- Improved Dollar Liquidity May Boost Banks’ Earnings
The increase in dollar sales by the Central Bank of Nigeria (CBN) is giving banks in the country reason to cheer.
The CBN increased sales of the U.S. currency to banks in late February to try and curb foreign exchange shortages that contributed to the first annual contraction in the country’s economy in two decades and limited trading by the country’s lenders.
It even created sectoral supply of the greenback which led to significant appreciation of the naira to as low as N520 to the dollar then, but hovers around N385 to the dollar at the moment.
Transactions in the currency market rose by a half to $9.72 billion in March compared to the previous month, according to Lagos-based FMDQ OTC Securities Exchange, the nation’s foreign-exchange trading platform.
“We see an improvement in the number of letters of credit, bills being settled and remittances being allowed,” President of the Chartered Institute of Bankers of Nigeria (CIBN), Segun Ajibola, told Bloomberg in an interview.
“Ordinarily, a margin will always be left behind for banks, so it will be right to say at the end of the day it will be an increase in revenue to banks.”
Nigerian banking stocks rallied the most last week after it emerged that CBN Governor, Mr. Godwin Emefiele, will let the market determine the naira’s rate in a new forex window for portfolio investors in a further bid to revive the economy and address the dollar deficit.
While he would tolerate the naira weakening in the window, the central bank probably won’t devalue the naira’s official rate, according to a person who attended meetings with the policy maker over the past two weeks.
The country’s lenders, especially small- and medium-sized banks, have been hard hit by the economy’s woes, as companies scaled back output and workers lost their jobs.
Non-performing loans (NPLs) as a percentage of gross loans worsened to 14 per cent at the end of December from 11.7 per cent at the end of June, the central bank said earlier this month.
Banks are now expecting a reduction in NPLs and an improvement in profitability following an increase in the oil price and dollar flows in the country, Ajibola said.
Emefiele last week revealed that the country’s foreign reserves have exceeded $31 billion, a development which he said gives the central bank the firepower to sustain its forays into the foreign exchange market.
He also expressed optimism that Nigeria would exit the recession by the end of the second quarter of 2017, or latest by the third quarter of the year.
Emefiele said the gains made by the local currency and corresponding drop in inflation were indications that the country was on its way out of the recession.
