Fitch expects new FX rules to ease liquidity challenges for Nigerian banks

22 Feb 2017
Financial Nigeria


Fitch also commended the CBN for relaxing FX allocation/utilization rules on commercial banks. 

Godwin Emefiele, Governor, Central Bank of Nigeria

Fitch Ratings said today that its expects the severe foreign exchange liquidity challenges facing Nigerian banks to ease following the new FX measures announced by the Central Bank of Nigeria.

On Monday, the CBN pledged an effective intervention programme to ensure adequate liquidity and transparency to guarantee efficiency in the FX market. On Tuesday, the apex bank sold $371 million to 23 banks to meet retail demands, including personal and business travel allowances, medical expenses, and school fees.

“The most important aspect of the CBN's announcement is a plan to normalise the FX interbank market, in our view,” the ratings agency said. “The intention is to clear the backlog of overdue foreign currency obligations owed by banks to international creditors . . . This should help banks make more timely payments to creditors, speeding up the flow of currency to importers and helping the economy.”

Fitch also commended the CBN for relaxing FX allocation/utilization rules on commercial banks, which would allow larger banks with greater access to foreign currency to easily lend to the smaller banks with restricted access to FX funding.

“The CBN's initiatives are an important boost for banks as access to foreign currency liquidity is tight and banks have struggled to meet their foreign currency obligations... There has been a steady reduction in overdue trade-related obligations since late 2016, helped by more frequent foreign currency auctions by the CBN, and this week's announcement should further ease foreign currency flows into the banks,” the ratings agency said.

Last month, Fitch downgraded the outlook of Nigeria’s credit ratings from stable to negative although the ratings agency retained the country’s credit rating at B+. The New York-based ratings firm said its action was driven by Nigeria’s deteriorating macroeconomic conditions evidenced by tight foreign currency liquidity, low oil production, and the wide spread between the official and parallel markets rates of the naira.

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