Oludare Senbore
September 2017

 

Partner, Oludare Senbore contributes to the September 2017 issue of the Lawyer Monthly Magazine by discussing the topic - "How is Nigeria Progressing Post-Recession?". The excerpt below provides a little insight into what was discussed:

With the unstable nature of the financial world, what would you say is the best advice to give a client who is enquiring about foreign currency or syndicated lending?

Though Nigeria has technically come out of a recession, the macroeconomic environment in Nigeria still continues to remain challenging with no certainty as to how long oil prices will remain above $50.00 per barrel, continued reliance of the country on the oil export sector for foreign currency earnings and the early hints of political (election) discourse within the polity.

As noted by the Monetary Policy Committee (the “Committee”) at its meeting in March 2017, the banking sector is becoming less resilient as a result of the macroeconomic environment. This led the Committee to direct the management of the Central Bank of Nigeria (the “CBN”) to work with Nigerian Banks to promptly address rising non-performing loans, declining asset quality, credit concentration and high foreign exchange exposures.

Foreign currency liquidity issues have exacerbated the refinancing risk within the banking sector, leading to deterioration in loan assets, especially oil-related loan assets. In addition, a number of Nigerian financial institutions have refused to renew their Eurobond issues as they do not intend to expand their US Dollar loan assets. It is no wonder that Nigerian banks are shying away from dollar syndicated loans, particularly in light of the CBN’s requirement for additional capital requirements where a bank has significant exposure to the oil and gas sector.

In the context of the foregoing, my advice to any client that is wishing to raise debt financing in US Dollars from the syndicated markets at this time, is only to enter the fray if you have a dollar earning asset and/or are able to afford a natural or financial hedge.

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