Nigerian Banks are facing a serious threat to their international reputation as they are finding it difficult to access forex to pay their off their financial obligations to foreign lenders, Reuters has reported.
According to the report, banks looking for dollars to repay letters of credit (LC’s) to their foreign lenders have been delayed for as much as a week compared to just a day or two in the past, with the delay attributed to the Central Bank’s dollar rationing and strict capital controls which have restricted to flow of forex in and out banking system.
The implication of this is that commercial banks may soon start to experience significant defaults if this continues. According to the report outstanding LC’s could be as much as $500m. The CBN sells about $250 weekly compared to about $500m weekly before it imposed controls.
Shares of Nigerian banks have been on a decline in the past year with the Banking Index down by as much as 10% this year alone. Most Nigerian banks took to foreign currency lending in 2014 as they rushed to shore up their capital base with medium term lending. The impact of not being able to pay these loans could posse negative consequences for the financial sector.
