Credit rating agency, Fitch Ratings, has said that the proposed foreign currency gateway bank announced by the Central Bank of Nigeria may have a negative impact on the liquidity of Nigerian banks.
This was revealed in the latest Fitch Ratings commentary on Nigerian banks.
The apex bank Governor, Dr Olayemi Cardoso, recently disclosed in a television interview the plans to introduce a new foreign currency gateway bank to ease the country’s forex crisis.
Cardoso said the CBN was “introducing a single FCY gateway bank to centralise all correspondent banking activities, currently dominated by two major banks in the corresponding banking space.”
The gateway bank termed the CBN’s medium-term plan is aimed at solving Nigeria’s lingering forex problem by centralising all correspondent banking activities.
Commenting on the proposal, Fitch Ratings said, “The Governor of the CBN, Yemi Cardoso, also announced plans to establish a FC gateway bank with the intention of centralising correspondent banking activities, while asserting that a recent audit has determined $2.4bn of overdue FX forwards invalid. Fitch believes these measures by the CBN may negatively affect the banking sector’s FC liquidity.”
Meanwhile, due to about 70 per cent devaluation of the local currency since end-2022, according to Fitch, banking sector impaired loans are expected to increase at a faster pace than before the devaluation.
“Fitch expects the banking sector’s impaired loans (Stage 3 loans) ratio to increase at a faster pace than before the devaluation, which itself has caused already material FC-denominated problem loans (Stage 2 and Stage 3 loans; predominantly oil and gas sector loans) to have inflated relative to gross loans and core capital and accentuated credit concentration risks,” the credit rating firm said.
On the impact of the CBN circular prohibiting banks from holding net long foreign currency positions, Fitch said that it would lead to a further moderate depreciation of the naira.
“The Central Bank of Nigeria has published new circulars and made a number of statements accompanying the recent devaluation. One circular issued after the devaluation on January 31, aimed at increasing the supply of FC, prohibited banks from having net long FC positions, and set February 1 as the deadline for compliance.