Nigerian naira falls further, devalued level faces test

Nigeria's naira fell 2.5 percent on Friday, despite central bank intervention, and it briefly touched a record low on concerns OPEC's decision not to cut oil output would put further pressure on Nigeria's shaky finances.
The central bank has struggled to keep the naira within its preferred band even after devaluing the currency by 8 percent on Tuesday in a bid to halt a slide in Nigeria's foreign reserves. Oil sales provide around 95 percent of those reserves.
The naira briefly touched a record low of 180.90, according to Thomson Reuters dealing data, before the bank intervened with dollar sales to lift it to 178.75 at the close, dealers said.
The bank's target band after devaluation is 5 percent plus or minus 168 to the dollar, but doubts remain about whether it went far enough given the bleak outlook for oil prices. The naira has consistently tested the lower end of the new band.
"The market is saying: 'We like what you're doing, but have you done enough?' Now the oil price is at $71 a barrel, all bets are off," Bismarck Rewane, economist and CEO of Lagos-based consultancy Finance Derivatives, said.
Foreign reserves in Africa's leading energy producer dropped 17.3 percent year-on-year to $36.9 billion by Nov. 26, according to central bank data released on Friday.
Falling world oil prices and a retreat from emerging markets have put pressure on the currencies of several oil exporters, including the Russian rouble and Angola's kwanza.
Brent crude fell more than $6 to $71.25 a barrel after OPEC ministers meeting in Vienna left the group's output ceiling unchanged despite huge global oversupply, marking a shift away from its long-standing policy of defending prices.
RAINY DAYS
In Nigeria, Saudi Arabia's decision on Thursday to block calls from poorer OPEC members to cut oil output came as a disappointment to many.
"Nigeria gets short end of the stick as OPEC fails to cut output," read the front page headline of local daily Business Day.
Oil prices have lost a third of their value since June and with OPEC's decision set to send them lower still, pressure on Nigeria's foreign currency reserves and the naira is set to increase.
"Many importers are bringing forward their obligations in view of the persistent fall in oil prices," one dealer said.
"A number of them ... anticipate a further depreciation of the naira, so they are stockpiling the dollar."
Pressure on the currency risks reigniting inflation, which has stabilised in single digits for two years, creating a headache for President Goodluck Jonathan who will seek a second term in elections in February.
Unlike Gulf countries, which have squirreled away large foreign currency reserves, Nigeria's oil savings fell during the boom times, partly owing to theft of its oil by criminal gangs, hurting output, and partly because too much money was spent by the government.
Finance Minister Ngozi Okonjo-Iweala admitted on Thursday that a significant portion of the billions of dollars drained from the oil savings account over the past two years was distributed to powerful governors instead of being saved for a "rainy day".
"The sun is not shining any more and there's not much left in the Excess Crude (oil savings) Account," Rewane said.
The country's fiscal problems are adding to challenges to stability posed by an Islamist insurgency raging in the northeast, seen as the country's biggest security threat.

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Nigeria's interbank lending rates ease to 12 pct on liquidity boost

Nigeria's interbank lending rates slipped on Friday by 800 basis points to around 12 percent for overnight placement, following the retirement of about 415 billion naira ($2.32 billion) in matured treasury bills.
The overnight placement rose to 20 percent from 15 percent on Wednesday, draining about 568 billion naira from the banking system. The increase went to meet a 500-basis-point hike in cash reserve requirements (CRR) for lenders.
The central bank raised the CRR on private-sector deposits at its monetary policy committee meeting on Tuesday. It also raised interest rates by 100 basis points, the first change in more than two years.
Dealers said the cash flow resulting from repayment of matured open market operations (OMO) bills late on Thursday boosted liquidity in the market and cut the cost of borrowing among banks.
"After the debiting of the CRR on private-sector deposits on Wednesday ... the central bank repaid around 415 billion naira in matured treasury bills, boosting liquidity in the banking system and supporting lending among banks," one dealer said.
The secured open buyback (OBB) closed at 12 percent versus 20 percent on Wednesday. That was 100 basis points lower than the new central bank benchmark interest rate, 13 percent.
The overnight placement also closed at 12 percent versus 20 percent on Wednesday, traders said, compared with 10 percent last Friday.
Dealers said interbank rates may rise next week after the purchase of treasury bills and foreign exchange at the central bank auction.

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Nigeria currency devaluation to curb banks' Eurobond bonanza

* Nigerian firms issued $5 billion hard currency bonds since 2007
* Banks' foreign currency exposure at $10 billion-analyst

 * Naira devaluation should not endanger repayments



Nigerian banks' overseas borrowing bonanza looks to be over in the wake of a dramatic currency devaluation this week, but while risks are rising, repaying existing debt should not be a problem for most.
Companies in Africa's largest economy have rushed in recent years to take advantage of rock-bottom global borrowing costs and investors' hunger for yield, selling some $5 billion in hard currency bonds since 2007, according to Thomson Reuters data.
Of this more than $2 billion was raised this year by financial institutions shoring up their balance sheets, Standard Chartered estimates.
But storm clouds have gathered over Africa's top oil producer. Sub-$80 oil prices due to stuttering global growth and an ever strengthening greenback have weighed on the naira for weeks, finally forcing the central bank to devalue it by 8 percent on Tuesday.
The currency's woes have raised some fear about the impact on the balance sheets of companies and banks and have been reflected in some of Nigeria's top banks' Eurobonds.
First Bank Holdings 7-year Eurobond issued in June traded at 97.27 after hitting a record low of 96.85 on Monday. Meanwhile Access Bank's 7-year Eurobond issued the same month traded at a record low of 97.89
Both had traded above face value of 100 almost until mid-October.
Samir Gadio, Standard Chartered's Head of Africa Strategy FICC Research estimates Nigerian banks' total foreign currency exposure tallied up to as much as $10 billion when adding syndicated loans and currency swaps to the $3.6 billion total outstanding in Eurobonds.
"This makes me look at Nigeria's vulnerability from a whole new angle," he said.
"The transparency and supervision of the foreign currency exposure of the banks needs to improve, because there is a risk that has been overlooked but that will come to the fore in the future."
Ratings agency Fitch also pointed to the naira devaluation potentially spelling trouble for firms' ability to service the foreign currency debt they owed Nigerian lenders, with a knock-on effect on banks' asset quality.
"Inflationary pressures from the devaluation could also affect consumer disposable income and banks' retail loans," Fitch said in a note published on Thursday
Yet few doubt the banks' ability to repay the debt.
Richard Segal, emerging markets analyst at Jefferies, noted that Nigerian bank debt had performed far worse than the sovereign as the naira weakened but he added:
"Neither the ability to pay of the banks, nor the capacity of the government to support them, has declined significantly."
One reason is that many Nigerian banks lend in foreign currency, predominantly U.S. dollars, to major companies active in the dominant oil, gas and power sectors.
This has boosted banks' assets and loans denominated in currencies other than naira.
"A lot of the balance sheets of these Nigerian banks are already dollarised," said Kato Mukuru, head of equities research at brokerage Exotix.
This offers comfort on the repayment side, he added.
One thing is for sure: abundant Nigerian Eurobond issuance is unlikely to continue in the same volume as before. The central bank this week also imposed tighter restrictions on banks' foreign currency borrowing.
"It is not the same environment...the whole issuance of the eurobond is likely to recede," Standard Chartered's Gadio said.


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Nigeria naira down 1.7 pct on OPEC decision not to cut output - dealers

Nigeria's naira fell 1.7 percent in early Friday trade to 177.25 against the dollar as markets reacted negatively to a decision of the OPEC oil exporting group not to cut crude output, dealers said.
Saudi Arabia blocked calls on Thursday from poorer members of OPEC, including Nigeria, to cut output, sending oil prices plunging.
Nigeria's currency touched a record low against the dollar on Wednesday, a day after the central bank devalued it by 8 percent in a bid to halt a slide in its foreign reserves -- 95 percent of which derive from oil sales.
Falling world oil prices and a retreat from emerging markets have put pressure on the currencies of several oil exporters, including Angola, whose kwanza is also in retreat.
Brent crude fell more than $6 to $71.25 a barrel after OPEC ministers meeting in Vienna left the group's output ceiling unchanged despite huge global oversupply, marking a shift away from its long-standing policy of defending prices.
Unlike the Gulf countries, which have squirreled away large foreign currency reserves, Nigeria's oil savings fell during the boom times, partly owing to theft of its oil by criminal gangs hurting output and partly because too much money was distributed to its powerful governors.
The falling oil price has created expectations of further declines which would put further strain on the central bank's currency reserves, weighing on the naira.
"Many importers are bringing forward their obligations in view of the persistent fall in oil prices," one dealer said.
"A number of them ... anticipate a further depreciation of the naira, so they are stock piling the dollar."
The troubles facing Africa's biggest economy are an unwelcome headache for President Goodluck Jonathan, who will seek a second elected term in polls scheduled for Feb. 2015.

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Saudi, UAE signal no push for OPEC oil cut

OPEC leader Saudi Arabia and fellow member the United Arab Emirates signalled on Wednesday they were unlikely to push for a major change in oil output at the group's meeting this week to prop up prices that have collapsed by a third since June.
Saudi Oil Minister Ali al-Naimi said he expected the oil market "to stabilise itself eventually" after talks with non-OPEC member Russia on Tuesday yielded no pledge from Moscow to tackle a global oil glut jointly.
OPEC's meeting on Thursday will be one of its most crucial in recent years, with oil having tumbled to below $79 per barrel due to the U.S. shale boom and slower economic growth in China and Europe.
Core Gulf oil producer the UAE sided with Naimi, saying oil prices would soon stabilise, while ramping up pressure on non-OPEC producers.
"This is not a crisis that requires us to panic ... we have seen (prices) way lower," UAE Oil Minister Suhail bin Mohammed al-Mazroui told Reuters. "I think everyone needs to play a role in balancing the market, not OPEC unilaterally".
Iranian Oil Minister Bijan Zangeneh said some OPEC members, although not Iran itself, were now gearing up for a battle over market share and also insisted that non-OPEC producers needed to participate in any OPEC-led output cut.
"Some OPEC members believe that this is the time where we need to defend market share ... All the experts in the market believe we have oversupply in the market and next year we will have more oversupply," he added.
Cutting output unilaterally would effectively mean for OPEC, which accounts for a third of global oil output, a further loss of market share to North American shale oil producers.
If OPEC decided against cutting and rolled over existing output levels on Thursday, that would effectively mean a price war that the Saudis and other Gulf producers could withstand due to their large foreign-exchange reserves. Other members, such as Venezuela, would find it much more difficult.
Among the 12 members of the Organization of the Petroleum Exporting Countries, Venezuela and Iraq have called for output cuts. Naimi has not commented on what the group should do.
"The onslaught of North American shale oil has drastically undermined OPEC’s position and reduced its market share," said Dr. Gary Ross, chief executive of PIRA Energy Group. Brent crude was trading flat at 1320 GMT, above $78 per barrel.
RUSSIA SCEPTICAL ON OPEC CUT
Russia, which produces 10.5 million barrels per day (bpd) or 11 percent of global oil, came to Tuesday's meeting amid hints it might agree to cut output as it suffers from oil's price fall and Western sanctions over Ukraine.
But as that meeting with Naimi and officials from Venezuela and non-OPEC member Mexico ended, Russia's most influential oil official, state firm Rosneft's  head Igor Sechin, emerged with a surprise message - Russia will not reduce output even if oil falls to $60 per barrel.
Sechin added that he expected low oil prices to do more damage to producing nations with higher costs, in a clear reference to the U.S. shale boom.
Many at OPEC were taken by surprise by Sechin's suggestion that Russia - in desperate need of oil prices above $100 per barrel to balance its budget - was ready for a price war.
"Gulf states are less bothered about a price drop compared to other OPEC members," an OPEC source close to Gulf thinking said.
On Wednesday, Russian Energy Minister Alexander Novak said the country's energy companies would produce around the same amount of oil next year as they did in 2014.
He told reporters in Moscow he was sceptical that OPEC would decide on Thursday to cut output quotas.
OPEC's own publications have shown in recent months that global supply will exceed demand by more than 1 million bpd in the first half of next year.
While the statistics speak in favour of a cut, the build-up to the OPEC meeting has seen one of the most heated debates in years about the next policy step for the group.
An OPEC delegate from one of the smaller oil producers suggested on Wednesday that the group's meeting could be prolonged.
"They must agree, even if they have to stay here for two days. It is a matter of death or survival for budgets," the delegate said.
"It might take a bit longer than the ordinary meetings."

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Nigeria c.bank to drain 568 bln naira from bank accounts, banks scramble for funds

Nigeria's central bank on Wednesday advised banks it would drain a combined 568 billion Nigerian naira ($43 billion) from their accounts to meet the 500 basis-point hike in cash reserve requirements on private sector deposits with lenders.
The planned withdrawal triggered a scramble for funds in the interbank lending market, where the cost of borrowing among banks almost doubled, dealers said.
The overnight interbank borrowing rate closed at 20 percent on Wednesday compared with 10.25 percent on Tuesday.
The bank central bank hiked the CRR on private sector deposits to 20 percent from 15 percent previously at its monetary policy committee meeting on Tuesday. It also raised interest rates by 100 basis points, the first change in more than two years.

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Nigeria overnight lending rate doubles to 20 pct after cbank action

Trading on Nigeria's almost doubled on Wednesday, after trading resumed a day after the central bank hiked the cash reserve ratio (CRR) for commercial banks to hold deposits from individuals and businesses, dealers said.
Dealers said commercial lenders were scrambling for cash in anticipation of the central bank enforcing the CRR on Wednesday, so interbank rates rose sharply from 10.25 percent the previous day.
Initially, the overnight market was not giving quotes on Wednesday because they were waiting for information from the central bank on when the CRR will be debited.

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