By Aduragbemi Omiyale
A global rating company, Moody’s Investors Service, has expressed doubts over the ability of Nigerian banks to meet their foreign currency obligations due to the foreign exchange (FX) crisis in the country.
As a result, the agency has placed on review for the downgrade of the long-term deposit ratings, long-term issuer, and senior unsecured debt ratings, where applicable, of nine lenders in Nigeria.
These banks are Access Bank, FCMB, Fidelity Bank, First Bank, GTBank, Sterling Bank, UBA, Union Bank, and Zenith Bank.
In a report, Moody’s said it was concerned about the rationing of forex in Nigeria, which could affect the operations of the commercial banks as they could struggle to honour FX transactions.
Nigeria, one of the producers of crude oil in the world, has not been able to earn more from the sale of the commodity, where it gets most of its forex earnings.
This has put the Naira under pressure in the currency market despite the Central Bank of Nigeria (CBN) rushing to the nation’s external reserves to supply FX to traders to defend the local currency.
“We understand that the central bank, which is the main provider of foreign exchange in the country, has consequently scaled down and become increasingly selective with its foreign currency allocations,” the agency said, noting that this has depleted Nigeria’s foreign exchange reserves to $38 billion as of September 2022 from $40 billion as of January 2022 despite higher oil prices.
It said if actions are not taken to straighten things, especially with the material discrepancies between official and parallel market exchange rates, the country will battle with the availability of foreign currency liquidity.
Moody’s further said this and constraints on domestic oil production, capital outflows, and the increased cost of the country’s imported refined petroleum products, coupled with the Dollar strengthening, could weaken the asset quality and capitalisation of the banks.
The firm noted that it would evaluate the resilience of the banks’ balance sheets to a potential material depreciation in the country’s foreign exchange rate.
In addition, it would assess the extent to which the banks’ capitalisation buffers and foreign currency positions mitigate the risk of a potential material weakening in the local currency.
It would also focus on assessing the banks’ operational ability to meet their foreign currency obligations and consider the expected evolution in foreign exchange reserves, as well as the various tools at the banks’ disposal to conduct foreign currency payments amid the shortage of Dollars.
“Moody’s rating review will also assess the resilience of the banks’ foreign currency liquidity positions and risk management frameworks amid ongoing foreign currency rationing in Nigeria and tightening funding conditions globally,” it stated.