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Nigerian banks experiencing dollar shortage – Fitch

By on September 26, 2015

Nigerian banks are still experiencing shortage of dollar and other foreign currencies despite the Central Bank of Nigeria’s recent attempt to boost liquidity in the banking system, global rating agency, Fitch Ratings, has said.

Specifically, Fitch said the Tuesday’s decision by the CBN Monetary Policy Committee to cut the Cash Reserve Requirements on public and private sector deposits from 31 to 25 per cent would not add dollar liquidity to the nation’s banking system because it releases no additional foreign currency.

According to a statement released by Fitch in London on Thursday, substantial government-related foreign currency deposits are exempted from the CRR and have already been withdrawn from the banking system following the implementation of the Treasury Single Account policy last week.

The MPC had reduced the CRR in the hope that this might ease liquidity pressure, stimulate new lending and boost economic growth.

The policy decision should provide some additional local currency liquidity into the banking system but around N1.3tn ($6.5bn) of deposits were sucked out of the banks in September, reflecting transfers to the TSA, the global agency said.

Public-sector deposits traditionally account for around 10 per cent of total banking sector deposits.

The statement quoted the Director, Financial Institutions, Fitch, Solena Gloaguen, as saying, “Lower CRR will not offset the tighter foreign currency liquidity at Nigeria’s banks.

“A currency split of public-sector deposits is not disclosed but in our opinion, FC deposits are substantial, held up by oil-related deposits.The centralising of public-sector and government-related FC deposits at the TSA has made it increasingly difficult for commercial banks to meet customer demand for FC.

“Foreign currency availability was already strained in 2015 due to falling oil revenues, CBN action to defend naira depreciation and heightened negative investor sentiment towards emerging markets.”

Warnings throughout the year that JP Morgan intended to remove Nigeria from its emerging markets bond index, which occurred in mid-September, also triggered heavy foreign currency outflows as investors sold Nigerian securities, the rating agency added.

Fitch further said, “Viability ratings assigned to Nigeria’s banks, all in the ‘b’ category, already reflect a wide range of weaknesses, including the increasingly strained FC liquidity position. Our sector outlook for Nigerian banks remains negative.

“Key financial metrics reported by Nigerian banks are likely to continue to weaken in the closing months of 2015.”

It added, “Impaired loans have been rising over the past 12 months. We expect them to rise above the central bank’s informal five per cent of total loans cap but to remain below 10 per cent at year-end. Pressure is mounting on regulatory capital ratios and we expect Tier 1 capital ratios at many banks to fall below 15 per cent, which is low by recent Nigerian standards.

“Loan growth is slowing under the strain of lower oil prices. Our expectations for loan growth are muted – a nominal five per cent increase in 2015, which is low by Nigerian standards – due to the much deteriorated operating environment.”

 

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