Banks Benefit as Dollars Start to Flow

An increase in dollar sales by Nigeria’s central bank is giving the country’s lenders reason to cheer.

“We see an improvement in the number of letters of credit, bills being settled and remittances being allowed,’’ Segun Ajibola, president of the Chartered Institute of Bankers of Nigeria, said in an interview in Lagos, the nation’s commercial hub, on April 21. “Ordinarily, a margin will always be left behind for banks, so it will be right to say at the end of the day it will be an increase in revenue to banks.’’

The Central Bank of Nigeria increased sales of the U.S. currency to banks in late February to try and curb foreign-exchange shortages that contributed to the first annual contraction in the country’s economy in two decades and limited trading by the country’s lenders. Transactions in the currency market rose by a half to $9.72 billion in March compared to the previous month, according to Lagos-based FMDQ OTC Securities Exchange, the nation’s foreign-exchange trading platform.

Nigerian banking stocks rallied the most since Jan. 9 on Monday after it emerged that Governor Godwin Emefiele will let the market determine the naira’s rate in a new foreign-exchange window for portfolio investors in a further bid to revive the economy and address the dollar deficit. While he would tolerate the naira weakening in the window, the central bank probably won’t devalue the naira’s official rate, according to a person who attended meetings with the policy maker over the past two weeks.

The country’s lenders, especially small- and medium-sized banks, have been hard hit by the economy’s woes as companies scaled back output and workers lost their jobs. Non-performing loans as a percentage of gross loans worsened to 14 percent at the end of December from 11.7 percent at the end of June, the central bank said earlier this month.

Banks are now expecting a reduction in non-performing loans and an improvement in profitability following an increase in the oil price and dollar flows in the country, the institute’s Ajibola said.

Bloomberg