…Bans sale of dollars to importers as naira slides
Our Reporter: BLAISE UDUNZE
The Central Bank of Nigeria (CBN) has banned the sale of dollars to importers of telecom equipment, power generators and finished products at its foreign exchange auction.
The bank also restricted lenders and discount houses from placing more than N7.5 billion ($44 million) each as deposits with the regulator, thereby swelling inter-bank naira liquidity.
This is as the naira sank to its lowest intraday level in almost five years of 171.65 as the apex bank moved to curb excess dollar demand at its foreign exchange auctions but shifted demand to the interbank market amid tight supply. Dealers said the naira hit a new in intra-day low of 170.5 against the dollar on Thursday, falling 1.87 per cent as the stock market continued to slide.
The Central Bank of Nigeria (CBN) has warned that the increasing reliance of local banks on foreign currency borrowings exposes the banks to foreign exchange risks and other challenges.
Meanwhile, CBN, in a release on its website, said “prudential and hedging requirements to ensure that these risks are well managed, avoiding losses that could pose material systemic challenges.”
It noted with concern “the growth in foreign currency borrowings of banks through foreign lines of credit and issuance of foreign currency denominated bonds (Eurobonds).”
The CBN also said the lower interest rate on foreign debt had created an incentive for banks to borrow abroad, which it noted, had the advantage of providing fairly stable and long-term funds to extend credit facilities in foreign currency and enhance their capital base.
“However, this also exposes banks to foreign exchange risks and other risks,” it said in a new circular signed by its Director, Banking Supervision, Mrs. Tokunbo Martins.
On the prudential requirements, the central bank said the aggregate foreign currency borrowing of a bank excluding inter-group and inter-bank (Nigerian banks) borrowing should not exceed 75 per cent of its shareholders’ funds unimpaired by losses.
“The 75 per cent limit supersedes the 200 per cent specified in Section 6 of our Guidelines for Foreign Borrowing for on-Lending by Nigerian Banks issued on November 26, 2001.”
Source : SunOnline