UPDATE 1-Nigeria tells banks to make extra provisions on dollar loans immediately
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UPDATE 1-Nigeria tells banks to make extra provisions on dollar loans immediately
By Chijioke Ohuocha LAGOS Aug 1 (Reuters) - Nigeria's central bank has told commercial lenders to set aside extra provisions against their dollar loans immediately in the wake of the sharp fall in the naira.
The local currency has dropped 40 percent since June, when Nigeria ditched its 16-month-old peg of 197 naira to the dollar in a bid to lure back foreign investors who had fled after a plunge in the price of oil, Nigeria's economic mainstay. Nearly half of banks' loan books are denominated in dollars, and the central bank asked commercial banks after the naira float to ensure that portions of their loans that had become exposed due to the sharp falls in the naira were fully provided for on their income statements. The banks have begun trying to restructure their loan books, but in a circular issued last week, the central bank instructed lenders to send evidence of the extra provision by this Wednesday. The naira hit 324 to the dollar on Monday, near a record low of 334.50 touched last week. It later firmed to end at 315.50 after the central bank intervened with dollar sales. The regulator has not quantified the increased in the balances of banks' dollar loan books, which have been put under pressure not only by the drop in the naira but also by a contraction in the economy, and an acute shortage of foreign exchange, all a consequence of the slump in the oil price. Non-performing loans are expected to jump to 12.5 percent of total loans this year, up from the central bank's target level of 5 percent at the end of last year, as lenders suffer a hangover from an oil sector credit boom that ended abruptly in 2015, according to Agusto & Co, Nigeria's main rating agency. Some lenders have themselves borrowed heavily in dollars, debt that now costs much more to service.
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