‘CBN, Your Plan To Normalize FX Interbank Market Will Ease Hardship’ – Fitch

 

 

The Oasis Reporters

February 24, 2017

Some respite has come the way of Nigeria’s Apex Banker, by Global issuer and bond ratings agency, Fitch Ratings.
The agency has raised ‘thumbs up’ to the Central Bank of Nigeria, CBN’s new policy actions on foreign exchange which it sees as a step to ease the foreign currency liquidity pressure faced by the country’s banking sector and also bring about stability in the banks.

The agency is optimistic 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 United States, US Dollar.

The naira had been doing badly ever since Nigeria’s President Muhammadu Buhari imposed his military-era foreign exchange policy that crashed the nation’s economy over thirty years ago when Mr Buhari then a Major General in the Nigerian Army led a military putsch that overthrew the democratically elected government of President Shehu Shagari in 1983, blaming corruption as reason for the coup. But his policies failed.

Thinking that he was right in the early 80s, made him reintroduce those same policies which made foreign news organizations and economic analysts to mock his attempts that “turned a mere foreign currency crisis into Nigeria’s first full blown recession” in about thirty years.

But Mr Buhari has decided to go on an extended medical vacation, though his deputy and now acting President, Mr Yemi Osinbajo has said Buhari “is hale and hearty”.

His absence has mercifully given the apex bank enough leg room to torpedo some of Mr Buhari’s harsh economic policies that brought the country to its knees.

The international rating agency observed that Nigeria’s apex bank have moved to increase intervention in the foreign exchange, FX, interbank market to increase supply.

Fitch has observed that the measure is aimed at clearing the backlog of overdue foreign currency obligations owed by banks to their international creditors, and was specific that “the most important aspect of the CBN’s announcement is a plan to normalise the FX interbank market”.

It recalled that the CBN had stated 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 time for banks to take delivery of foreign currency through its forward sales contracts to 60 days from 180,” it said in a statement issued on Wednesday.

Reacting to the buying of $371 million by banks out of the $500 million forwards that was announced by the apex bank, 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.”

But still , Fitch gave knocks to the operating environment in Nigerian banks which was still challenged by the oil price shock, slow GDP growth, pressure on the naira, scarce access to foreign currency and policy uncertainty.

“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.

While the business community heave a sigh of relief, they hope and pray that President Muhammadu Buhari would not come back and roll back the gains garnered during his absence.

Greg Abolo

Blogger at The Oasis Reporters.

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