In a recent commentary on Nigerian banks, credit rating agency Fitch Ratings has cautioned that the proposed foreign currency gateway bank introduced by the Central Bank of Nigeria (CBN) may potentially have adverse effects on the liquidity of Nigerian banks.
The revelation surfaced in Fitch Ratings’ latest commentary on Nigerian banks, shedding light on concerns surrounding the CBN’s plan to introduce a new foreign currency gateway bank to alleviate the country’s foreign exchange crisis.
Dr. Olayemi Cardoso, the Governor of the apex bank, unveiled plans for the foreign currency gateway bank in a recent television interview. He emphasized the need to centralize all correspondent banking activities, currently dominated by two major banks, as part of the CBN’s medium-term strategy to address Nigeria’s persistent forex challenges.
Expressing their stance on the proposal, Fitch Ratings stated, “The establishment of a FC gateway bank by the CBN, as announced by Governor Yemi Cardoso, aims to centralize correspondent banking activities. However, Fitch believes these measures may have adverse effects on the foreign currency liquidity of the banking sector.”
Fitch Ratings further highlighted the potential consequences of the significant devaluation of the local currency, which has led to an expected surge in impaired loans within the banking sector.
“Due to the approximately 70% devaluation of the local currency since the end of 2022, banking sector impaired loans are anticipated to increase at an accelerated rate compared to the period preceding the devaluation,” the credit rating firm noted.
Additionally, Fitch elaborated on the implications of a recent CBN circular that prohibits banks from holding net long foreign currency positions, suggesting that it could lead to a further moderate depreciation of the naira.
“The prohibition of net long FC positions by banks, as stipulated in a circular issued by the Central Bank of Nigeria, is expected to expose banks’ capital positions to potential risks associated with a further moderate depreciation of the naira,” Fitch explained.
In response to the harmonization of various segments of the foreign currency market by the CBN in June, which resulted in a significant devaluation of the naira, the local currency closed last year at 899/$ at the official market.
