Nigeria: Forex Liquidity - Nigerian Banks Vulnerable, Moody's Warns

2 July 2020

Global rating agency, Moody's, has issued fresh warnings that Nigerian banks are facing foreign currency liquidity pressures of the type seen during the 2016-2017 recession.

In the report titled, "Nigeria: Renewed foreign-currency shortages highlight vulnerability for banks, Moody's said, "forex liquidity pressures stem from current low oil prices, volatile foreign inflows and lower remittances in the face of the coronavirus pandemic, creating a similar situation as blighted them in the previous oil crisis of four years ago."

"Lower dollar inflows at a time when foreign currency borrowing will likely be more expensive for Nigerian banks will strain their foreign currency funding, despite substantial improvements compared to 2016," said Peter Mushangwe, a banking analyst, at Moody's.

The report posited Moody's "moderate scenario where foreign-currency deposits decline by 20%, while loans remain constant, would increase rated banks' funding gap to N1.5 trillion ($3.8 billion), and to N1.9 trillion ($5.0 billion) under severe-case scenario of 35% foreign-currency deposit contraction, creating acute funding challenges."

The report noted that oil and gas exports contribute about 90 percent of Nigeria's foreign currency revenue, whereas crude oil now trades around $40 a barrel, substantially lower than the average price of $65 in 2019 and $72 in 2018. Moody's said it forecasts a range of between $35-$45 over the next 12 to 18 months, stressing that even prices within that range, or lower, in the second half of the year, would lead to renewed dollar shortages at the banks.

More From: Vanguard

Don't Miss

AllAfrica publishes around 800 reports a day from more than 130 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.