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One of the top credit rating agencies, Moody’s Investors Service, yesterday announced that it has put on review for downgrade the long-term deposit ratings, as well as long-term issuer and senior unsecured debt ratings, where a potential impact of the nation’s lingering foreign exchange crisis on Deposit Money Banks’ (DMBs) operational ability to meet their foreign currency obligations as well as their capitalization and asset quality.

Access Bank Plc, Zenith Bank Plc, First Bank of Nigeria Limited, United Bank for Africa Plc, Guaranty Trust Bank Limited, Union Bank of Nigeria plc, Fidelity Bank plc, FCMB Limited, and Sterling Bank Plc are the banks. The agency said in a statement that despite higher oil prices, there are still significant differences between the official and parallel market exchange rates in the country. These factors, along with restrictions on domestic oil production, capital outflows, and the rising cost of the nation’s imported refined petroleum products, have all contributed to this.

“Nigeria’s foreign exchange reserves have declined to $38 billion as of September 2022 from $40 billion as of January 2022 despite higher oil prices, and we understand that the central bank, which is the main provider of foreign exchange in the country, has consequently scaled down and become increasingly selective with its foreign currency allocations.”

The review further stated: “The review for downgrade on the long-term ratings of Nigerian banks also captures the risk that a potential material depreciation in the country’s foreign exchange rate could pose to the banks’ capitalisation and asset quality. “On average, around 40% of loans extended by Moody’s-rated Nigerian banks as of December 2021 were denominated in foreign currencies, predominantly dollars.

Because they do not get revenue in foreign currencies, some of these borrowers are particularly exposed to additional naira devaluation, which would hurt their ability to make repayments. The central bank’s ability to serve as a lender of last resort in times of crisis is also limited by the banks’ relatively high level of dollarization. The organization clarified that its rating review will concentrate on evaluating the banks’ operational capacity to fulfill their obligations in foreign currencies, noting that: “The rating review will take into account the expected evolution in foreign exchange reserves, as well as the various tools at the banks’ disposal to conduct foreign currency payments amid reduced availability of US dollars.”



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