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 interbank 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.