Naira Records Biggest Fall in 10 Years

The value of the naira yesterday recorded its biggest fall in more than 10 years across all market after the official Naira exchange rate was devalued on Friday.

The derivative, which gives an indication of where the currency could trade in a year’s time, fell 11.3 per cent to N515 to the U.S. dollar.

The Nigerian central bank devalued the official currency rate by 15 per cent on Friday, in a move to converge a multiple exchange rates regime which it has used to manage pressure on the naira.

Commenting on the devaluation, Analyst at Moody’s investors Services, Peter Mushagwe stated that the devaluation of the Nigerian naira will put pressure on the assets of lenders struggling to raise asset quality to the regulatory threshold.

“Africa’s largest oil producer on March 20 devalued by 4 per cent the local unit versus the dollar, a move that will cause concern for Nigerian banks’ credit book and capital metrics as they have a high proportion of foreign-currency denominated loans.”

The Central Bank of Nigeria (CBN) weakened the market rate for the currency to N380/$ from N365 while the official exchange rate was allowed to depreciate by 15 per cent to N360/$ from N307.

“Foreign-currency borrowers who do not earn foreign currency will require higher naira cashflows to meet their obligations, diminishing their repayment capacity. The banking industry’s non-performing loans as percentage of total credit dropped to 9.3 per cent as at mid-2019 from 12.5 per cent a year earlier. The regulator wants it below 5 per cent.”

Mushangwe further state stated that a weaker naira also increases Nigerian banks’ risk weighted assets related to their foreign currency loans, putting negative pressure on their capital metrics. However, the banks hold good capital buffers.

The data obtained from the Official website of the Central Bank of Nigeria (CBN) yesterday, the Naira traded at N361/$ and N425.98 and N387.75 against the pounds sterling and the euro. At the bureau de change operators of Nigeria (ABCON) segment the Naira fell to N388 from N376/$ and the pounds sterling firmed at N475 while the local currency depreciated against the euro to trade at N412 from N406 which it was on Friday. At the Investors and Exporters (I&E) window, the Naira also depreciated to trade at N380.75 from the N368 mark which it was last week with trade between N382 /$ to N357/$ with a total turnover of $501.03 yesterday.


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