- Banks Review Foreign Currency Holdings
Commercial banks are revaluing their foreign currency holdings and paying off debts ahead of timeline as dollar liquidity improves.
The improvement seen in foreign reserves at $47 billion, regular Central Bank of Nigeria (CBN) foreign exchange interventions, over $51 billion in Investors’ & Exporters’ Forex Window and other foreign capital inflows have all helped to boost banks’ dollar positions and strengthened investors’ confidence in the economy.
First Bank Nigeria Limited redeemed a $300 million Eurobond before maturity and paid all bondholders. The seven-year bond was issued in 2013 at 8.25 per cent and had been due to be repaid in 2020. The bank announced its intention last month to repay the debt before maturity. It said the redemption had no impact on its capital ratios and that it had built up dollar liquidity over the past year.
The bank said it did not plan to issue another Eurobond in the near term, because it had ample liquidity to meet its foreign and local currency funding needs.
Also, a report by Exotic Capital, emerging market investment bank, on GTBank showed the lender enjoys “robust net long dollar position”, which should continue to provide a natural hedge to further exchange rate adjustments.
The bank’s non-interest revenue for the second quarter of 2018 was boosted by strong foreign exchange trading gains, including N6 billion in forex trading gains compared with N21 million loss in second quarter of 2017 when forex crisis was intense. This, in addition to notable increases in dividend income/recoveries, net fee income and foreign currency revaluation gains put the lender in good position.
The CBN, in the communique released after the last Monetary Policy Committee (MPC) meeting, acknowledged the progress made in recent times in stabilizing the foreign exchange market and anchoring inflation expectation lower.
It said supportive external account condition – stable oil prices, rising current account surplus and external reserves – which empirical studies have emphasised to be the major anchor of monetary policy all point to improvement in the foreign currency positions for the economy and banks.
Nigerian banks cut lending last year due to weak economic growth and foreign currency risk. However, several of them are eyeing loan growth this year, citing economic improvements and especially as the CBN introduces liquidity to the banking sector targeting credit to manufacturers.
The foreign exchange reserves currently at $47 billion have continued to ensure that the naira remains stable at the official and parallel markets.
The naira exchanges at N361 to dollar in the parallel market and N305.6 in the official market, and has remained at that rate since April, last year after the CBN resumed foreign exchange interventions in the market.
The Exotic Capital report said although the level of reserves was still significantly below the record high of $64 billion recorded in August 2008, it is nearly double the low of $24 billion recorded in October 2016, increasing by more than $22 billion in a mere 15 months.
“We have written extensively on Nigeria’s multiple exchange rate system and will abstain from further discussion at present, suffice to say that a fairly valued naira at N360 to dollar combined with high domestic rates has led to a tremendous increase in the level of gross foreign reserves held at the CBN,” it said.
“With reserves at their current levels, it is easy to imagine the MPC being in a position where it could afford to cut as it is less dependent on attracting dollar inflows than it has been to both build reserves and stabilise the naira,” it said.
A similar report by FBN Capital, titled: “Towards the $50 billion threshold, and counting”, said the rapid accumulation of $15.96 billion over 12 months is due to two sizeable Eurobond launches, a small diaspora bond issue, the recovery in oil export revenues (through the Nigeria National Petroleum Corporation’s share of production and, more recently, the steady bid by the CBN at the I&E Forex window.
“We should stress that the data are gross and mask the swap transactions the CBN has entered into with local banks. The steady bid by the CBN has been seen variously as a response to the softening of demand for forex by importers and other economic actors, and as a move to contain naira appreciation,” the FBN Capital said.
