The consistent downward spiral of the Nigerian currency, the naira, is posing a dire situation for the Central Bank of Nigeria (CBN), which is burdened with a substantial $15 billion loan obligation to prominent American investment banks, including JP Morgan and Goldman Sachs, among others.
CBN’s 2022 audited financial statement
A recent analysis by BusinessDay Newspaper of the CBN’s 2022 audited financial statement revealed that the bank engaged in a securities lending arrangement with Goldman Sachs and J.P. Morgan. This agreement involved the exchange of its securities for cash, which served as collateral for the loan.
The cash infusion from these arrangements amounted to N0.23 trillion ($500 million) from Goldman Sachs and N3.23 trillion ($7 billion) from JP Morgan.
The naira’s ongoing depreciation against the US dollar is adding pressure on the CBN’s financial situation, as the bank will need to convert more naira to dollars for debt servicing and repayment due to the weakening currency.
The situation has been exacerbated by the increased demand for dollars following President Bola Tinubu’s attempt to unify exchange rates.
As a result, the naira has weakened further against the dollar, closing at N940 per dollar on the black market and N781 per dollar in official rates.
This depreciation raises concerns about the CBN’s ability to repay its substantial debt obligations. Economic analysts, like Jide Babatope, highlight the potential strain on foreign exchange reserves when over $10 billion needs to be repaid to the American banks, emphasizing the need for transparency and accountability in the utilization of the loan.
Interestingly, the release of the CBN’s audited accounts, first since 2015, showed a profit of N103.8 billion in 2022. The financial regulator also reported a growth of 137 percent in its Profit after Tax from 2018 to 2022.
However, the revelation of the securities lending and derivatives contracts with foreign banks has cast a shadow on the true liquidity status of the country’s reserves, potentially hindering the CBN’s intervention capabilities in the foreign exchange market.
