In an apparent bid to shore up their balance sheet in response to the global financial crisis, Foreign banks acting as correspondent banks to Nigerian banks recalled about $3 billion credit line from their local counterparts banks in the month of October. Meanwhile UBA PLC has successfully acquired a bank in Benin Republic for N20 billion.

The reduction of credit line by the foreign banks led to a sharp and unprecedented increase in foreign exchange purchase under the Wholesale Dutch Auction System (WDAS) during the month. From an average of about $300 million per month, foreign exchange sale short up to $3.4 billion during the month.

Money Market Association of Nigeria (MMAN), the umbrella body of banks’ treasury disclosed this in its Financial and Economic report for October.

It stated, “WDAS market for the month of October recorded lots of activities as Central Bank of Nigeria (CBNd, through its Trade and Exchange Department sold dollar to the tune of $3.4 billion compared to $290.00m sold in September, and $1.27bn sold in August.

It was the highest volume sold so far in a single month in the year 2008. Month-on-Month, it represented 1,529.3 per cent over $206,569,766.49 sold in corresponding month in 2007.

The increase in volume of foreign exchange sold in the month was hinged on the recalled of funds by the offshore corresponding banks in their efforts to minimize the impact of the global financial crisis on their balance sheet size.”

A money market source who also confirmed this to Vanguard explained that the credit line represents money used by the corresponding banks to help the local banks to settle foreign currency denominated trade transactions of the customers.

He said such credits are usually not recalled immediately but gradually. This time around because of the impact of the global financial crisis on their balance sheet the correspondent banks had to recall these credits immediately hence the huge outflow of foreign exchange during the month.

It would be recalled that the President of the Chartered Institute of Bankers of Nigeria (CIBN) and Group Chief Executive, Intercontinental Bank PLC, Dr. Erastus Akingbola alluded to this development while explaining the impact of the global financial crisis on Nigerian banks, during a visit to Vanguard Newspaper.

He stated, To say that it won,t have effect on Nigeria, we would be oversimplifying the issue. We may say it won,t have direct effect because the product that caused the problem abroad was not sold in not in Africa at all not even southern Africa, the subprime mortgage and the economist put it two weeks ago, that for the first time isolation is paying off for Africa. Because we have been isolated from the world community they didn’t not bring the product here.

“Having said that if those in the western world are having trouble and we rely on them for some of our confirming lines, some of our credit lines, direct dollar placements, and they themselves are looking for dollars it means they will have to reduce what they are making available to use.

That is one of the direct effect, the level of confirming lines to banks have reduced. But what they did was rather than say reduce it for every bank by 50 per cent. They said what is the country confirming credit limit of a particular bank.

If the country limit of a bank was $1 billion before they will say reduce it by 50 per cent to $500 million. So they reduce for some banks and add or retain what they have for some other banks. But at least as a nation we have gotten a reduction, we must agree to that effect.”