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By Chijioke Ohuocha
LAGOS, April 13 Nigeria's central bank has
increased the limit on banks' foreign currency borrowings to 125
percent of shareholders' fund after some lenders breached its
regulatory limit due to the recent fall in the naira, according
to a circular seen by Reuters.
The new regulation replaces a 2014 rule capping foreign
borrowings, including Eurobonds, at 75 percent of shareholders'
funds as Nigeria tries to manage widespread capital shortfalls
at lenders due to a currency crisis and bad loans.
"A major consequence of this development was the inadvertent
breach of the regulatory limit for foreign currency borrowings
by some banks," the central bank said in a circular.
"To address this development ... the aggregate foreign
currency borrowing of a bank borrowing should not exceed 125
percent of shareholders' funds."
The new rules also prescribes that all foreign borrowing
should be hedged through the financial markets and debt should
have a minimum of five year maturity except for trade lines.
It directed lenders to report on their utilisation of
foreign currency borrowings on a monthly basis.
Oil-producing Nigeria has been gripped by a shortage of
dollars since crude prices plunged, triggering a currency crisis
that left lenders and other companies struggling to purchase
hard currency and battered investor confidence.
The naira lost around a third of its official value last
year after the central bank lifted its dollar peg to float the
currency on the interbank market.
It later re-imposed a quasi-peg to avoid further currency
loss, thereby creating multiple exchange rates which has masked
the pressure on the naira and stunted inflows as investors
struggle to price naira assets.
With the sharp falls in the currency, lenders have seen
their dollar loan books swell in naira terms, the central bank
said. This implies that they have to hold more capital in order
to keep within a regulatory threshold of loan to capital ratio.
Nigerian banks raised over $1.5 billion from issuing
Eurobonds and other types of debt instruments in 2013 as lenders
rush to lend to the once lucrative oil industry at the peak of
crude prices before the 2014 price crash.
The central bank has been trying to curb pressures on the
naira from excess demand for dollars. It also wants to help
avoid widespread capital raises for the banking industry given
the weak equity markets and expensive debt market yields.
The International Monetary Fund (IMF) last month urged
Nigeria to quickly increase the capital of undercapitalized
banks and putting a time limit on regulatory forbearance but
welcomed efforts to strengthen the banking sector.
(Editing by Toby Chopra)