Banks in Nigeria are facing foreign currency shortages because of low oil prices, volatile foreign inflows and lower remittances amid the pandemic, threatening to renew foreign currency liquidity pressures that blighted them during a previous oil crisis within that range, or lower, in the second half of the year would lead to renewed dollar shortages at the banks,” it added.
Furthermore, the report showed that Moody’s-rated Nigerian banks reduced their foreign currency funding gap to a combined N354 billion ($984 million) in 2019, from N1.436 trillion ($5.5 billion) in 2016. The ratio of foreign-currency loans to foreign-currency deposits at Moody’s rated banks dropped to 106 per cent at the end of 2019 from 135 per cent in 2016 as banks cut back on dollar loans while building up their dollar deposits, the report stated.
It further explained that the smaller funding gap would enable the banks to better withstand unforeseen deposit withdrawals and likely higher borrowing costs.
“However, in the event of foreign currency deposits contracting by 20 per cent or more, banks’ funding gaps will be significant,” it stated.
“Nigerian banks have invested more of their dollar deposits in liquid assets than in 2016, improving their ability to cover sudden deposit withdrawals in times of stress. Liquid foreign-currency assets rose 58 per cent to N4.4 trillion between the end of 2016 and the end of 2019, although this largely reflects a weaker naira.
“In dollar terms, liquid foreign-currency assets increased five per cent to $11.3 billion in 2019 from $10.8 billion in 2016. The proportion of liquid foreign-currency assets to foreign-currency assets rose to 42 per cent at year-end 2019 from 34 per cent in 2016,” it added.