FX access improved since introduction of new window, says Fitch Ratings

Fitch Ratings has said banks’ ability to access foreign currency (FC) has improved considerably since the Central Bank of Nigeria (CBN) introduced a foreign exchange “window” at end-April aimed at investors and exporters.

The Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism, commonly referred to as the “Investors’ and Exporters’ FX Window”, appears to be boosting FC supply and the flow of FC liquidity into the banking system. Improved access to FC means that liquidity pressures have, for now, eased for Fitch-rated banks.

It said FC was in acute short supply through much of 2016 and early this year, restricting imports and forcing several Nigerian banks to extend maturities on their trade finance obligations. NAFEX provides investors and exporters with a more transparent mechanism through which they can sell FC to willing buyers.

“Authorised banks act as intermediaries, clearing funds supplied by portfolio investors and exporters and ensuring timely execution of settlement for buyers. Despite its short record, volumes transacted through NAFEX are growing. In our opinion, NAFEX offers a more transparent alternative to accessing FC than is available through the other foreign-exchange markets in the country,” it explained.

It added that several exchange rates operate in Nigeria. The CBN was the main supplier of FC during the height of the FC liquidity crisis and it still sells FC to the market through regular auctions, with banks acting as intermediaries.

Its official exchange rate is N305 to the US dollar but it sets alternative official rates at its FC auctions and different rates apply for retail, wholesale, personal and small business purchasers of FC.

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