Pressure as defaults, poor earnings persist
Nigerians will, from today, struggle harder for foreign exchange as
banks are also looking for it, especially the United States dollar, to scale up
their loan provisions.
The Central Bank of Nigeria (CBN) gave August 5, 2016, as the deadline
for all Deposit Money Banks (DMBs) to increase their provisioning for foreign
currency-denominated loans and related exposures.
An increased loan provisioning for banks became necessary following a
new foreign exchange policy that brought imbalance in earlier provisioning made
on the basis of N197/$ official exchange rate.
The apex bank yesterday said the development was one of the effects of the new foreign exchange guidelines, which liberalised the market. Naira currently exchanges for more than $305 at the interbank in response to forex trade liberalisation.
Analysts say it will now be more difficult for Nigerians to secure foreign
exchange as banks struggle to keep as much dollars as they can in their
coffers. The possible use of naira to back up dollar demand could further
weaken the local currency and escalate prices of goods and services.
Apart from being owed, two big banks have topped the list of
dollar-denominated borrowers to the tune of $1.6 billion and $915 million to
cover their shortfalls, according to Thomson Reuters.
The exchange, which is now above N300 per US$ increased balances on
foreign currency-denominated loans and advances in the books of banks,
especially facilities that had been fully provided for under the previous
exchange rate regime, but were yet to be written off.
The Director of Banking Supervision, Central Bank of Nigeria (CBN), Mrs.
Tokunbo Martins, who signed the circular, said: “To ensure adequate and proper
provisioning, banks are by this circular, required to ensure that the non-provisioned
portion on all such facilities are fully provided for immediately in the income
statements and evidence of the additional provisions forwarded” to her office
latest Friday this week.
She added that henceforth, all foreign currency-denominated loans should
be reviewed and adequate provisioning made on all delinquent ones in line with
the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010.
Meanwhile, pressure seems to be persisting as industry’s loan book has
shown that almost half of the total is dollar-denominated debts, with
uncertainty still shrouding the recovery.
The uncertainty rose further as the naira ended the week at N321.16 to
the dollar at the inter-bank market, coupled with foreign exchange shortages.
According to Agusto & Co, Nigeria rating agency, non-performing loan
will rise to 12.5 per cent of total loans by the end of the year, far from apex
bank’s five per cent threshold.
Already, there are heightened expectations that more banks’ workers
would be laid off, while some branches will be closed and at extreme
projections, some banks are unlikely to survive the challenging times.
There are also speculations that the regulator is monitoring one or two
lenders for their liquidity levels, while four medium-sized banks might need to
raise capital and soon.
CBN, on the sidelines of the last Monetary Policy Committee meeting in
Abuja, reiterated that the strategic health of the Nigerian banking industry
remains strong notwithstanding any economic challenges.
It noted that there is no need for anybody to embark on panic
withdrawals or raise concerns that any bank is in distress
.
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