According to Fitch Ratings, a credit rating firm, the Central Bank of Nigeria’s proposed foreign currency gateway bank could negatively affect the liquidity of Nigerian banks.

Commenting on the proposal, Fitch Ratings said, “The Governor of the CBN, Yemi Cardoso, also announced plans to establish a FC gateway bank with the intention of centralising correspondent banking activities, while asserting that a recent audit has determined $2.4 billion of overdue FX forwards invalid. Fitch believes these measures by the CBN may negatively affect the banking sector’s FC liquidity.”

This was revealed in the latest Fitch Ratings commentary on Nigerian banks. It stated that, “Fitch expects the banking sector’s impaired loans (Stage 3 loans) ratio to increase at a faster pace than before the devaluation, which itself has caused already material FC-denominated problem loans (Stage 2 and Stage 3 loans; predominantly oil and gas sector loans) to have inflated relative to gross loans and core capital and accentuated credit concentration risks.”

According to Fitch, the CBN circular that forbids banks from maintaining net long foreign currency positions will cause the naira to depreciate by a further moderate amount.

“The Central Bank of Nigeria has published new circulars and made a number of statements accompanying the recent devaluation. One circular issued after the devaluation on January 31, aimed at increasing the supply of FC, prohibited banks from having net long FC positions, and set February 1 as the deadline for compliance.

“Net long FC positions have mitigated the impact of past devaluations, including the recent devaluation, on capital ratios as they result in foreign-exchange revaluation gains that cushion the impact of inflated FC-denominated risk-weighted assets.

“Without net long FC positions, banks’ capital positions are now more exposed to Fitch’s expectation of a further moderate depreciation of the naira, but total capital adequacy ratios (CAR), in most cases, will remain above regulatory minimum requirements,” the report said.

The apex bank’s governor, Dr. Olayemi Cardoso, recently stated that the CBN was “introducing a single FCY gateway bank to centralise all correspondent banking activities, currently dominated by two major banks in the corresponding banking space.”

The medium-term goal of the CBN is to centralise all correspondent banking operations in order to address Nigeria’s persistent foreign exchange issue.