CBN Worried Over High Forex Exposure of Banks

• CBN Worried Over High Forex Exposure of Banks

The Central Bank of Nigeria (CBN) has expressed worry over persistent risks in the financial system, especially the high foreign exchange (Forex) exposure of banks, particularly to entities that do not earn forex.

CBN Deputy Governor, Edward Lametek, disclosed this in his personal statement at the last Monetary Policy Committee (MPC) meeting, released yesterday by the regulator.

He said the concentration and high non-performing loans (NPLs) is also of great concern to the CBN.

He however, said that payment of contractor debts by the Federal Government will go a long way in soothing the pressures in the banking system, while improved surveillance and deployment of sanctions against regulatory infractions will engender good governance and stability.

“This is important because financial intermediation, especially provision of credit, is highly dependent on the state of health of financial institutions. At end-February 2019, the stock of deposit money banks’ total credit declined by about 2.5 per cent, year-on-year. This trend needs to be halted in the face of the prevailing sluggish performance of economic activity. In this context, the role of other financial institutions (OFIs) in the credit arena becomes important,” he said.

He explained that these institutions (micro-finance banks, finance companies, mortgage banks, development finance institutions, among others) are expected to play the very important role of closing certain gaps in the financial system including, crucially, financial inclusion. As such, they need to be encouraged to remain mission-focused.

“Overall, the balance of risks continues to be tilted against economic growth. In my January 2019 statement, I emphasized the need to support growth given the weak outlook for economic activity based on indications from the oil sector (especially the volatility in crude prices and production cuts) and sluggish consumption demand. Of course, I noted that more clarity over the next two months (February and March) would be helpful in deciding the direction of monetary policy beyond third quarter of 2019,” he said.

“Clearly, the indications then have been justified by subsequent developments particularly as shown by the CIEA, PMIs, and the current outlook for the oil sector.