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CBN Queries Banks over Inaccurate FX Utilisation Publication
By Obinna Chima
The Central Bank of Nigeria (CBN) yesterday disclosed that it recently queried some commercial banks that forwarded inaccurate data on their returns on foreign exchange (FX) utilisation which it had erroneously published.
Although the CBN did not reveal the names of the affected banks, it pointed out that some of the financial institutions had returned a response indicating that some of the figures were related to formatting errors which did not affect the actual rates of the reported transactions.
The acting Director, Corporate Communications, CBN, Mr. Isaac Okoroafor, in a statement said the clarification became necessary following media reports alleging irregularities in the rates at which FX was obtained by some individuals and companies from different banks under the new FX policy by the central bank which prioritises FX sales to manufacturers, agriculture, plant and machinery, critical raw materials, among others.
The statement explained that the central bank neither allocates FX nor does it deal directly with banks’ customers. In addition, it stated that the CBN did not fix FX rates for transactions by individuals or companies; and that in line with its principle of transparency, it directed banks to forward to it, evidence of FX sale to end users and to advertise same in national dailies.
The CBN said: “Since the introduction of the new FX Policy in 2016, we have published, monthly, the evidence of sale from deposit money banks (DMBs), as received from the banks and without any alteration by us in the spirit of transparency. We have recently observed, however, that some DMBs forwarded inaccurate data, which were erroneously published and gave a wrong impression of disparate rates;
“The DMBs involved in providing inaccurate data have since been issued queries accordingly. Some have returned a response indicating that some of the figures were related to formatting errors which do not affect the true rates of the affected transactions. As the constitutionally authorised industry regulator mandated to manage the foreign exchange market, maintain external reserves and to safeguard the international value of the legal tender currency, we wish to state unequivocally that the CBN has a duty to perform and would not indulge in acts capable of discrediting the foreign exchange market.
“We therefore wish to reiterate that the sale of foreign exchange under the new policy is most transparent and is not intended to benefit any individual or corporate body in anyway. While we appreciate the concerns of stakeholders, we urge all concerned to verify information on matters relating to the Bank and use our available channels to lodge their complaints.”
30% of oil sector loans may default in 2017 Meanwhile, a report by CSL Stockbrokers Limited has estimated that 30 per cent of lending to the oil sector may default in 2017 if production remains low on account of pipeline vandalism and if the use of alternative evacuation methods is not successful.
This, however, is in spite of the fact that a significant portion of banking sector loans to the oil and gas sector had been restructured.
The report also stressed that beyond the grace periods for the restructured loans, problems might well recur unless production level improved after the repair of damaged infrastructure and the ability of the federal government to reach a truce with the Niger Delta militants.
Consequently, the 2017 banking sector report by the Lagos-based firm titled: “Asset quality: overall picture still bearish,” estimated that the banks covered in the report would see an average cost of risk (CoR) estimated at 11.23 per cent in the oil and gas sector, by the end of 2017, as opposed to its base case 2017 forecast of 2.54 per cent.
The banks covered in the report included FBN Holdings, Zenith Bank Plc, United Bank for Africa Plc (UBA), Guaranty Trust Bank, Access Bank, Diamond Bank, Fidelity Bank, and Sterling Bank.
Several banks had made loans to the oil and gas sector. These loans included significant sums lent to indigenous oil and gas companies to purchase marginal oil fields from the international oil companies (IOCs). Indigenous oil producers operate onshore fields that require infrastructure in the Niger Delta for exports but the militancy in the Niger Delta has damaged major pipelines and other infrastructure. The consequent drop in sales has negatively impacted the finances of domestic companies.
According to the report, the current oil price of about $55.39/bbl, which in most cases covers operating costs but not all finance costs, and the return of violence to the Niger Delta implied a significant strain on the cash flow of indigenous oil and gas companies going into 2017 and consequently inability to service their bank loans.
“Some of these companies are also significantly leveraged and in such cases even resumption of oil exports and an increase in oil prices to $70/bbl will not significantly improve their cash flows. Currently, the highest risk lies with the upstream oil and gas segment particularly loans to the indigenous oil and gas companies. We however see potential risk in the downstream sector and the oil and gas servicing segments.
“A strain on the finances of the upstream oil and gas sector companies implies a strain on oil and gas servicing companies as contracts awarded and rates on jobs drop in accordance with the drop in revenues of major IOCs. The oil servicing companies however have been staying afloat due to the fact that for most contracts awarded to them, 60 per cent of their earnings come in dollars, while the remaining 40 per cent are paid in naira. With the naira devaluation, converting these revenues to naira, have partly,” it added.
In its review of the manufacturing sector, the report noted that as a result of the significant depreciation in the nation’s currency, manufacturers also had to face rising input costs amid an economic crunch resulting in declining demand. Consequently, loans to that sector are now considered high risk by banks in their view. The report did not envisage an improvement in the manufacturing sector in 2017, at least not in the first half of the year.
“Indeed we believe things may even get worse in the coming months without some intervention from the federal government. The measures taken so far have not been effective in keeping the sector’s output from declining hence we have little confidence that things will change in the near term. With the current scarcity of foreign exchange at the interbank, except this is addressed by the CBN, we believe manufacturers will still largely depend on the parallel market for their FX needs.
“We believe the naira in the parallel market is unlikely to settle below N450 in 2017, hence we view the likelihood of a decline in input costs unlikely. While we believe the manufacturing sector will continue to take priority with the Nigerian government, a crisis in the sector is nevertheless a possibility that requires assessment,” it added.
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