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Nigerian banks can absorb Naira devaluation impact- Fitch

Nigerian banks are sufficiently capitalised to absorb the impact of the 40 per cent effective devaluation of the naira against the US dollar under the…

Nigerian banks are sufficiently capitalised to absorb the impact of the 40 per cent effective devaluation of the naira against the US dollar under the country’s new market-driven exchange-rate policy regime, said Fitch Ratings.
Currency devaluation affects banks’ capital ratios largely because total risk-weighted assets are inflated when foreign currency (FC) assets are translated back into naira, while capital is denominated in local currency.
In a statement, Fitch said its assigned ratings to 10 Nigerian banks and its assessment was that with a 40% effective devaluation, majority of the banks would not face an immediate breach of regulatory capital adequacy ratios (CARs).
However, if the naira continued to weaken, buffers between minimum and reported CARs may decline to a level which heightens ratings sensitivity, the rating body said.
Fitch-rated banks report CARs ranging from 14% to 21%.
 The devaluation would impact ratios in different ways across rated banks, depending on the level of their FC risk-weighted assets and the size of their net open FC positions, it noted.
It said that on the average, 45% of net lending in the Nigerian banking sector was extended in FC (almost entirely US dollars).
It warned that the success of the FX move in attracting portfolio inflows and foreign direct investment has yet to be tested.
 

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