Banks will probably turn to rights officers and naira debt rather than selling dollar bonds because of falling oil prices, FBN Capital, has predicted. “The central bank rule will slow the issuance of dollar bonds,” Bloomberg quoted, Bunmi Asaolu, a banking analyst at FBN Capital, as saying. “More naira will be raised while the dollar takes the back seat,” he added. Slumping oil prices are weighing on the outlook for Africa’s biggest economy, weakening the naira and eroding foreign-currency earnings.

The Central Bank of Nigeria (CBN) in a statement dated October 24 capped the amount of borrowing banks can do in foreign currencies as percentages of shareholders’ funds. Nigeria’s foreign reserves dropped for 13 consecutive days to $38.86 billion on October 27, a three-month low. Brent crude oil for December delivery retreated 22 percent from this year’s peak in June to $87.12 a barrel yesterday on the ICE Futures Europe exchange in London.

The naira weakened 0.2 per cent to 165.60 per dollar by 10:54 a.m. in Lagos, bringing its loss this year to 3.2 percent. Even as the lower price erodes Nigeria’s earnings from oil, which account for about 80 percent of government revenue, central bank Deputy Governor Sarah Alade said October 23 the regulator will keep using reserves to support the naira. Dollars are sold by the bank to lenders at regular auctions twice a week and directly at irregular intervals depending on fluctuations in the local currency.

According to chief executive officers of Lagos-based Financial Derivatives Co., Bismarck Rewane, the central bank’s borrowing rules may support the local currency “over time.” “Nigerian banks are heavy with dollar borrowings for which there are repatriations in the form of interest and dividends,” he said. “This is one of the ways the central bank can check the outflows.” Tapering of monetary stimulus by the Federal Reserve has curbed investors’ appetite for assets seen as riskier, such as Nigeria’s, pushing up costs for issuers.

FCMB Group Plc, based in Lagos, opted to borrow $300 million from international lenders rather than sell a planned Eurobond to get lower rates, it said October 27. “Eurobond issuance was expected to be light in the coming months,” Samir Gadio, London-based Standard Chartered Plc’s chief African strategist, said by phone on October 28. “But with the low oil price, it makes it even harder for Nigerian banks to come to the market.”

•Credit: Newswatch Times.