Nigeria’s central bank and local lenders are at risk of delaying the repayment of foreign currency loans due to scarce dollar resources, according to Moody’s Investors Service.
The credit rating agency said that rated lenders have placed around $10.4bn with the central bank in the form of swaps and forwards, and that there is a risk that the apex bank may temporarily prolong repayment of these loans beyond their maturity date due to a shortage of foreign currency.
Moody’s analysts pointed out that the central bank’s dollar obligations represent about one-third of the country’s foreign-exchange reserves of $37bn as of January, and the apex bank has had to ration dollar supply to the economy to reduce pressure on reserves.
This scarcity of foreign currency may lead to payment delays, which could potentially constrain the banks’ ability to repay their own foreign currency liabilities.
Moody’s also downgraded nine Nigerian banks recently, citing their significant direct and indirect exposure to the Nigerian sovereign, whose rating was downgraded to reflect the expectation of a continued deterioration in the country’s fiscal and debt position. Nigerian banks with foreign currency loans may face challenges in repaying these loans due to dollar shortages, which could further weaken their credit profiles.
The downgraded banks include Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria Plc, Fidelity Bank Plc, First City Monument Bank Limited, and Sterling Bank Plc.
Moody’s warns that Nigerian banks with foreign currency loans should prepare for possible payment delays as a result of the scarcity of foreign currency, which could have an impact on their operations and credit profiles.
Naira Appreciates Slightly to N1,542.58/$ at NAFEM
The Naira appreciated marginally against the United States dollar, closing at N1,542.58/$ at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Wednesday.
This modest gain represents a 2.9 percent appreciation from the previous day’s rate of N1,598.54, highlighting a nuanced fluctuation in the currency’s value.
According to data sourced from the FMDQ Securities Exchange, a platform overseeing FX trading in Nigeria, the Naira’s journey throughout the trading day was marked by an intra-day high of N1,755 and a low of N1,050.
Moreover, the total foreign exchange turnover surged to $172.14 million, indicating a 47 percent increase from the previous day.
Despite the Naira’s marginal gain at NAFEM, concerns persist regarding the widening gap between the official and parallel market rates.
The Naira’s depreciation to N1,900 against the dollar in the parallel market before it moderated to N1,687 later in the day.
Analysts and Bureau De Change operators foresee further pressure on the Naira, with predictions of a potential all-time low of 2,000/dollar at the parallel market in the coming weeks.
The demand for the greenback continues to fuel volatility, prompting regulatory actions from entities like the Economic and Financial Crimes Commission (EFCC) and the Central Bank of Nigeria (CBN) to curb speculative activities.
As stakeholders monitor the currency’s trajectory, the CBN’s efforts to address forex liquidity challenges and stabilize the Naira remain under scrutiny amidst evolving market dynamics.
Police and EFCC Personnel Raid Bureau De Change Outlets in Ibadan’s Sabo Area
In a concerted effort to curb illicit currency dealings and stabilize the nation’s currency, Nigerian security operatives, including police and Economic and Financial Crimes Commission (EFCC) personnel, launched a raid on Bureau De Change (BDC) outlets in Ibadan’s Sabo area.
Sabo, a prominent district in Ibadan, the capital of Oyo State, serves as a central hub for currency exchange activities in the region.
Videos circulated on social media platforms captured the dramatic scene as armed security personnel and their convoy descended on the bustling Sabo Road.
The raid comes amidst growing concerns over the depreciation of the Nigerian naira, which hit record lows against major foreign currencies, including the dollar.
Sources revealed that the naira’s value reached alarming levels, with exchanges as high as N1980 to $1 on the parallel market and N1780 on the official market.
President Bola Tinubu’s administration has intensified efforts to crack down on individuals involved in currency racketeering, aiming to restore stability to the nation’s economy.
The clampdown signals a firm stance against illegal currency trading and serves as a deterrent to those engaging in speculative activities.
While the raids may disrupt illicit operations, they also underscore the government’s commitment to restoring confidence in the financial sector and promoting transparency in currency exchange practices.
Rand Surges as South Africa Taps into Reserves to Alleviate Debt Burden
South Africa’s currency, the rand, surged against major currencies as Finance Minister Enoch Godongwana announced the country’s decision to tap into its reserves to tackle its debt burden.
The move revealed in the budget presentation before the upcoming critical elections aims to stabilize South Africa’s economy while bolstering social spending.
Godongwana outlined plans to restructure reserves held at the central bank, releasing a substantial sum of 150 billion rand ($7.9 billion) over three years.
This strategic maneuver targets the Gold and Foreign Exchange Contingency Reserve Account (GFECRA), which has seen a remarkable increase in paper profits to 507.3 billion rand.
Investors responded positively to the announcement with the rand strengthening by as much as 0.8% against the dollar.
The decision to access reserves to manage debt levels and fund critical sectors like education, healthcare, and welfare underscores South Africa’s commitment to financial stability and social development amid challenging economic conditions.
While the move signals short-term relief and positive market sentiment, economists remain cautious, emphasizing the need for sustainable growth strategies independent of reserve depletion.
The utilization of reserves is a critical measure aimed at steering South Africa through its fiscal challenges and ensuring economic resilience in the face of uncertainty.
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