseas alternate market that mitigate the affect of inflated risk-weighted belongings denominated in FCs.
“With out internet lengthy FC positions, banks' capital positions at the moment are extra uncovered to Fitch's expectation of additional average depreciation of the naira, however total capital adequacy ratios (CAR) will stay above regulatory minimal necessities normally,” the report stated. stated.
The CBN harmonized the completely different segments of the overseas alternate market in June, resulting in a major devaluation of the naira.
The native market closed at 899/$ on the official market final 12 months.
Fitch stated the naira had undergone a second devaluation and stood at 1,516/$ on February 13, representing a devaluation of about 40 p.c.
“This exceeded Fitch Scores' expectations of a extra average depreciation in 2024. The key devaluation is the second in a 12 months and has converged the official alternate charge with the parallel market charge.
“The continued transfer away from a long-standing managed alternate charge regime is conducive to restoring capital inflows and lowering overseas alternate shortages which have weighed on financial exercise lately.
“Nevertheless, it creates short-term macroeconomic dangers, similar to accentuating already excessive inflation (December 2023: 29 p.c year-on-year) that might weigh on financial development, growing credit score high quality and capital stress that the banking sector is already dealing with. it added.
The greenback bought at 1,537/$ through the official window on Friday and exchanged at 1,590/$1 on the parallel market, down 1.57 p.c from the 1,565/$ at which it closed the earlier buying and selling session.
