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 FX Challenges Could Delay Bank’s Loan Repayment 

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As the country suffers an acute foreign exchange shortage, Moody’s rating says that the CBN might delay repayment of foreign exchange to domestic lenders. This comment was made on the basis that $10.4bn with the central bank in the form of derivative transactions including swaps and forwards might experience some difficulties due to the current shortage which may temporarily prolong those contracts beyond their original maturity date. The possible payment delay has caused lenders to reduce their derivative contracts and amounts placed with the central bank by cutting the tenor of such contracts to 12 months from 24 months. The delay in repayment could lead to banks fixing their foreign-currency shortages and could constrain their ability to repay their foreign-currency liabilities. Previously, the rating company had linked some banks’ credit profiles to their country’s sovereign risk as a significant portion of their total assets is in sovereign debt holdings. The delay in government repayment will directly slow down banks’ payments to their foreign borrowers. Analysts believe this comment could trigger a selloff sentiment in the FGN Eurobond and the bank’s unsecured Eurobond, as investors worry about debt sustainability. 

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