…low reserves nothwithstanding
Global financial rating group, Fitch Ratings, has estimated the Central Bank of Nigeria’s currency swaps with domestic banks to be between $10bn and $12bn as of the end of 2022.
It stated that this was 30 per cent of the country’s gross reserves (at $37bn as of 2022’s end), and comprised swaps with domestic banks, and others.
According to the international rating agency, this suggested that the country’s net reserve position may be weaker than anticipated, and emphasised its external vulnerabilities.
It disclosed this in a report titled, ‘Nigeria’s weaker reserves highlight external risk and policy challenges’, following the recent publication of the CBN’s financial statements.
The report added that, “Fitch estimates, partly based on our survey data, that CBN swaps with domestic banks were $10bn – $12bn at end-2022, and are likely to remain close to that level, but there is less visibility on swaps it may have with international counterparties.
“We anticipate that most of these domestic swaps will continue to be rolled over, reflecting incentives for banks to invest the naira received in high-yielding sovereign securities and the sector’s limited reliance on swaps for foreign-currency liquidity given its sizeable foreign-currency placements with international banks.”
It said the recent publication of consolidated financial statements to end-2022 by the CBN, the first for many years, suggested the net reserve position may be weaker than we had anticipated. The statements, which confirmed sizeable liabilities, increased transparency around Nigeria’s reserves, but important gaps remained, preventing a reliable assessment of the net reserve position.
