JP Morgan Estimates CBN’s Net Reserves at $3.7bn

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James Emejo in Abuja and Dike Onwuamaeze in Lagos

The Central Bank of Nigeria (CBN)’s Net FX reserves is estimated to be at about $3.7 billion, significantly lower than prior estimates, a report by JP Morgan has stated.

This, it hinged on larger-than-expected currency swaps and borrowing against existing reserves.

The report pointed out that based on partial information from the audited financial accounts, the apex bank’s net FX

reserves were around $$3.7 billion at the end of 2022, compared to $14 billion in 2021.

JP Morgan stated, “In arriving at said estimate we make a few assumptions which if incorrect would substantially

change the picture. They include an addition of $5 billion in IMF Special Drawing Rights (SDR) to external reserves in order to arrive at total gross FX reserves of $37.8 billion, broadly in line with the 30-day moving average of $37.08 billion previously published on the central bank’s website; adjusting the gross external reserves with three key FX liability lines that include FX forwards ($6.84 billion), securities lending ($5.5 billion) and currency swaps ($21.3 billion); and estimating currency swaps by backing out FX forwards and outstanding OTC Futures balances from an overall aggregate published in the financial accounts.” 

However, the ratings agency said low net FX reserves meant continued FX market pressures, adding however, that the CBN still has the ability to source FX at commercial and semi-commercial rates.

It added, “Given the highly profitable nature of the currency swap arrangements between the CBN and domestic commercial banks, we expect these to continue for some time, albeit in smaller sizes and arguably more punitive rates.

“Furthermore, authorities are in the initial stages of identifying assets for sale, which may provide some medium-term relief. For example, the president’s policy advisory council has recommended the government sell down its stake in the most joint-venture oil and gas assets, a proposal that is estimated to bring in up to $17 billion.

“In addition, the recently announced $3 billion loan to NNPC could help partly improve FX liquidity conditions in the market. We expect NNPC to sell the dollars to CBN and remit the naira proceeds to the government as upfront payments for oil revenues and taxes.

“That being said, the large external financing needs of the private sector will sustain FX pressure.”