The Central Bank of Nigeria, CBN, has ordered commercial banks in the nation to review of the provision for non-performing loans denominated in foreign currency.
CBN Director, Banking Supervision, Mrs. Tokunbo Martins, who stated this in a letter to all the banks titled: Provisioning for foreign currency loans, said the exercise was in continuation of the regulator’s efforts to enhance efficiency, facilitate liquidity and transparency in the foreign exchange market.
On the foreign currency loans, Martins explained that the apex bank issued the Revised Guidelines for the Operations of the Nigerian Inter-bank Foreign Exchange Market meant to liberalise the foreign exchange market and increase balances on foreign currency-denominated loans and advances in the books of banks.
The target loans also include those that had been fully provided for under the previous exchange rate regime, but were yet to be written off, per our extant regulation under Section 3.21(a) of the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010.
This directive is coming just as the naira yesterday dropped to an all-time low of N334.50 against the dollar on the interbank market, a day after the CBN hiked interest rates to lure foreign investors back into local assets, traders said.
A trader who spoke with Reuters said: “If we have more people trying to buy the naira then it should strengthen. I think we will keep seeing the trickles. I don’t think we will see large inflows until the fundamentals of the economy improves.”
The naira fell by 5.8 per cent from its opening rate, and $10 million was traded at the new record low. Traders said investors were pushing the currency lower to test the limit of how far it can fall, given a spread of almost 12 per cent between the official and black market naira rates. At the parallel market, the naira was, however, exchanging at N376 to dollar.
