Nigerian Banks with exposure of over $10b in trade finance are on the brink. – Moody’s.

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Nigerian Banks with exposure of over $10b in trade finance are on the brink. – Moody’s.

February 16, 2023February 16, 2023

Local Nigerian businesses may confront foreign cash shortages that could endanger bank liquidity and undermine bank capital, according to a note published on Thursday by the ratings agency Moody’s.

In order to cover the foreign exchange (FX) expenses of imports, banks have started offering trade credit to businesses. This puts banks at risk if the businesses fail to make the required FX payments, according to Moody’s.

According to Moody’s, the off-balance sheet trade exposure of the Nigerian banks it grades was around $9.8 billion in 2022, or 54% of the institutions’ liquid foreign exchange holdings.

Nigeria frequently experiences severe shortages of foreign currency as the central bank works to maintain the naira. In the underground market, where it dropped below 800 naira last year, it presently trades at roughly 750 naira per $1, compared to 460 naira officially.

As of June 2022, Nigeria’s commercial banks had lent the central bank a total of $10.4 billion in foreign currency, increasing the risk to bank liquidity, according to Moody’s.

“The central bank has a strong track record of repaying the foreign exchange it owes to the banks, but during a time of acute foreign exchange shortages, there is greater danger that it will extend the duration of some contracts, deferring repayment,”

In Nigeria, a lack of cash is fueling unrest ahead of next week’s presidential and parliamentary elections, leading the president to extend the deadline for turning in outdated bank notes.

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