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Nigeria’s Borrowing From China Surges by Over 200% Under Buhari Administration

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Nigeria’s borrowing from China jumped a whopping 209.15 percent under President Muhammadu Buhari’s administration.

This startling revelation was disclosed by the Debt Management Office (DMO) which revealed that total bilateral loans rose by 219.91 percent from $1.58bn as of June 2015 to $5.07bn as of December 2022.

The data also revealed that Chinese loans make up a whopping 84.73 percent of the total amount Nigeria owes to other countries of the world, with the remaining 15.27 percent being spread across France, Japan, India, and Germany.

According to the DMO, loans from China are concessional loans with interest rates of 2.50 percent per annum, a tenor of 20 years, and a grace period (moratorium) of seven years.

These loans have been used to fund various projects across the country, including the Nigerian 40 Parboiled Rice Processing Plants Project, the Nigerian Railway Modernisation Project (Lagos – Ibadan section), the Nigeria Rehabilitation and Upgrading of Abuja – Keffi – Makurdi Road Project, the Nigeria Supply of Rolling Stocks and Depot Equipment for Abuja Light Rail Project, and the Nigeria Greater Abuja Water Supply Project.

Despite the recent hiccup in loan approval, China loaned Nigeria $658.72m in 2022. However, China-Exim Bank recently declined an earlier agreement to grant Nigeria a loan of $22.79bn, which had been approved under the 2016–2018 Federal Government External Borrowing (Rolling) Plan by the Senate and the House of Representatives on March 5, 2020, and June 2, 2020, respectively.

This may impact the Nigerian Railway Modernisation Project (Kaduna–Kano segment), with the contractor (CCECC Nigeria Limited) and the Federal Ministry of Transportation engaging China Development Bank for a loan of $973.48m.

In 2021, the immediate past Minister of Transportation, Rotimi Amaechi, alleged that China was becoming sceptical of lending Nigeria money because of a National Assembly probe of the Federal Government’s ability to pay back its loan.

Amaechi also alleged that the probe prevented China from granting more loans to Nigeria. However, the combined effort of the Senate President and Speaker helped stop the probe, which has assisted Nigeria in securing further loans from China.

Recently, the President of the World Bank, David Malpass, expressed concern about some of China’s loans to developing economies in Africa.

He said, “What I encourage strongly is that they be transparent in their contracts. That’s been one of the problems; if you write a contract and say ‘but don’t show it to anybody else’, that’s a minus. So, get away from that.”

He warned, “For governments in Africa, they shouldn’t be offering collateral as an inducement to make a loan, because it locks it up for generations. That’s been happening with China.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Afrexim Bank Seeks Oil Traders to Finance $3 Billion Loan to Bolster Nigeria’s Naira

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Afrexim Bank has turned to oil traders to secure a crucial $3 billion loan for the state oil company NNPC LTD, sources close to the matter have revealed.

As the naira hit an all-time low of 1,000 to the dollar on the black market, Afrexim Bank’s initiative aims to provide much-needed relief to the country’s economic woes.

Afrexim Bank, Africa’s foremost export-import bank, has been actively seeking interest from traders over the past few weeks to back the loan, which will be secured against the country’s oil reserves. The bank is now in the process of finalizing the loan terms to present to potential trading partners.

One oil executive privy to the discussions commented, “There is a lot of interest, but they need to see terms.” The executive also noted that the recent surge in oil prices, which have climbed past $90 per barrel, is expected to fuel even greater interest in the deal.

Under the proposed arrangement, traders who provide funding will be reimbursed with physical cargoes of oil. Afrexim Bank is diligently calculating the precise volume of oil that will be offered to these traders in exchange for their financial support, according to one of the sources.

NNPC LTD, Nigeria’s state oil company, announced the $3 billion loan in August as part of its concerted efforts to bolster the weakening naira. The devaluation of the currency and the resulting gap between official and black market exchange rates have prompted individuals and businesses to turn to the unofficial market to obtain dollars, further exacerbating the country’s economic challenges.

The central bank of Nigeria is grappling with a substantial backlog of nearly $7 billion in naira forwards, constraining the availability of dollars in the official market. This has necessitated creative solutions, such as Afrexim Bank’s partnership with oil traders, to mitigate the currency crisis.

President Bola Tinubu, who assumed office in May, initiated reforms that allowed the official naira exchange rate to decline against the dollar.

This policy shift, accompanied by a nearly triple increase in fuel prices, was intended to align market dynamics. While initially successful in narrowing the gap between the official and black market rates, the discrepancy has since widened.

In another move to curtail fuel smuggling and reduce pressure on NNPC to import petrol, President Tinubu authorized a more than threefold increase in pump prices. Despite these measures, NNPC is still fulfilling its obligations to oil trading firms with crude oil, limiting its immediate access to oil resources.

As Nigeria navigates the challenging economic terrain, the collaboration between Afrexim Bank and oil traders presents a unique opportunity to strengthen the naira and stabilize the country’s financial outlook. However, the success of this innovative financing arrangement will depend on the final terms agreed upon and the willingness of traders to participate in the venture.

NNPC has yet to comment on the development, and Afrexim Bank has not issued an immediate statement regarding this initiative. Nevertheless, all eyes are on this groundbreaking partnership as Nigeria seeks to restore stability to its currency and economy.

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Nigerian Banks’ Borrowings from CBN Surge 835% in a Month, Raising Liquidity Concerns

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The Nigerian banking sector has witnessed an unprecedented 835% surge in borrowings from the Central Bank of Nigeria (CBN) in the span of just one month, igniting concerns over the nation’s liquidity stability.

Data reveals that banks’ dependence on the CBN has reached new heights, with their borrowings skyrocketing from a relatively modest N323.97 billion in August to N3.03 trillion in September. This remarkable increase underscores a growing reliance on the CBN’s support in times of financial stress.

This surge in borrowing activity has primarily been attributed to the CBN’s stringent monetary policies aimed at curbing inflation and managing the demand for foreign exchange. These policies have, in turn, squeezed commercial banks, compelling them to tap into the CBN’s Standing Lending Facility (SLF) for immediate liquidity needs.

Despite the escalating dependence on CBN funds, the Monetary Policy Committee (MPC) of the apex bank insists that the Nigerian banking sector remains fundamentally robust. MPC member Adenikinju Festus highlighted key indicators, including Capital Adequacy Ratio (CAR) and Non-Performing Loan (NPL) ratios, which still align with prudential standards. Furthermore, liquidity ratios have improved, and returns on equity and assets have risen.

However, the banking industry’s persistently high operating costs are raising alarms. In comparison to international standards, Nigerian banks are grappling with substantially higher operating expenses, prompting concerns about their long-term sustainability.

In a parallel development, the CBN’s Development Finance Department has disbursed a total of N9.714 trillion to various sectors of the economy over the past three years, with manufacturing and industries receiving the largest share at 32.6%.

Other sectors, including energy, agriculture, services, micro, small, and medium enterprises (MSMEs), export, and health, have also benefited significantly from these disbursements.

While the CBN remains committed to fostering sustainable economic growth, the surging dependence of Nigerian banks on short-term borrowings from the central bank is casting shadows on the sector’s long-term stability.

As Nigeria grapples with these liquidity concerns, the financial industry and regulators face the challenging task of charting a course towards a more resilient and sustainable banking environment.

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Guaranty Trust Bank, FBN Holdings, FCMB Group, and Fidelity Bank Report N478.93bn in Non-Performing Loans

Rising Non-Performing Loans Hit Nigerian Banks in H1 2023

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Non-performing Loans (NPLs) rose to N478 billion in four major banks in the country in the first half (H1) of the year.

Guaranty Trust Bank Holding Plc (GTCO), FBN Holdings Plc, FCMB Group Plc and Fidelity Bank Plc reported billion in NPLs in the period under review, representing a 16 percent increase from the N413.36 billion filed on December 31, 2022.

A breakdown of the report shows FBN Holdings with approximately 4.3 percent NPL ratio and a gross loan portfolio of N5.26 trillion reported an increase in NPLs from N204.29 billion in 2022 to N226.24 billion during the first half of 2023.

This represents an increase from the 5.4 percent NPL ratio and N3.79 trillion gross loans & advances reported in the previous financial year.

GTCO, in its financial disclosure, reported N115.29 billion in NPLs as of H1 2023, up from N102.37 billion in 2022.

The bank’s presentation to investors and analysts highlighted that the Group’s IFRS 9 Stage 3 loans decreased to 4.6 percent (Bank: 3.6 percent) in H1-2023 from 5.2 percent (Bank: 4.7 percent) in 2022. Notably, the highest NPLs were observed in the Individuals and Others sectors, at 20.9 percent and 30.96 percent, respectively.

Fidelity Bank on the other hand reported N84.73 billion in NPLs as of H1 2023, up from N61.37 billion while FCMB Group declared N52.66 billion in NPLs during the same period, an increase from N45.01 billion in 2022.

Banks in Nigeria have continued to grapple with non-performing loans, leading them to write off such loans. Concurrently, lenders have been debiting the accounts of debtors who have been reluctant to meet their obligations, all aimed at reducing the volume of non-performing loans.

In response to this challenge, the Central Bank of Nigeria (CBN) introduced the Global Standing Instruction (GSI) guideline in 2020. The GSI empowers banks to recover outstanding principal and interest from any account maintained by the debtor across all financial institutions in Nigeria upon default.

In a recent report, Kingsley Obiora, a member of the Monetary Policy Committee, noted that despite a decrease in the Capital Adequacy Ratio (CAR) to 11.2 percent in 2023 from 14.1 percent, it still exceeded the prudential requirement of 10.0 percent.

The Liquidity Ratio (LR) also remained above the regulatory minimum, increasing significantly from 42.6 percent in June 2022 to 48.4 percent in June 2023.

The Nigerian banking sector faces significant challenges with rising non-performing loans, but regulatory measures and prudent management strategies remain in place to maintain stability and protect the interests of both banks and their customers.

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