The Central Bank of Nigeria has instructed commercial banks to “immediately” write off loan the increase in foreign currency denominated loans which emanated as a result of the introduction of the flexible exchange rate policy.
Following the introduction of the new forex policy, banks which had borrowed forex oversees will now see the value of these loans increase in Naira terms increase resulting in a new liability which they will need to book as a loss on revaluation of foreign currency denominated loans.
The implication of this is that commercial banks with more foreign currency loans will likely take a further hit on their profits at the end of the year resulting in lower dividend payments. For banks without a proper hedge against such risk, dividend payments may not be feasible this year.
Earnings of commercial banks in Nigeria have come under pressure since the state of the economy started to deteriorate. This was mostly due to the fall in oil prices and the effects it had on the value of the Naira. The Naira has now depreciated by over 100% since 2014 at the interbank.
Get the press release below;
Is there any way to know exactly which banks will be most affected by this policy? It will definitely be a nice article to read.
Keep it up guys!!!
OK…
IFRS requires prominent display of any revaluation losses anyway, so there will full disclosure of the respective bank’s losses….