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Nigerian States’ Bilateral Borrowing Soars by 64.26% as Naira’s Value Drops



Forex Weekly Outlook March 6 - 10

Bilateral borrowing of Nigerian States climbed by 64.26% in just six months amid the decline in the Nigeran naira value.

This surge, totaling a significant $462.81 million, has raised eyebrows as it coincides with the continuous depreciation of the national currency, the naira.

Despite the economic challenges posed by the falling naira, state governments across Nigeria seem undeterred in their pursuit of much-needed funds. Loans have been secured from various international sources, including China, India, France, and other countries, demonstrating their resourcefulness and commitment to development.

The naira’s decline in value has made dollar-denominated loans more expensive, making the decision to seek bilateral loans an even bolder move.

The Central Bank of Nigeria’s directive to remove the rate cap on the naira at the official Investors and Exporters’ Window of the foreign exchange market in June 2023 exacerbated the situation.

Consequently, the naira’s exchange rate plunged from 471/$ to 750/$ by the end of June 2023 and has continued its downward trajectory.

This increasing reliance on bilateral loans indicates a growing appetite among state governors for this type of financing. Data from the Debt Management Office reveals that 23 states have significantly ramped up their borrowing from a variety of international lenders, including China’s Exim Bank, India, France’s Agence Francaise Development, Japan International Cooperation Agency, and Germany’s Kreditanstalt Fur Wiederaufbua.

France’s Agence Francaise Development (AFD) remains a significant contributor to these bilateral loans, with debts to France surging by 21.84% to reach $306.32 million as of the end of June.

Also, loans from China, India, and other sources have experienced a staggering 415.79% increase, amounting to $156.49 million as of June 2023.

As we delve deeper into the specifics, it becomes evident that various states have taken diverse approaches to meet their financing needs. Some states, such as Abia, Adamawa, Akwa Ibom, Bauchi, Kebbi, Kogi, Kwara, Oyo, and Sokoto, maintained their bilateral loan profiles at $3.82 million. Others, like Cross River and Ebonyi, witnessed changes in their borrowing trends.

In the midst of this financial landscape, it’s important to note that in 2018, Nigeria secured a substantial $475 million loan from France to fund development projects in Kano, Lagos, and Ogun states. The agreement, signed by then Minister of Finance, Mrs. Kemi Adeosun, and the Chief Executive Officer of Agence Francaise Development, Mr. Rey Rioux, included allocations for critical projects such as transportation, land degradation, and water infrastructure.

The Nigerian states’ bold move to secure bilateral loans reflects their determination to drive development and economic growth, even in the face of currency challenges. This trend will undoubtedly shape the financial landscape and raise questions about the sustainability of such borrowing in the long run.

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Naira Struggles as Apex Bank Delays Clearing $10 Billion Forex Debts




The Nigerian economy is facing growing uncertainty as the Central Bank of Nigeria (CBN) has yet to fulfill its promise of clearing over $10 billion in foreign exchange debts owed to Deposit Money Banks (DMBs).

This delay has placed immense pressure on the country’s currency, leading to a challenging situation for both financial institutions and the general public.

Over two weeks ago, the immediate past acting CBN Governor, Folashodun Shonubi, had announced that negotiations on these dollar debts with commercial banks had been concluded and all forex exchange backlogs would be cleared within one to two weeks.

However, multiple top bank executives have revealed that the promise remains unfulfilled, leaving banks in a tight FX liquidity position.

This liquidity crunch has compelled many lenders to temporarily suspend various FX transactions, including school fees and Personal Travel Allowance applications. The situation has also worsened the dollar scarcity at the parallel market, prompting bank customers to turn to the black market to meet their forex needs.

The delay in clearing these forex debts has further eroded confidence in the naira, resulting in a decline in its value to between 990/$ and 995/$ in major cities like Lagos, Abuja, and Kano.

Economic experts warn that if the situation persists, it could lead to higher costs of goods and services, causing more businesses to shut down.

Manufacturers, who heavily rely on imported raw materials, fear that the rising costs will lead to unaffordable products and a preference for cheaper imported alternatives.

The appointment of a new CBN Governor, Dr. Olayemi Cardoso, comes at a critical time, with the central bank facing significant challenges related to the forex market and currency stability.

As the nation grapples with these economic pressures, it remains to be seen how the new leadership will address these issues and restore confidence in the financial markets.


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



Global Banking - Investors King

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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Banking Sector

Central Bank of Nigeria Postpones 293rd Monetary Policy Committee Meeting



Central Bank of Nigeria - Investors King

The Central Bank of Nigeria (CBN) has announced the postponement of its 293rd Monetary Policy Committee (MPC) meeting, originally scheduled for September 25th and 26th, 2023.

Dr. Isa AbdulMumin, the bank’s Director of Corporate Communications, released a statement on Thursday confirming the decision.

In the statement, Dr. AbdulMumin stated, “The Monetary Policy Committee of the Central Bank of Nigeria has deferred its 293rd meeting, which was initially planned for Monday and Tuesday, September 25th and 26th, 2023, respectively. A new date will be communicated in due course. We regret any inconvenience this change may cause our stakeholders and the general public.”

While the CBN did not provide an official reason for the postponement, some industry experts suggest it may be related to the pending approvals for the newly appointed governor and deputy governors of the bank.

President Bola Tinubu recently nominated Yemi Cardoso as the potential head of the CBN. Additionally, Tinubu has endorsed the nominations of four new deputy governors for the apex bank, who are expected to serve for an initial term of five years, pending confirmation by the Senate.

The nominated deputy governors are Emem Usoro, Muhammad Abdullahi-Dattijo, Philip Ikeazor, and Bala Bello. However, the appointment of the CBN governor is contingent upon Senate confirmation, which is currently on a yearly recess.

The CBN assures stakeholders and the public that the rescheduled MPC meeting date will be communicated promptly as soon as it is confirmed.

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