A Review of the Nigerian Energy Industry

Foreign lenders reduce credit to Nigerian banks

29 January 2015, Lagos – Indications have emerged that a number of foreign banks have started suspending short and medium-term credit lines to their Nigerian counterparts as falling crude oil prices continue to fuel exchange rate volatility and uncertainties in the economy.

Godwin Emefiele, CBN Governor
Godwin Emefiele, CBN Governor

This is coming just as several Nigerian lenders are said to be seeking extension on the settlement of their debt obligations to the foreign banks.

Top bankers told our correspondent on Tuesday that the overseas banks had been expressing deep concerns about the ability of Nigerian banks to continue to meet up with all their foreign currency denominated credit lines, especially maturing Letters of Credit, as the external reserves continued to be depleted due to falling oil revenue.

The situation has been further worsened by speculations over the possible devaluation of the naira after the February elections

This, according to banking sources, has made some of the foreign banks to suspend credit lines to some Nigerian banks.

It was further learnt that the Central Bank of Nigeria’s regulations aimed at curbing speculative attack on the naira had led to some delays in accessing foreign currencies by the banks.

This, and other related issues, have forced some of the banks to seek extension of their debt obligations, especially maturing LCs to foreign banks.

Analysts, however, recalled that foreign banks had suspended credit lines to Nigerian banks during the global financial crisis of 2008 and 2009.

They said the foreign banks were fond of doing so whenever they sensed that a crisis would come.

However, addressing the issue of delay in accessing forex to fund LCs at an interactive session with the business community in Lagos on Tuesday, the CBN Governor, Mr. Godwin Emefiele, said there was no reason to panic over the state of the economy.

He said the CBN had recently introduced some measures into the foreign exchange market in order to curb speculative attack on the naira, adding that the volume of demand for forex being witnessed lately was abnormal.

The governor, however, urged the representatives of the foreign banks present at the event to continue their business with Nigerian banks as usual, assuring them that the CBN would provide enough forex for the banks to meet their obligations.

He also said there was no reason to panic over the challenges facing Nigeria and other commodity exporting countries.

Emefiele said, “Nothing bad will happen in Nigeria. We know the large volumes of obligations that are in the foreign banks; so, we will try as much as possible to give comfort. The demand for foreign exchange that I am seeing now is more than the demand we would normally see; it means something abnormal is happening.

“This is what we are checking at the forex markets. I want to urge Deutsche Bank, Stanbic IBTC, Citibank, Standard Chartered and others to renew their credit lines. There is no cause to worry.

Earlier in the conference, a representative of Deutsche Bank in Nigeria had complained that banks in the country were extending their obligations by 30 and 60 days as a result of delays in getting dollars from the CBN, among other factors.

Reporting the development to the CBN governor, the Deutsche Bank representative said, “I want to bring something to your attention, which is credit; and it is tied to a trend due to your pronouncement in November. In the last three days, I have had requests from Nigerian banks, which are not meeting their obligations that have matured, and they are requesting extension of 30 days and 60 days.

“I am not panicking just as you have asked us not to panic. I have, however, reassured banks all over the world where Letters of Credit are due to be paid. I believe that they will pay the refinancing.”

– The Punch

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