Naira Rises to N260/$1 At Unofficial Market As Forex Scarcity Persists


The naira edged higher to about N260 to a dollar on the parallel market yesterday, compared with about N266 to a dollar it was before last week’s public holidays.
According to findings from most of the parallel market traders at the Murtala Mohammed International Airport and other areas around Ikeja yesterday attributed this to an increase in supply of the greenback from autonomous market sources, especially from Nigerians abroad who visited the country for the yuletide.
The interbank official forex market which was shut down for the yuletide is expected to be re-opened on January 4, 2016.
The naira had depreciated to about N280 to the dollar about three weeks ago as a result of dollar scarcity that hit the market.
The declining oil prices as well as the unwillingness of the Central Bank of Nigeria (CBN) to devalue the naira amidst constrained reserves has continued to worsen foreign exchange (forex) liquidity position of Nigerian banks, Renaissance Capital (RenCap), a financial advisory and research firm, stated.
However, RenCap opined that should the forex scarcity persists in a weak oil price environment, banks’ asset quality and international obligation default risks could be significant.
The firm highlighted scarcity of forex for imports, complaints by correspondent banks, and maturing forex obligations as some challenges faced by banks and businesses in the country.
It stated that Nigerian banks had about $3.4 billion worth of Eurobonds in issue. While the firm expressed optimism that banks would still meet coupon repayments, it, however, stressed that it was becoming increasingly difficult to source forex to service obligations.
“Given the macro risks, we understand borrowing costs are now 50-200 basis points higher than three-to-six months ago, which is negative for margins, as we think the banks may be limited in their ability to pass on higher pricing to already stressed customers,” it added.
In addition, the report pointed out that Nigeria is dependent on imports, which Nigerian banks facilitate via the opening of letters of credit (LC). The customer typically repays these after imports are sold; the customer therefore earns naira, then approaches the banks to source forex from the CBN (or goes to the black market), with which the correspondent bank is repaid.
Commercial banks in the country recently stopped the use of ATM debit and credit cards abroad, a move that had since been supported by the central bank.
In his reaction to this, the CBN’s Director, Monetary Policy, Mr. Moses Tule, said the restrictions on the use of electronic payment cards abroad would likely be lifted when reserves increase to between $50 billion and $200 billion, adding that all hands must be on deck to achieve the target.
He said the new policy was a healthy development for the ailing economy in spite of the attendant inconvenience to cardholders.
According to Tule, foreign exchange under the condition Nigeria has found itself has become a seasonal commodity.
“Seasonal in the sense that it depends on the movement of the price of oil; if oil prices are high then we build reserves, if oil prices are low then we have no reserves then we are in a crisis. But that should not be the case for an economy as big as Nigeria because we should by now have sufficiently diversified the economy to a point where developments in the oil market should no longer matter. Unfortunately, that has not been the case and that is why sometimes these kind of decisions have to be made.
“Our priorities as a nation for the allocation or use of foreign exchange is one, for the settlement of matured letters of credit that have been opened for importation; two, for the importation of petroleum products until such a time either when we have our refineries fully operational and we are not in a position to import fuel again to ensure that the wheels of economic development continue turning and running; and three, for the importation of raw materials,” he had explained at the weekend.

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