Banks BTA cut reveals Nigeria’s forex trouble as reserves hit 17-month low

Major Nigerian banks have announced cuts in personal travel allowance and business travel allowance payments to people travelling outside the country.

First Bank, Access Bank and others capped PTA and BTA at $2000, against $4000 and $5000 paid for each before. The banks also said they instead of few weeks, they will require a minimum of four months to process applications.

Amid a prolonged dollar scarcity in Nigeria, travellers for academic and medical reasons are still able to source foreign currency at the official rate under stringent conditions. The black-market rate down about 66% of the official N460 exchange rate.

Dwindling reserves

The announcements show the banks do not have enough dollars and suggests Nigeria’s lingering forex shortage and its risks to the economy may be getting worse. The banks confirmed that much.

“In view of the limited FX supply in the industry, kindly note the following: Payment of PTA/BTA is subject to a maximum of $2,000 and two quarters in a year, while funds will be disbursed within the week of the trip,” First Bank said in its message to its customers, seen by Pluboard.

The scale of the problem is seen in Nigeria’s foreign reserves which sank to its lowest level in 17 months in the first week of March, touching N36.2 billion, according to Central Bank of Nigeria’s figures.

Nigeria makes more than 80% of its dollars from sales of crude oil, and low oil production amid theft, vandalism and falling investment has seen it crash. The reserves reached a peak of $62 billion 15 years ago and the current level is lowest since September 2021. It is projected to fall some more before hopefully beginning to rise in the third quarter.

Moody’s alert

The banks’ response appears to confirm the February 16 report by Moody’s Investors Service which said Nigeria’s acute dollar shortage may force the central bank to delay repayments of foreign exchange to banks.

The group said banks have placed about $10.4 billion with the central bank in the form of derivative transactions including swaps and forwards. Investors (in this case banks) use forwards and swaps to hedge against fluctuating prices of securities, in this case currency.

This means banks enter into contracts with the CBN to sell dollars to them at an agreed rate in future, regardless of whether the rates change or not.

“A material delay in repayment could well lead to the banks facing their own foreign-currency shortages and could constrain their ability to repay their own foreign-currency liabilities,” Moody’s analysts said.

It said several banks, conscious of a potential repayment delay, in recent years reduced the duration of the derivative contracts and the size of the amounts placed with the central bank, cutting their tenor to 12 months from 24 months.

“Most Nigerian banks have a successful track record of recalling these foreign-currency assets placed with the central bank,” Moody’s said.