Moody’s Warns of Possible Delay in Foreign Currency Loan Payments by Nigerian Banks

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.