The period covered in the analysis is from September 2014 to April 2015.
The value of the CBN’s foreign assets fell by N1.16 trillion, while DMBs lost about N572 billion during the period under review. Analysts have linked this development to the naira devaluation policy of the CBN. The foreign assets of commercial banks comprise foreign branches, investments and properties that Nigeria’s commercial banks have overseas.
On a monthly basis, the value of CBN’s foreign assets shed N456.9 billion in October 2014 when the net balance declined to N5.979 trillion as against N6.436 trillion in September 2014. It further shed N684.6 billion in January 2015; N580.9 billion in February 2015 as well as N76.9 billion in April 2015. On the other hand, the nation’s regulatory authority’s net foreign assets gained N138 billion in November 2014; N271.2 billion in December 2014 and N231.6 billion in March 2015 and these figures brought the negative net balance to N1.16 trillion.
“Nigerian banks report the net worth of their foreign transactions in naira. So, whenever the naira is devalued, it directly affects the monetary value of those foreign assets”, said a banker who did not want his name in print.
For the commercial banks in the country, the value of their foreign assets depreciated by N233 billion in October 2014 as their value fell to N1.087 trillion from N1.32 trillion in September 2014. It further decreased by N20.7 billion in November 2014; N353.9 billion in December 2014 as well as N266.4 billion in March 2015. On the contrary, these assets gained N25 billion; N169.4 billion and N107.6 billion in January, February and April 2015 respectively, leaving a negative net balance of N572 billion.
“The lower net foreign asset held by banks may be a reflection of the regulated net open trading position and reduced net open foreign currency balance sheet position of banks by the CBN, following the devaluation of the local currency by the Monetary Policy Committee (MPC) in November 2014”, according to Abiola Razaq, head investor relations, the United Bank for Africa (UBA).
BusinessDay Research and Intelligence Unit (BRIU) analysed the data which were extracted from the monthly economic report of the Central Bank of Nigeria (CBN) released for April 2015 on their net foreign assets positions, with a view to evaluating the effect of the naira devaluation on the foreign assets of the CBN and commercial banks in the country.
It would be recalled that as a response to the wide arbitrage opportunity in the foreign exchange market due to the wide margin between the official exchange rate and the parallel market rate, the CBN has responded in a number of ways to address the situation.
On November 25 2014, the apex bank raised the midpoint official exchange rate from N155/$ to N168/$. Again on February 25 2015, it increased the official exchange rate further, to N198/$. This is addition to the restriction placed on about 41 items whose importers would not be allowed to access foreign exchange through the CBN.
Nonetheless, our analysis shows that the naira depreciated during this period, against major international currencies such as the Euro, Pound Sterling, Swiss Franc, US Dollar, Japanese Yen and the Chinese Yuan/Renminbi.
Using the average monthly exchange rate obtained from the daily rates published by the CBN, the naira depreciated against the Euro by 7.5 percent from N200.17 in September 2014 to N216.32 as at the end of July 2015. The naira also lost 17.2 percent, 19.6 percent, 21 percent and 20.1 percent of its value to the British Pound Sterling, Swiss Franc, US Dollars and Chinese Yuan/Renminbi.
The rate of devaluation was even higher when the parallel market exchange rates are considered. As at August 6, 2015, the naira was exchanged at N218 to a US dollar, N340 to the British Pound Sterling and N243 to the Euro, at the parallel market, as against the official exchange rate of N197/$.
TELIAT SULE & JOSEPHINE OKOJIE
source :businessdayonline.
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