"Prospect of Shutting Down": Nigerian Firms in Trouble as CBN Fails to Settle $2.4bn Overdue FX
- Manufacturing body for producers in the West African nation are being owed $2.4 billion overdue FX
- As of March, the CBN said it had settled all valid backlogs for forex forwards, totalling claims of $7 billion
- The central bank further stated that it did not settle a $2.4 billion past-due commitment due to uncertainties
Legit.ng journalist Zainab Iwayemi has over 3-year-experience covering the Economy, Technology, and Capital Market.
A manufacturing body for Nigerian producers said Nigerian firms are in a severe crisis over the central bank’s failure to settle $2.4 billion of overdue foreign exchange forward contracts.
Source: UGC
The Manufacturers Association of Nigeria, in an emailed statement, said that businesses with substantial foreign exchange liabilities face acute credit and liquidity risks due to their inability to settle forward contracts.
It added that this strains cash flow and jeopardises overall financial stability, as per a Bloomberg report.
The Nigerian Central Bank announced in March that, in an attempt to calm the market and win back investor trust, it had paid out all legitimate foreign exchange forwards backlogs, amounting to claims of $7 billion.
At the time, it stated that the settled backlogs were those that independent auditors Deloitte Consulting had determined to be legitimate. The central bank added that because of doubts about the legitimacy of the FX contracts, it did not fulfil a balance of $2.4 billion in past-due commitments.
Manufacturers react
In a statement sent by email on Thursday night, the manufacturers' association rebutted the central bank's stance, asserting that none of its members had received any explicit accusations or violations and that none had been charged with any crimes.
It claimed that the central bank had engaged in a concerning violation of the contract that has made currency risk more severe for companies, resulting in significant losses and disruptions to operations.
According to the manufacturer's body, the unresolved backlog has caused local businesses to lose the faith of their overseas suppliers since they are unable to respect provided letters of credit.
“As companies grapple with the inability to fulfill their offshore obligations due to the CBN’s non-delivery of dollars, many face the grim prospect of downsizing or shutting down operations completely,” the group said.
The producers' association encouraged the central bank to prioritise the interests of companies that have operated in good faith, look into ways to settle unpaid commitments and give the necessity of maintaining contract sanctity serious and prompt consideration.
“Reneging on these legally binding contracts potentially undermines the CBN’s credibility and may damage investor confidence,” it said.
CBN pumps in over $1.3bn
Legit.ng reported that analysts forecasted that the naira will strengthen in the upcoming months, as the Central Bank of Nigeria (CBN) settled over $1.3 billion in foreign currency (forex) forward contracts last week.
According to analysts at Rand Merchant Bank in Lagos, the settlement leaves an outstanding FX forwards contract with an estimated $198 million in unpaid balances between now and December.
The Nation reported that less forex pressure will be applied to the naira due to the decreased volume of unsettled forex contracts, which will assist in recovering the local currency.
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Source: Legit.ng
