Culled—Proshare
Thursday, December 15, 2016 11:21 AM / by Maggie Fick , FT
This “move highlights an erosion of confidence in the monetary authority”.
Several banks will not renew agreements worth billions of dollars with Nigeria’s central bank, highlighting the erosion of confidence in the monetary authority, bankers say.
The move, which relates to foreign currency swap agreements between banks and the central bank, risks depleting the country’s dwindling foreign reserves as Nigeria faces a severe dollar shortage, bankers warn.
Nigeria’s gross reserves have plummeted by 40 per cent to $24bn since oil prices crashed in mid-2014 as Africa’s top crude producer grapples with its worst economic crisis in decades. The shortage of greenbacks is already choking important sectors of the economy, from airlines to importers of fuel to manufacturers.
Godwin Emefiele, central bank governor, has sought to use foreign currency swaps to bolster dollar reserves, swapping large amounts of naira in return for dollars with about six of the country’s 22 banks.
But bankers say they have begun refusing to allow the central bank to renew these swaps — most of which expire within the next year — because they have lost confidence in Mr Emefiele’s management of the currency and foreign exchange market.
The central bank is holding less than $4bn in foreign currency swaps according to data on its website, which is not large enough to trigger a currency crisis overnight. But bankers and analysts say the decision by banks to reduce their exposure to the central bank highlights broader concerns in the market that has caused investors to virtually stop bringing hard currency into Nigeria.
Without the return of foreign capital inflows, they say, Nigeria cannot climb out of recession.
A chief complaint among bankers and analysts is that central bank continues to intervene to prop up the value of the naira despite Mr Emefiele announcing in June that monetary authorities would move to a “purely market-driven” currency system. Bankers say the lack of policy credibility in managing the currency raises questions about Nigeria’s ability to provide dollars to banks as a recession deepens.
Read the full article here – Lenders plan not to renew deals with Nigeria central bank
