Business

Nigerian banks may come under pressure amid declining net foreign assets

Published

2 years ago

February 1, 2022

Profitability & asset quality of Nigerian Banks threatened by 23% of their loans —Agusto

Nigerian banks could come under intense pressure as a result of the sharp ongoing decrease in foreign assets and weakening Naira.

Data obtained from the Central Bank of Nigeria (CBN) revealed that the net foreign assets dropped to N7.78 trillion in December, indicating that banks liquidated some of their overseas portfolios before the year ended.

NFAs represent banking system assets owed by non-residents minus liabilities.

Changes in their size represent net transactions of the banking system with the foreign sector, including those of the central bank.

Stable or growing net foreign assets are likely to increase the relative value of the Nigerian Naira while the opposite could lead to a drop in the local currency’s value.

With the continuous weakening of Naira this could come as a big issue as banks need foreign assets to hedge.

Breakdown from CBN data showed that as at January NFA stood at N7.4 trillion and later increased to N8 trillion while in March, April it stood at N6.7 trillion respectively.

In May Nigeria’s NFA stood at N7.3 trillion, June (N7.2 trillion) and July(N7.4 trillion).

In August it jumped to N8.2 trillion, before dropping again to N5.8trillion in September.

In October Nigeria had N7.1 trillion NFA increasing to N8.4 trillion in November and dropping again to N7.78 trillion in December.

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