‘Reforms to moderate risk for banks, economy’

The emergence of the economy from recession, improving business environment and stabilizing fiscal and monetary interventions may put banks in good stead to moderate their risks from now through 2018.

Afrinvest Securities Limited, in a press conference ahead of the launch of its 2017 Banking Sector Report at the London Stock Exchange this week, said top among the reforms was introduction of the Investors & Exporters’ (I&E) window that has generated great interest and become the preferred market for foreign exchange (forex) transactions by investors.

According to the company, the steps being taken to restructure loans to challenged sectors, as well as some of the noticeable improvements in the general commerce and manufacturing sectors, which have been buoyed by improving forex market will be positive for banks and economy.

The Group Managing Director, Afrinvest West Africa, Ike Chioke, explained that banks and the economy were predisposed to significant risks, particularly from the forex market, which regulators grappled with, though not without consequences.

“The equities market has witnessed renewed participation from foreign portfolio investors on the back of improved access to foreign exchange. We are of the view that the greatest risk to forex stability remains the sustainability of the NAFEX rate, being the only official market determined rate,” he said.

He pointed out that the improvements in the forex market have reignited appetite for Eurobonds’ issuance, with a number of Nigerian banks having raised Eurobonds in 2017- Zenith and UBA, $500 million each, while being highly oversubscribed

Affirming the outlook, the Governor of the Central Bank of Nigeria, Godwin Emefiele, said the six-month old window has as at September, turned over about $10 billion, which now brought the exchange rate near convergence and calmed speculations.

But Chioke reiterated the need for policy consistency and strive to withstand pressures from other government actors in taking decisions that will aid development of monetary policy in the country, noting that regulatory risk remains pronounced in the country.

According to him, there are three lessons from the recent episode- need for a wider diversification of government revenue and exports; institutional constraints need to be speedily removed; and urgency in raising investments in infrastructure to boost entrepreneurship and gain competitiveness.

He said that debt service obligations present a red flag, but expressed optimism on a possible moderation in 2017 on account of the rebound in oil revenue.

“While foreign debt obligations are mostly long term multilateral facilities and do not constitute short term risks, policymakers have to be watchful of taking more external leverage without expanding revenue size, given the debt service implication of any future currency devaluation,” he added.