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The Central Bank of Nigeria (CBN) has issued N421bn worth of Open Market Operations or OMO Bills as collateral for its foreign currency (FX) swap exposure to the Nigeria Sovereign Investment Authority (NSIA).
“The notional amount indicates that the volume of transactions as at the year-end-31st December 2023 which stood at $480 million (2022: $499.5 million); and are indicative of neither the market risk nor the credit risk,” the NSIA said.
For NSIA collaterised securities, the balance in 2023 shows the fair value of the financial assets arising from the currency swap transactions with the Central Bank of Nigeria (CBN) and the underlying asset (OMO Bills).
An FX swap is a financial transaction in which two counterparties exchange specific amounts of two different currencies at the outset and repay at a future date according to a predetermined rule reflecting both interest payments and amortization of the principal.
The effective closing rate of the naira vs. dollar as at 31 December 2023 was N899.39/ US Dollar (2022: N448.55/ US Dollar)., according to NSIA financials.
Currency swaps with the CBN which avails USD liquidity to the apex bank while providing an avenue to boost earnings was the single largest component of the NSIA’s investment portfolio and equivalent to N421 billion as at FYE 2023.
The NSIA’s total investment portfolio stood at N1.34 trillion and accounted for a predominant 59.3% of total assets and future commitments as at 31 December 2023.
The investment portfolio grew by 114% year-on-year, buoyed by re-investments of inflows from operations and the impact of naira depreciation on its dollar-denominated investments.
As at FYE 2023, the investment portfolio which transverse the three operated funds largely comprised currency swaps, hedge funds and long-only equity investments, private equity investments, fixed deposits and US treasury notes.
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