Nigeria naira weakened to an all-time low of 334.50 against the dollar on the interbank market on Wednesday, a day after the central bank hiked interest rates to try to lure foreign investors back into local assets, traders said.
According to Reuters, the naira fell 5.8 per cent on Wednesday from its opening rate, and $10 million was traded at the new record low.
Traders said investors were pushing the currency lower to test the limit of how far it can fall, given a spread of almost 12 per cent between the official and black market naira rates.
Although the local currency at the spot market berthed at N330.12 at the official closure of the interbank market, some traders speculated that there was extended trade which saw the naira closing at N334 to the dollar.
According to dealers, $10 million was traded at the new record low, even as investors were pushing the currency lower to test the limit of how far it can fall, given a spread of almost 12 percent between the official and black market naira rates.
The Nigerian currency opened at N377 and closed at N378 against the dollar by Wednesday afternoon, a rate it had maintained for two days running.
The naira weakened further against the Pound Sterling but retained its rate with the Euro as it exchanged for N492 and N413, from N490 and N413 it posted on Tuesday.
At the Bureau De Change (BDC) segment of the market, the naira closed at N375, N490 and N405 against the dollar, Pound Sterling and the Euro, respectively.
Dealers said the naira’s performance against the dollar followed reports of pressure in foreign exchange supply, mainly at the interbank market segment, just as the local unit failed to lure in local investors, or foreign players as trade dried up a day after interest rate hike from the central bank.
Traders said there was slight stability in the exchange rate of Naira to Euro as the local unit recorded little or no changes to Monday’s close of N340.504 to the Euro, and N406.875 to the British Pounds same.
Meanwhile, the Central Bank of Nigeria (CBN) has mandated all Deposit Money Banks to make proper provisioning on foreign currency-denominated loans to reflect the new foreign exchange movement within one week.
Similarly, in a letter to all banks signed by Tokunbo Martins, Director of Banking Supervision, CBN, the apex banking regulator noted that one of the effects of the Guidelines which liberalised the foreign exchange market, is the increase in balances on foreign currency denominated loans and advances in the books of banks, especially facilities that had been fully provided for under the previous exchange rate regime, but were yet to be written off, per CBN’s extant regulation under Section 3.21(a) of the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010.
In continuation of the efforts to enhance efficiency, facilitate liquidity and transparency in the foreign exchange market, issued the Revised Guidelines for the Operations of the Nigerian Interbank Foreign Exchange Market on June 15, 2016.
Consequently, the CBN noted that “to ensure adequate and proper provisioning, banks are by this circular, required to ensure that the unprovisioned portion on all such facilities are fully provided for immediately in the income statements and evidence of the additional provisions forwarded to the Director of Banking Supervision within one week of the date of this circular.
“Additionally, all foreign currency -denominated loans should be reviewed and adequate provisioning made on all delinquent ones in line with the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010. Please be guided accordingly,” the circular read in part.