Nigeria Takes $9 Billion Hit in Derivatives to Clean up Reserves

In 2024, the Central Bank of Nigeria recorded a 13.9 trillion naira ($9 billion) loss from settling overdue derivatives contracts as part of efforts to reduce its foreign currency liabilities and rebuild investor confidence in the naira, Bloomberg reported.

The loss more than doubled from 6.3 trillion naira in 2023, as the central bank redeemed longstanding “legacy transactions” to cut down on outstanding forex obligations, lower its exposure to foreign exchange risks, and strengthen net foreign reserves and external buffers, CBN said.

In 2023, Nigeria’s central bank published its financial statements to boost investor confidence and demonstrate transparency in its operations and foreign exchange management.

The move was part of broader reforms aimed at removing capital controls, allowing the naira to float freely, and attracting much-needed dollar inflows to ease the country’s severe forex shortage.

However, the report raised concerns about the actual size of Nigeria’s external reserves and the central bank’s ability to defend the naira. It revealed significant financial arrangements with JPMorgan Chase & Co. and Goldman Sachs involving foreign-currency-backed deals to support government finances.

In response, the central bank said in April that it had settled those deals, such as currency swaps and forward contracts, bringing net foreign-currency reserves to $23 billion as of December.

Nigeria’s gross external reserves rose for a third consecutive day to $37.9 billion as of April 30, the highest level in three weeks, according to Bloomberg data.

Despite this, the naira has depreciated by about 71% against the dollar since June 2023, following President Bola Tinubu’s foreign exchange reforms.

Meanwhile, the cost of managing liquidity surged to 4.5 trillion naira in 2024, up from 1.5 trillion naira the previous year.

This spike was driven by the central bank’s sale of high-yield, short-term fixed-income securities aimed at mopping up excess liquidity, curbing inflation, and stabilizing the naira.