The Central Bank of Nigeria’s currency swap between domestic banks is estimated by Fitch Ratings to be around $10 billion and $12 billion at the end of 2022.
According to the rating agency, this represented 30% of the nation’s total reserves (at $37 billion as of the end of 2022) and was made up of swaps with domestic banks among other things….CONTINUE READING
It revealed this in a paper titled “Nigeria’s Weaker Reserves Highlight External Risk and Policy Challenges” after the CBN’s financial statements were recently made public.
Nigeria’s reserve poorer than expected
The report also highlighted the nation’s external weaknesses and hinted that the net reserve position may be poorer than expected.
“Fitch estimates, partly based on our survey data, that CBN swaps with domestic banks were $10bn – $12bn at end of 2022, and are likely to remain close to that level, but there is less visibility on swaps it may have with international counterparties.
“We anticipate that most of these domestic swaps will continue to be rolled over, reflecting incentives for banks to invest the naira received in high-yielding sovereign securities and the sector’s limited reliance on swaps for foreign-currency liquidity given its sizeable foreign-currency placements with international banks.”
According to the statement, the CBN’s most recent release of consolidated financial records to the end of 2022 revealed that the net reserve position might not be as strong as we had anticipated.
The agency said considerable liabilities, boosted Nigeria’s reserve transparency but hinted that significant gaps persisted. On this note, it said it may be impossible to make a trustworthy evaluation of the net reserve situation.
When we affirmed Nigeria’s rating at ‘B-’ with a Stable Outlook in May, we stated that external finances were a key rating sensitivity. We estimated that around 30 per cent of Nigeria’s gross reserves (which were $37bn at end-2022) comprised swaps with domestic banks, although we considered that some other reserves could well be encumbered.”
The credit rating company emphasised that according to the CBN financial records, liabilities as of the end of 2022 included $7.5 billion in securities lending ($5.5 billion out of this amount, were short-term obligations).
It added that the statement also revealed a $6.8 billion in short-term obligations from foreign-currency forward payables.
According to the report, uncertainty surrounding the roughly $32 billion in FX forwards, OTC futures, and currency swaps, which were recorded as an off-balance-sheet commitment but are not broken down.`
It also mentioned that some non-deliverable contracts could be settled in naira, which wouldn’t deplete reserves, as well as promises with a longer tenor.
Fitch noted that the recent liberalisation of exchange rates and enhancements to the overall monetary policy framework could improve the country’s credit profile by reducing supply constraints on foreign currency.
However, it added that a recent decline in reform momentum and the constrained reserve position highlighted the significant difficulties these policy adjustments faced.
It noted that the reserve declarations counterbalanced more recent improvements to Nigeria’s credit status.
Recall that the global financial service firm JP Morgan earlier revealed that Nigeria’s net forex reserve has declined to around $3.7 billion. This was disclosed in a report titled “Nigeria: Reform pause rather than fatigue.”
The Central Bank however faulted JP Morgan’s recent estimate that Nigeria’s foreign reserve is at $3.7 billion.
CBN Owes Foreign Banks, JP Morgan, Goldman Sachs $13.8 Billion
The Central Bank of Nigeria owes JP Morgan and Goldman Sachs a combined $7.5 billion as of the financial year ended December 2022. Legit.ng had reported….CONTINUE READING
As part of its liability, the apex bank also included $6.3 billion owed in foreign currency forwards.
The disclosure is part of CBN’s audited financial statement published on its website on Friday, August 11, 2023.
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