ABUJA, Federal Republic of Nigeria. There are indications that shortage of dollars is forcing banks to delay hard currency loan and trade repayments to foreign banks as outstanding Letters of Credit (LCs) is estimated at $500 million.
At the moment, banks seeking dollars to repay letters of credit to foreign banks have to submit bids to the Central Bank, imposing extra barriers to hard currency access.
Bankers said this had become a source of worry to the correspondence foreign institutions, even as the risk of default kept increasing by the day.
A letter of credit is a letter from a bank guaranteeing that a buyer’s (importer’s) payment to a seller will be received on time and for the correct amount.
In the event that the buyer was unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase.
But now, repayment delays have swelled to over a week in some cases, bankers said.
Reuters quoted one senior Nigerian banker, who did not want his name in print, as saying, “We have had delays for almost a year. But we have capacity to pay what we owe. The delays were understood by both parties to be due to exchange controls.”
Meanwhile, the CBN governor, Mr Godwin Emefiele, promised that Nigeria would continue to meet matured financial obligations to foreign investors and its international trading partners.
He disclosed this during a meeting with members of the German Business Delegation at the CBN Head office, recently.
He reminded the visitors that Nigeria had been going through economic crisis, due mainly to shocks arising from falling global oil prices resulting in severe shortfall in foreign exchange revenue.
He craved the understanding of the visiting team regarding the policies put in place in order to conserve foreign exchange and assured them of CBN’s effort to meet their demands within the available forex resources.
The central bank had rationed dollars since oil prices began to fall, selling around $250 million a week, according to bankers. This was half of what it used to sell when oil prices were high, making sourcing dollars to repay matured LCs a headache.
The apex bank met commercial lenders last week to assure them it would sell them foreign currency to repay foreign loans, but told them they needed to pay off matured LCs first before negotiating new ones to prevent a backlog building up, bankers said.
If the amount of delayed repayments became too big, bankers fear it might become impossible for the central bank to meet dollar demand, which would push the situation from a liquidity crunch to a credit crunch – and ultimately even a default.
“If we have a credit default due to the currency controls, it will affect the entire country and worsen the country risk profile,” another banker said.
Oil revenues have historically accounted for 70 per cent of Nigerian government income and 90 per cent of its foreign exchange. The oil price collapse had whacked public finances and the currency, which trades on the black market at almost half its official value.
Reuters further quoted Akin Majekodunmi, a sub-Saharan Africa banking analyst at Moody’s as saying that,”We will see non-performing loans rise to around 10 per cent in 2016 moderated by restructuring and write-offs.”
Bad loans had risen above 5 per cent at the end of 2015, up from 4.7 per cent as of June 2015, he estimated.
Credit: Tribune (Nigeria)
