Deposit Money Banks (DMBs) were engaged in a flurry of activity on Thursday to divest themselves of surplus dollar reserves ahead of the Central Bank of Nigeria’s (CBN) deadline of midnight on February 1, 2024. Treasury departments within these banks were reportedly immersed in selling off excess foreign exchange holdings throughout the day, processing numerous foreign exchange request forms from customers and increasing the volume of dollar sales.
This surge in forex sales activity in the official foreign exchange market contributed to the strengthening of the naira at the parallel market on Thursday. According to The Punch, several high-ranking bank executives, speaking on condition of anonymity, confirmed the significant forex transactions occurring within the banks.
As of 6 p.m. on Thursday, bank officials, particularly those in treasury departments, were striving to comply with the new prudential requirements outlined by the regulator.
In its efforts to stabilize the country’s volatile exchange rate, the CBN issued a circular on Wednesday mandating DMBs to liquidate their excess dollar reserves by February 1, 2024, and warned against hoarding foreign currencies for profit.
According to officials, the CBN believes that some commercial banks hold extensive foreign exchange positions for extended periods to capitalize on fluctuations in exchange rates. The new circular introduced a set of guidelines aimed at mitigating the risks associated with such practices.
In the circular titled, “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks”, the CBN raised concerns over the growing trend of banks holding large foreign currency positions.
The circular read in parts, “The Central Bank of Nigeria has noted with concern the growth in foreign currency exposures of banks through their Net Open Position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks.”
The central bank additionally instructed banks with current Net Open Positions (NOPs) exceeding its prescribed limits to adjust their positions and adhere to the new regulations by February 1, 2024.
This latest directive follows closely on the heels of a circular issued by the CBN just 48 hours prior, cautioning banks and foreign exchange (FX) dealers against reporting inaccurate exchange rates, among other infractions.
The timing of this new directive coincides with adjustments made to the methodology for calculating the nation’s official exchange rate by the FMDQ Exchange. These adjustments have resulted in the official exchange rate moving to approximately N1,500 from around N900 per dollar.
In response to the CBN’s latest directive, several banks began selling forex to their customers on Thursday, in line with the aim of unifying the official and parallel market rates of the local currency. Consequently, there was a notable strengthening of the national currency in the official market.
Bureau De Change (BDC) operators in Lagos, Kano, and Abuja also joined the rush to sell their dollar holdings, amid concerns that the local currency might sustain its gains in the coming days.
For instance, Alhaji Lawan Ismael, a BDC operator in Ikeja, Lagos, reported buying and selling the greenback for N1,400 per dollar and N1,420 per dollar, respectively.
Similarly, another BDC operator at the Lagos airport, Sabiu Abdullahi, noted that the greenback was trading between N1,400/$ and N1,420/$, marking a significant recovery from the over N1,500/$ it was sold for on Wednesday.
In Abuja, the naira traded within the range of N1,300/$ and N1,350/$ at the parallel market.
A Bureau De Change (BDC) operator, Ibrahim Yahu told The PUNCH, “Today, because of our small action, you could not get a standard price. Those who bought today did so at risk. But the dollar sold between N1,300 and N1,350.”
The naira closed at N1,455.59/$ at the official window on Wednesday, according to the FMDQ Securities Exchange. This rate has been yet to be updated as of 09:39 pm Thursday.
Commenting on the effect of the circular, bank officials who pleaded anonymity said they were bound to ensure their books remain within the new FX prudential limit.
“All banks working to meet the deadline,” the chief financial officer of a tier-2 bank told said on Thursday evening.
Also, a top official of a tier-1 bank, while commenting on the development, said, “After the CBN directive, we had to push out the FX.”
Another official said, “All banks are pushing out funds now, and we are ready to sell. The key thing is profit here.”
Meanwhile, certain bank officials have emphasized that in addition to focusing on the foreign exchange reserves held by banks, the Central Bank of Nigeria (CBN) and security agencies should also investigate politicians and government officials suspected of hoarding dollars in their residences.
As part of its efforts to enhance liquidity in the foreign exchange (FX) market, the CBN issued a new circular on Wednesday, eliminating the previous cap on exchange rates quoted by International Money Transfer Operators (IMTOs).
Titled ‘Guidelines on International Money Transfer Service in Nigeria,’ the document mandates IMTOs to remit payments to customers solely in Nigerian currency, utilizing the prevailing exchange rate on the day the transfer is received.
