Fitch Ratings, an international rating agency, has expressed optimism that the new policy actions on forex implemented by the Central Bank of Nigeria (CBN) may help to ease the foreign currency liquidity pressure faced by the country’s banking sector and also bring about stability in the banks.
Specifically, Fitch noted that “the most important aspect of the CBN’s announcement is a plan to normalise the FX interbank market, in our view’, adding that it is a measure that intended to clear the backlog of overdue foreign currency obligations owed by banks to their international creditors.
In a statement issued yesterday, the rating agency recalled that the CBN had maintained that providing foreign currency to the manufacturing sector was still a priority, but observed that “with restrictions eased, larger banks with greater access to foreign currency will be free to lend to the smaller banks whose access to international funding is restricted.
“The CBN has also reduced the maximum waiting times for banks to take delivery of foreign currency through its forward sales contracts to 60 days from 180”, said the global providing issuer and bond ratings.
The CBN had also stated its intention to increase intervention in the FX interbank market to increase supply. Many banks were reported to have bought about $371 million out of the 500m forwards that was announced by the apex bank.
To this effect Fitch said, “This should help banks make more timely payments to creditors, speeding up the flow of currency to importers and helping the economy. 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”.
It, however, noted that the operating environment for Nigerian banks was still challenged by the oil price shock, slow GDP growth, pressure on the naira, scarce access to foreign currency and policy uncertainty.
Notwithstanding, the agency expressed belief that the recent moves by the CBN will, in no small measure, help to alleviate the acute hardship on individuals and businesses, owing to the scarcity of the U.S. Dollar.
“The CBN plan will also make it easier for individuals and business customers to meet their foreign currency travel and other personal needs because it will sell foreign currency to banks at a rate not exceeding 20% over the interbank (official) rate for these purposes”, it added.