Dollar Scarcity: Nigerian Banks Debts to Foreign Lenders Hits $4bn

The Central Bank of Nigeria’s ban on importers of some items from accessing foreign exchange from the official forex market has made it difficult for a number of Nigerian companies to pay their overseas vendors, it has been gathered.

The development has made banks in the country, which are the guarantors of those payments, to owe their counterparts abroad between $3bn and $4bn, several top bank executives disclosed to our correspondent on Wednesday.

A top executive of one of the ‘Systemically Important Banks’ in the country, who chose to speak on the condition of anonymity because of the sensitivity of the matter, explained, “Nigerian banks currently owe a combined sum of about $4bn in outstanding settlements for credit lines extended to them by foreign banks.

“The debts have mounted this far because Nigerian companies that imported goods from overseas could not purchase dollars from the CBN’s official window to pay the local lenders, which will in turn credit the accounts of the foreign banks.”

The CBN had some months ago banned importers of 41 items from accessing dollars from the official forex market as part of measures aimed at preserving the external reserves from further depletion and thereby stabilise the naira.

The forex policy has attracted strong reactions and criticisms from companies and stakeholders, including the Lagos Chamber of Commerce and Industry, which said the CBN’s action would lead to massive factory closures and job losses.

The Director-General, LCCI, Mr. Muda Yusuf, argued that a significant number of the 41 items banned from the official forex market constituted major raw material inputs for many manufacturers, and as such, their exclusion from the forex market would jeopardise the continued operations of many companies.

Yusuf, who noted that firms had defaulted on contracts and lost credit lines, said, “Many companies have defaulted in fulfilling foreign obligations … even blue chip companies … for the first time.”

The LCCI DG noted that companies had also suffered from the CBN’s attempt to stop the dollarisation of the economy, adding that a ban on foreign currency cash deposits had forced firms to use informal “transfer markets,” whereby people abroad wire dollars on companies’ behalf.

The President, Manufacturers Association of Nigeria, Dr. Frank Jacobs, stated that a breakdown of the 41 items excluded from the forex market by the CBN had actually led to over 600 items in total being shut out.

Both the LCCI and MAN have urged the CBN to review the ban on the 41 items by cutting down on the number.

The CBN has yet to accede to the request. Instead, some stakeholders have speculated that the central bank is tinkering with the idea of extending the ban to other imported items in order to preserve the foreign exchange reserves.

Top bank executives told our correspondent that most banks had cut credit lines to importers.

However, they said that the challenges some of the importers were facing had to do with the fact that they had the naira equivalent of the amounts they owed their foreign vendors but could not buy dollars from the CBN window due to the ban.

A top official of a tier-1 bank explained, “Some of these importers imported the items when the dollar was going for certain rates. The naira later depreciated and the dollar went up. But they still need to buy the dollar at the CBN window to pay the banks so that the banks can in turn pay the foreign lenders. They may not source this money from the black market for a number of reasons. So, it is really a dilemma.

“I think the economy is in a very serious situation. If the CBN should sell dollars to all these people, it means the external reserves will be depleted by $4bn. How many months of fuel imports can the remaining reserves cover then? I think the economy is at a major point and that is why I don’t even envy the CBN now.”

Commenting on the development, a financial expert and Chief Executive Officer, Cowry Assets Management Limited, Mr. Johnson Chukwu, said the CBN needed to carry out a guided depreciation of the naira so that the mounting debts would not destroy the credit rating of the country and the affected banks and companies.