The Central Bank of Nigeria (CBN) has raised the limit on Nigerian banks’ foreign currency borrowings to 125% of shareholders’ fund after some banks breached the regulatory limit.
The new regulation by the apex bank replaces a 2014 rule capping foreign borrowings, including Eurobonds, at 75% of shareholders’ funds as Nigeria tries to manage widespread capital shortfalls at lenders due to a currency crisis and bad loans.
“A major consequence of this development was the inadvertent breach of the regulatory limit for foreign currency borrowings by some banks.
“To address this development … the aggregate foreign currency borrowing of a bank borrowing should not exceed 125 per cent of shareholders’ funds,” CBN said in a circular.
The Central Bank directed lenders to report on their utilisation of foreign currency borrowings on a monthly basis.
Nigeria has been faced by currency crisis which as left lenders and other companies struggling to purchase hard currency and battered investor confidence.
Following the drop in the value of the Naira in the foreign exchange market, lenders have seen their dollar loan books swell in naira terms.
Nigerian banks raised over $1.5 billion from issuing Eurobonds and other types of debt instruments in 2013 as lenders rush to lend to the once lucrative oil industry at the peak of crude prices before the 2014 price crash.
The central bank has been trying to curb pressures on the naira from excess demand for dollars. It also wants to help avoid widespread capital raises for the banking industry given the weak equity markets and expensive debt market yields.
The Debt Management Office (DMO) raised N105.32 billion from bond sales this week, and payment for the debt sale was due on Thursday, draining liquidity in the market and pushing further up the cost of money in the market.
“The market is currently short of funds with major placers asking for a higher rate on their money as a result of pressure from those who need cash to cover their positions,” one trader said.
The central bank has consistently sold dollars at both the spot and forward markets, and required banks to pay for the purchase. This has drained liquidity in the market.
Dollar to Naira exchange rate Update
Dollar to Naira exchange rate on Friday 14th, April 2017 – 1 USD to 410 NGN
The Nigerian Naira maintained its previous day’s value of N410 to the US Dollar today, as the Foreign exchange market closes for the week.