The continuous free fall of the naira spells doom for the Central Bank of Nigeria (CBN) which has a standing $15 billion loan obligation to some American investment bankers, including JP Morgan, Goldman Sachs, among others.
BusinessDay’s analysis of the bank’s recently released 2022 audited financial statement, showed that it entered into a securities lending agreement with Goldman Sachs and J.P. Morgan, in which it received cash in exchange for its securities to be held as collateral for the loan.
“The cash received from Goldman Sachs is N0.23 trillion ($500 million), 2021: N0.22 trillion ($500 million) and JP Morgan N3.23 trillion ($7 billion), 2021: N3.05 trillion ($7 billion) is recognised in other foreign securities,” it stated.
Following president Bola Tinubu’s move to unify the exchange rates, the demand for dollar has intensified amid short supply, hence causing the naira to further weaken against the dollar.
As at the close of business on Thursday, the Naira depreciated to N940 per dollar at the black market while the official rates closed at at N781 per dollar.
Consequently, the depreciation of the naira against the US dollar means that the bank will have to convert the naira to the US dollar during debt servicing and repayment, hence as the naira depreciates, more naira will be needed to meet the debt repayment.
“Interestingly, no one knew about this loan until the financials was reported; One big implications is the pressure that will be created on our FX reserves when the sum of $10bn+ will be repaid to these banks,” Jide Babatope, an economic analyst said.
He added that while the loan cannot be added to the country’s debt profile, there is need for more transparency and accountability as to what the loan was used for.
Meanwhile, For the first time since 2015, the financial regulator released its long-awaited audited accounts, posting a profit of N103.8 billion in 2022.
Also it recorded a growth of 137 percent in its Profit after Tax across four years ( 2018 to 2022), achieving the highest net income in 2022 financial year.
The results, which are published on the CBN website, also had audited results for the last six years which showed the apex bank recorded a profit of N124.4 bin in 2016; N107.3 bn in 2017; N43.7bn in 2018; N34.6 bn in 2019; N30.8bn 2020 and N75.1 bn in 2021.
Further findings showed the loans to the federal government also known as ‘Ways and Means’ totalling N23 trillion earned interest of N1.9 trillion for the apex bank compared to N1.2 trillion in the prior year.
The bank mentioned that it would remit some part of its earnings to the federal government as stipulated by the Fiscal Responsibility Act 2011.
“In line with the provisions of the Fiscal Responsibility Act 2011, 20 percent of the Net Income of the Bank will be credited to retained earnings while the balance will be paid to the Federal Government of Nigeria,” it said.
Speaking to the CBN’s decision to publicly release its financial statement, Babatope said the CBN reported its financials because the president recently hired an investigator to audit the bank.
“The report was actually published to fulfill political righteousness,” he said.
For Uche Uwaleke, who is a Financial Economist and a renowned Professor of Capital Market at the Nasarawa State University, Keffi, such revelations in the report simply shows how much the reserves have been encumbered by Securities lending and derivatives contracts entered into by the CBN, eventhough report coming after years is commendable.
His words, “Let me start by commending the present management of the CBN for publishing the financial reports of the Bank after so many years.
“This act will go a long way in boosting the confidence of investors in the Nigerian economy.
“It has brought to the fore the true picture of the country’s external reserves being managed by the CBN. It is now beyond speculation that much of the reserves are encumbered by Securities lending and derivatives contracts entered into by the CBN.
According to Uwaleke, much as these contracts are legitimate, “the resulting obligations from them put to question the justification for entering into these contracts in the first place and whether adequate safeguards were put in place at the time of entering into these contracts.”
“Securities lending is the process of loaning securities to another party which effectively transfers ownership to the other party expected to provide collateral for them. In this instance both JP Morgan and Goldman Sachs were said to have provided cash in return.
“By implication, the current liquid external reserves of about 33 billion dollars does not reflect the true liquidity position of reserves as a significant proportion has been tied down by these contracts. Little wonder the CBN’s ability to intervene in the forex market has been hampered.
“Following this disclosure, the current volatility in the forex market may linger for quite sometime, except the reserves witness substantial accretion from crude oil sales proceeds,” the foremost Professor of capital market further explained.