- Dollar Scarcity: Banks Cap Oversea’s Spending Limits
Nigeria’s Deposit Money Banks (DMBs) have started lowering foreign spending limits on a customer’s naira-denominated card as the coronavirus pandemic erodes oil prices and plunged the nation’s dollar revenue generation.
Guaranty Trust Bank, Nigeria’s largest bank by market capitalisation, had capped international spending limits on its Naira-denominated cards from $3,000 to $500 last week, while the Zenith Bank Plc lowered its limits from the previous $3,000 to $1,000.
The Central Bank of Nigeria had adjusted the nation’s foreign exchange rate from N360/$1 to N380/$1 in order to reflect changes in macro fundamentals earlier this month.
That was after the apex bank had said the available fundamentals did not dictate devaluation and attacked experts projecting at least 10 percent devaluation in the nation’s foreign exchange.
The change in stance by the central bank suggested that the apex bank could no longer sustain the N360 exchange rate with the current low oil prices and falling foreign reserves. Therefore, if crude oil remains below $30 per barrel through the second quarter, the CBN will struggle to sustain dollar liquidity, hence the reason banks are capping foreign spending limits.
Analysts at Renaissance Capital projected that other banks will follow in the steps of GTBank and Zenith as they try to conserve their dollar liquidity.
It’s a “precautionary measure as we do not know how long oil prices will remain low”, Adesoji Solanke, a director of frontier and sub-Saharan banks equity research at Renaissance Capital in London, said.
“There is a fair probability that the central bank opts to contain the depreciation of the naira, which implies there is a real risk of some foreign-exchange restrictions being imposed,” Solanke said.
