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Nairaland Forum / Nairaland / General / Business / Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch (2901 Views)
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Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by BrandSpurNG: 10:09pm On Feb 18, 2018 |
Nigerian banks’ move to a more market-based presentation of foreign-currency (FC) assets, liabilities and profit-and-loss items is likely to come into focus when they publish their 2017 results in the coming weeks, Fitch Ratings says. Financial statements with FC items translated more in line with market exchange rates will give a more realistic representation of banks’ FC positions and capital at risk from the potential further depreciation of the naira. Exchange-rate risk warrants scrutiny for Nigerian banks because about 40% of assets and liabilities in Nigeria’s banking sector are denominated in US dollars and not all banks operate with matched FC positions. Our discussions with banks that we rate suggest that most will publish their 2017 financial statements based on the Nigerian Foreign Exchange Fixing (NiFEX) rate (about NGN330/USD) instead of the official exchange rate of NGN305/USD, which they previously used. Some may use a blended rate. The NiFEX rate is the Central Bank of Nigeria’s reference rate for spot foreign-exchange transactions, widely used on the interbank market. Adopting the NiFEX rate is, however, only a partial step towards using market exchange rates. IFRS guidelines say that companies operating in countries with multiple exchange rates should translate their FC assets and liabilities into local currency based on the exchange rates at which they expect to settle them. But the guidelines leave scope for considerable judgement and flexibility, and Nigeria operates with multiple exchange rates, which adds to the confusion. In our view, the exchange rate used under the Nigerian Autonomous Foreign Exchange Rate Fixing (NAFEX) mechanism is the closest to a true market rate. NAFEX was introduced last year and rates are set by market participants, giving investors and exporters a more transparent way to sell FC. NAFEX attracts greater volumes than other exchange mechanisms. The NAFEX exchange rate is about NGN360/USD. Switching to NiFEX or a blended rate would give a more meaningful representation of banks’ FC positions than using the official rate, in our view. But banks would still be translating FC into naira at a rate significantly below the NAFEX rate. We do not expect banks will go further at this stage as every increase in the exchange rate used could lead to a drop in reported regulatory capital ratios, due to inflation of FC risk-weighted assets, even though the impact would be partially offset by FC translation gains. We recently examined Nigerian banks’ FC positions as part of a peer group review. We calculated banks’ capacity, based on end-September 2017 data, to withstand a hypothetical severe naira depreciation to NGN450/USD without breaching their minimum regulatory total capital adequacy ratios (CARs). The Central Bank of Nigeria sets different minimum CARs for Nigerian banks: 16% for those it considers to be systemically important, 15% for those with international banking licences and 10% for the rest. Our stress test also included increasing the risk-weight on FC loans to 130% (from 100%) to reflect extra difficulty for borrowers servicing FC loans with a weaker naira. We found that that the largest banks – Access, FBN Holdings, Guaranty Trust Bank, United Bank for Africa and Zenith – would be able to withstand this scenario without breaching their minimum CAR requirements. However, second-tier banks had mixed results. Capitalisation is an important rating differentiator for Nigerian banks, albeit within a narrow rating range. All the ratings are in the highly speculative ‘B’ range, constrained in most cases by Nigeria’s sovereign rating of ‘B+’/Negative and our assessment of the operating environment. SOURCE: https://brandspurng.com/nigerian-banks-plan-market-based-reporting-of-fc-exposure-fitch/
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Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by postbox: 6:56am On Feb 19, 2018 |
interesting |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by rodeo0070(m): 7:22am On Feb 19, 2018 |
Booked |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by Fanatique: 7:29am On Feb 19, 2018 |
Hj |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by Nobody: 7:33am On Feb 19, 2018 |
Good,hope it will ease the stress of doing business between nigeria and other countries.... Check our siggggggi |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by ogedanny: 7:57am On Feb 19, 2018 |
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Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by Ifebaby16(m): 7:58am On Feb 19, 2018 |
hmm |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by bamoski(m): 8:07am On Feb 19, 2018 |
ogedanny: How much have you made so far? Show us banking statements and other evidence 3 Likes |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by Baritone(m): 8:15am On Feb 19, 2018 |
bamoski:Results are key,they speak for themselves. Nice one. |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by Nasir123(m): 8:19am On Feb 19, 2018 |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by Yankee101: 8:29am On Feb 19, 2018 |
Banks in Naija are part of the problem helping to escalate the devaluation of the naira via round tripping. They collect FX from the CBN with the documentation that it's for customers (PTA/BTA, LC, etc) but divert it for their personal or cronies' Bureau de Change at exorbitant rates. Time for prudent and transparent reporting in accodance with GAAP. 3 Likes |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by bamoski(m): 9:04am On Feb 19, 2018 |
Baritone: You got that right |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by Nobody: 9:48am On Feb 19, 2018 |
Nasir123:Seconded by me. |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by ELITE12(m): 11:25am On Feb 19, 2018 |
Yankee101:Agree, they are manipulating the FX rate tru their cronies at d bureau de change like d fuel(filling stations) n black market scenario |
Re: Nigerian Banks Plan Market-based Reporting Of FC Exposure – Fitch by rodeo0070(m): 7:23am On Feb 20, 2018 |
Yankee101: True |
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