Nigeria: CBN Could Delay Repayment On $10.4 Billion Forex Loan – Moody’s

The money the CBN owes the banks are funds in the form of derivative transactions comprising forward contracts and swaps.

The Central Bank of Nigeria (CBN)’s repayments on a cumulative $10.4 billion forex loan from banks could take longer than agreed, rating agency Moody’s said Thursday (February 16, 2023).

The development comes as Nigeria faces a dollar crunch that threatens lenders’ liquidity and could ultimately weaken their capital.

If Nigeria chooses to fully honour its dollar obligations, the payments would wipe off almost one-third of the foreign reserves of Africa’s largest economy, which stood at $36.8 billion as of 14 February.

The money the CBN owes the banks are funds in the form of derivative transactions comprising forwards contracts and swaps, according to Lynn Merhi and Mik Kabeya, analysts at Moody’s.

“The central bank has a strong track record of repaying the FX it owes to the banks, but at a time of acute FX shortages, there is increased risk that it would extend the life of some contracts, postponing repayment,” Moody’s said in a note.

That could put pressure on lenders and complicate the liquidity crisis should the companies they supply forex by way of trade finance default, according to the rating agency.

The lending by Nigerian banks for trade purposes last year came to $9.8 billion, meaning it made up more than half of banks’ liquid foreign exchange assets.

“A material delay in repayment could lead to the banks facing their own foreign-currency shortages and could constrain their ability to repay their own foreign currency liabilities,” Moody’s stated.