CBN’s clearing of FX backlog will strengthen naira, boost liquidity–analysts

The recent move by the Central Bank of Nigeria (CBN) to clear the FX backlog owed to Foreign Portfolios Investors is viewed as a move that would strengthen the naira, boost liquidity in the FX market, restore investors’ confidence and arrest inflation.

National Daily gathered from reliable sources that an initial $1 billion had been made on outstanding matured FX forwards in some specific banks on Thursday night.

The following banks forward have been delivered: Stanbic, SCB, Citi, Rand, FSDH, Signature, Keystone, Unity, Parallex, Heritage, Suntrust”, the source revealed.

According to some experts, this development would also open up more avenues for organisations to secure letters of credit for export.

The Managing Director of the Centre for the Promotion of Private Enterprise [CPPE], Muda Yusuf, said on Thursday the recent move by the Central Bank of Nigeria (CBN) to clear the forex backlog owed to foreign portfolio investors would strengthen the naira and boost the market liquidity.

Yusuf, who stated this in a chat with Ripples Nigeria, described the measure as a huge development that would open up more avenues for organisations to secure letters of credit for export.

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He said: “It’s a good development, it will help to improve the confidence level in the forex market and in the economy. We just pray that they will be able to sustain it, that sustainability is what matters.

“But I believe they will be able to sustain it. So if they are able to sustain it, then we should be seeing a major improvement in the foreign exchange market. And that will bring a lot of relief to the totality of the economy.

“If we can improve on the forex situation, if the confidence level increases, then of course, it will reduce inflation.”

Similarly, an economic analyst, Chika Mbonu, expressed optimism that the CBN’s move would reduce the pressure on the naira and improve investors’ confidence in the economy.

Mbonu, who spoke on Arise TV’s Global Morning Report, said: “This backlog has had a dampening effect on the confidence in the foreign exchange market. So, moving quickly forward, this is good news.

“Now that some supply has come in, we hope that it will have a moderate influence immediately, and reduce the panic situation in the market.

“We hear that the CBN has started clearing the backlogs of the international banks, the idea is that they can go out and preach the gospel that Nigeria is ready for business as you know that these banks have parent companies abroad.

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“I hope in the coming days that this will continue, so in totality, this is good news for the FX market, and the more they do this, the more it will have a moderating influence in the exchange rates.”

In the same vein, an Abuja-based economist and analyst, Kelvin Emmanuel expressed optimism that the development would free up credit lines as banks would be able to open letters of credit at fair value.

“The fulfillment of obligations…will free up credit lines. I expect that within the next week or two, banks will be able to open letters of credit at fair value” he said.

Nigeria had nearly $7 billion in forex forwards that have matured, which corporations bought from local banks. Banks then repaid foreign credit lines with their own funds when the central bank did not pay out.

That means corporate organisations were unable to get new letters of credit, while the banks were owed dollars.

The new central bank governor Yemi Cardoso on resumption of office had disclosed that clearing the backlog was a priority but gave no timeline for how long it would take.