Home Finance Capital flight takes toll on the naira as $4.70bn flows out in 4 weeks, puts pressure on lending rates

Capital flight takes toll on the naira as $4.70bn flows out in 4 weeks, puts pressure on lending rates

by Business News Report

By Omoh Gabriel, Business Editor
The capital flight that hit the Nigeria economy has continued unabated as Nigerians, corporate bodies are still moving funds massively out of the country as well as from naira to dollar. In the last four weeks a total of $4.7 billion went out of the country. While about $30 million went out in the week ending 26th December 2008, the amount of foreign exchange flowing out of the country rose to $1.402 billion for the week ending 9th of January 2009 . It however dropped to $177.646 million on the 16th of January and moved astronomically to $1.071 bn on the 30th of January. The foreign exchange outflow went further up to $2.019 billion on the 13th of February 2009. This gives a total of $4.701 billion in four weeks for which data are available. Indication are that at this rate the country will finish up the reserves and will face acute shortage of foreign exchange for imports. This development has resulted in the crash of the naira exchange rate which had remain stable before the global financial crisis. The movement of funds out of the country comes by way of Nigeria residents buying up dollars with their naira and moving it off shore. As a result the Nigerian interbank lending rates(rate at which banks lend to each other) rose to 16.91 per cent on average last week from 12.16 per cent the week before due to large naira cash outflows to finance bond and foreign exchange purchases, bankers told Vanguard on Friday. The secured Open Buy Back (OBB) rose to 9.75 per cent, at par with the central bank’s bench mark rate, from 8.5 per cent last week. Overnight placement rose to 21 per cent from 13 per cent, while call closed at 20 percent compared with 15 per cent. “Demand pressure was more noticeable on overnight funds because many banks lack adequate treasury bills to collateralise their borrowing at the OBB rate,” one dealer said. The cost of borrowing among banks slipped last week following the release of February budgetary allocations to government agencies, which helped swell liquidity in the system.
Bankers said payments for about $577 million in foreign exchange from the central bank’s bi-weekly auction, along with the issue of 50 billion naira worth of bonds had reduced liquidity in the system.
Interbank lending rates are expected to go up further this week because of the dearth of funds in the system, traders said.
Market operators are also seeing it from the perspective that the reduction of credit line to Nigeria banks by their foreign counterparts as a result of the global financial melt down is partly responsible for the high volume of funds leaving the country as the usual 90 days trade credit line has dried up in some banks who have had to meet the needs of their customers through direct sales. The CBN Governor had said recently in London that the apex bank will not defend the naira.

Money market operators said that dollar demand was being driven by importers before the Christmas trading season as well as by portfolio investors who have been taking money out of Nigeria as the global credit crisis dampens appetite for risk. It has also been fuelled by banks, businesses and individuals — worried by the long-term impact of falling oil prices on Nigeria’s economy — shifting their balance sheets out of naira into U.S. dollars.
One banking analyst said he thought the central bank may have deliberately restricted dollar supply to the market in order to flush out speculators and ascertain the true level of underlying demand.

File : Capital flight 27/02/09

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