Naira slide may trigger loan defaults, squeeze businesses – Financial expert warns

A monetary expert, Busari Akande, has warned that the naira’s depreciation might enhance loan defaults, weaken enterprise operations and prohibit entry to credit score in Nigeria.

Akande, a Fellow of the Institute of Credit Administration, FICA, stated the naira’s continuous decline on the Nigerian Autonomous Foreign Exchange Market, NAFEM, in the beginning of November might have wider implications for businesses and the banking sector.

He stated though the 0.12 per cent every day depreciation would possibly seem insignificant, its results might compound present monetary pressures on businesses already combating excessive borrowing prices and rising operational bills.

In an evaluation titled “Unmasking the Naira’s November Shuffle: A Dual Lens on Credit Risk and Financial Resilience”, Akande defined that import-dependent firms, significantly these in manufacturing and shopper items, might face larger uncooked materials prices and shrinking revenue margins.

He warned that the state of affairs might undermine firms’ skill to repay loans, forcing some to hunt further short-term financing to satisfy operational wants quite than put money into enlargement.

The Islamic finance and credit score administration expert additionally expressed concern that foreign money depreciation might weaken family buying energy and cut back the capability of people to repay private loans, mortgages and different credit score services.

According to him, small and medium-scale enterprises, SMEs, which have restricted entry to foreign money hedging devices, are significantly weak to exchange-rate fluctuations.

Akande additional warned that banks’ desire for investing in authorities securities with engaging returns might cut back funds accessible for private-sector lending, making it tougher for businesses to entry financing.

However, he stated Nigeria’s overseas alternate reserves, which he put at $55.22 billion, and the slender hole between official and parallel market alternate charges supplied buffers towards a serious monetary disaster.

He urged banks and credit score directors to strengthen loan monitoring, conduct common stress checks towards potential alternate charges of N1,450 to the greenback and establish weak debtors earlier than they default.

Akande additionally advocated restructuring loans for viable businesses experiencing non permanent cash-flow difficulties by means of measures akin to extending compensation intervals and granting principal compensation moratoriums.

He stated the naira’s motion mustn’t trigger panic however ought to immediate monetary establishments and company managers to undertake extra proactive risk-management measures to guard businesses and maintain financial exercise.