Fidelity bank card banner Camano banner
Hopes, fears as flexible foreign exchange regime takes off today

By News Express on 20/06/2016

Views: 2,197


As the flexible exchange rate policy takes off today, there is no less than $4 billion worth of unmet demand, which has raised a new concern over its clearance within the targeted four weeks.

There is also anxiety within the banking industry over the implications of the expected exchange rate increase to between N275 and N300 on the existing Non-Performing Loans (NPLs).

While expectations are high that the more than $4 billion backlog will be cleared, according to sources from the Central Bank of Nigeria (CBN) in the next three to four weeks once the policy takes off today, the significant exchange rate adjustment has raised new worries that the ability of customers to repay the existing dollar obligations would be constrained further.

A top bank chief, who is close to the group that is determining the appropriate value for which the naira will be traded today told The Guardian that there is the likelihood of further default, leading to increased impairment provision and outright write-off in the industry.

Already, the individual banks’ share of the backlog has been concentrated on 10 banks, while the composition of the demand ranges from maturing letters of credit, cash and profit repatriation and foreign investment outflows.

Further analysis showed that the pressure points are led by demands from the general commerce customers, given the limited scope they have to pass on this cost to their customers; power; manufacturing; real estate; and construction sectors.

“Given their relatively higher exposure to the general commerce sector, we are more concerned about the implications of this for the likes of Zenith Bank, 22 per cent; Diamond Bank, 19 per cent; Stanbic, 12 per cent; FCMB, nine per cent; and Skye Bank, eight per cent,” the Sub Saharan Banking Analyst and Research, Nigeria, Adesoji Solanke, said.

Others are Access Bank, 10 per cent; United Bank for Africa, nine per cent; Guaranty Trust Bank, seven per cent; First Bank, five per cent; and Fidelity Bank, five per cent.

However, for banks with net long positions in dollar, a revaluation gain may soon trickle in, but some of the gains could still be offset in collective impairments over the anticipated NPL risks.

“For NPLs, the reality is that many small businesses are already either starved of forex or accessing this at parallel market levels. Therefore, some adjustment to a weaker rate has already happened.

“Some banks tell us they’re holding Naira on behalf of customers at a weaker exchange rate but should the devaluation exceed this hold rate and the customer struggles to find the excess to liquidate its dollar obligation, that loss ultimately becomes the bank’s.

“Further, businesses struggle with a weaker exchange rate given the weaker consumer and macroeconomic backdrop, such that their ability to increase prices gets constrained, leading to weaker margins, cost cutting (layoffs) and in other cases the business shuts down.

“There’s a long downward spiral effect, which needs to play out and all this does not always materialise in one year. So, devaluation tends to be NPL negative for Nigerian banks,” Solanke added.

Meanwhile, banks’ treasurers have called for persistent follow-up in mopping up excess money in circulation, estimated around N1 trillion to foil speculative attack on the naira as the new policy begins.

While there is expectation of interest rate increase at the next meeting of the Monetary Policy Committee, the treasurers said CBN could wade in now with other measures, which include increased liquidity ratio, Cash Reserve Requirement, treasury and bond purchases.

At the weekend, CBN offered a N50 billion paper, but eventually made no sale. It also sold treasury bills at higher yields than in the secondary market in efforts to mop up naira liquidity before the start of the new forex market, to curb speculation.

Specifically, it mopped up N205.9 billion worth of one-year bills at a price yielding 15.6 percent, the same level as inflation.

Still, Fitch Ratings has applauded Nigeria’s planned shift to a more flexible foreign-exchange regime, saying it could aid the sovereign’s adjustment to lower oil prices and support growth.

It, however, warned that the implementation may present challenges, adding that establishing the new framework’s credibility would be key to its effectiveness in attracting portfolio flows and Foreign Direct Investments (FDI) to make up for lower oil export receipts.

“Defending the naira has lowered reserves and increased external vulnerabilities, while a shortage of hard currency has weighed on the non-oil economy. The change of policy is consistent with our view that the CBN would struggle to defend the naira indefinitely.

“Allowing the market to determine the value of the naira could ease this, although we think much potential FDI may remain on the sidelines until a clearer picture emerges of how the new system is functioning,” the company said.

The Head of Africa Strategy at Standard Chartered Bank, Samir Gadio, corroborated the sentiment when he told Reuters that “foreign investors will need to be convinced that the new regime is sustainable in the medium term and will likely also require higher yields before resuming the purchase of local debt.”

•Text courtesy of The Guardian. Photo shows CBN Governor Godwin Emefiele.

Source News Express

Posted 20/06/2016 05:30:20 AM

 

 

CLASSIFIED ADS

 

You may also like...
Terrorists, criminal gangs looking around for nuclear ingredients...

CBN assures of Policies to strengthen naira; Monetary...

Buhari unveils locally made drone

Nigerian passenger dies inside US-bound plane

Nigerian Army pulls out 11 Generals

Today’s weather outlook as forecast by NiMET

I have forgiven those who lied against me...

HURIWA condemns arrest of Kaduna journalist, asks media...

I was a dollar millionaire in my 20s,...

FG dismisses 23 Prisons officers, suspends 11 others...

Nigerian church loses $5 million to Ponzi scheme...

NUC accredits 25 programmes for BUK

 

Latest News No going back on Ruga settlement project― Niger State Buhari orders immediate payment of N30,000 minimum wage to Federal workers Recruitment: Navy releases list of successful candidates Northern Elders Forum, CNG order Fulani herdsmen back to North Amnesty Programme profiles 308 beneficiaries for employment Olakunrin’s killing: Ethnic groups may resort to self-help ― Alaafin NYSC investigates fake graduates Election Tribunal: INEC, APC, Buhari tender video to counter allegation on server NIPOST workers suspend planned warning strike Nigerian situation extremely worrisome, on brink of disaster — Anyaoku Banditry in North-West may have international dimension —Yuguda Declare state of emergency on security, PDP tells FG

 

Most Read NUDE PHOTO OF OMOTOLA JALADE-EKEINDE surfaces online (508,154 views) Nigerian female sex addict opens up, says ‘I like it with both men and women’ (430,974 views) Shameless Genevieve Nnaji exposes breasts in public (372,707 views) Finally named: The full list of friends of Nigerian female sex addict who prowled Facebook (316,338 views) OLUMBA OLUMBA OBU (the one who called himself God) IS DEAD (281,787 views) Igbo scholar disgraces Femi Fani-Kayode •Demolishes claims on Igbo/Yoruba history with facts and figures (246,880 views) Breaking News: POPULAR REVEREND CONVERTS TO ISLAM in Kaduna (Nigeria) (238,585 views) 10 cars more expensive than Jets (222,203 views) OBJ’s son reported dead in Lagos plane crash •Names of more victims emerge (220,707 views) My wasted years in Olumba Olumba Obu’s Evil Brotherhood (208,316 views) Lagos plane crash: Journalist releases victims’ names (187,985 views) THE FINAL DISGRACE: Igbo scholar unleashes more facts about Igbo/Yoruba history, finishes off Femi Fani-Kayode with second article (186,644 views)

 

NLNG Job Vacancy

CBN banner advert

UBA Wise Savers Promo

 

Categories Advertorials (3) African Press Organisation (81) Art & Literature (96) Business & Economy (4,354) Business Verdict (76) Columnists (1,070) Complaints & Requests (95) Enterprise & Opportunities (211) Entertainment (634) Features (778) Global Business Monitor (395) ICT Monitor (53) International (3,714) Interview (192) Live Commentary (30) Love Matters (163) Maggie's Blog (338) News (48,697) Opinion (1,290) Pidgin (17) Politics (11,158) Religion (1,049) Sports (2,097) Stock Watch (39) AMA & Al Jazeera Global Update

 

 

 

 

 

APO Group Partner

 

 

CLASSIFIED ADS

GOCOP Accredited Member

GOCOP Accredited member

 

 

Africa Media Agency and Al Jazeera