NSIA Has $372m FX Swap Exposure to CBN as Lack of Board Raises Concern

The Nigeria Sovereign Investment Authority (NSIA), had foreign currency (FX) swap exposure to the Central Bank of Nigeria (CBN) to the tune of N167 billion ($372 million), as at December 2022.

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 2022 was 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 accounted for 25.4% (up from 20% for FYE 2021) as at FYE 2022.

The NSIA’s total investment portfolio stood at N658 billion and accounted for a predominant 63.1% of total assets and future commitments as at 31 December 2022.

The investment portfolio grew by 15.5% 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 2022, 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 Eurobonds.

Meanwhile, the lack of a Board of Directors for the NSIA is raising issues around corporate governance.

NSIA’s third Board of Directors since inception was dissolved in June 2023 following the inauguration of the new government of President Bola Tinubu.

“Thus, the Authority currently operates without a Board, contradicting best practices with respect to governance,” ratings agency Agusto & Co, said.

“Given the buffer period required for the new administration to settle and source qualified candidates for appointment, we believe that the Authority might operate without a Board for a significant part of H2 2023; this is a rating concern.”

According to the NSIA Act 2011, governance at NSIA is vested with the Governing Council and the Board of Directors.

The appointment of the Board and the CEO is approved by the Nigerian President. As at 31 December 2022, the Authority was led by a nine-member Board comprising six Non-Executive Directors and three Executive Directors.

The Central Bank of Nigeria (CBN) cleared matured foreign-exchange (FX) forward contracts with an unspecified number of banks, according to spokesman Isa Abdulmumin.

Nigerian banks and financial services companies like the NSIA placed significant foreign currency (FX) with the central bank in the form of derivative transactions (including swaps and forwards).

The swaps positions are equivalent to $21 billion while there is a further $6.8 billion exposure in the form of FX forwards (now cleared), banking sources tell MoneyCentral.

The Authority commenced operations with a seed capital of $1 billion in October 2012 but has grown its assets under management (AuM) to $2.3 billion as at 31 December 2022.

The NSIA is jointly owned by the Federal Government of Nigeria (45.8%), the 36 States (36.2%), the 774 Local Government Authorities (17.8%) and the Federal Capital Territory (0.2%).

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