Flexible Forex: CBN Meets Bankers’ Committee

· Naira Falls to N372/$1
· Banks to soft-pedal on retrenchment

James Emejo in Abuja and Obinna Chima in Lagos with agency report

As details of the flexible foreign exchange policy promised by the Central Bank of Nigeria (CBN) are being awaited, the naira further slumped yesterday, exchanging at N372 to the US dollar.

But the Bankers’ Committee has allayed fears that the situation would persist for long, assuring Nigerians and the business community that the policy being put together in consultations with stakeholders would check the prevailing speculations in the forex market.

The committee, at the end of its meeting yesterday, also said that banks would refrain from further job lay-offs as requested by the federal government in the hope that certain fiscal policies that triggered the trend would be addressed by the fiscal authorities.

A member of the committee and the Group Managing Director/Chief Executive, United Bank for Africa Plc, Mr. Phillips Oduoza, who called for patience and understanding over the delay in unveiling the key component of the proposed framework, said the delay arose from the need to produce a comprehensive and robust flexible exchange policy that would address all exchange rate problems.

He said the document would soon be released to the public.
Oduoza, alongside other bank chief executives and CBN directors said: “It’s important to get it right, we are coming up with a framework that would address current issues on foreign exchange,” adding that the model was not a simple one.

He warned that whosoever was involved in speculative activities in forex would definitely get their fingers burnt at the end of the day when the framework is finally released.
The bank chief added that the flexible forex policy was being finalised by the central bank.
The committee also said the CBN had achieved 60.5 per cent financial inclusion as it pressed towards its 2020 target of 80 per cent mark as well as ending 2016 with an eight per cent increase of the current figure.

The CBN Director, Banking Supervision, Mrs. Tokunbo Martins, said in achieving its objectives, commercial banks and microfinance institutions had been given financial inclusion targets for savings and access points.

She said agreements had also been reached with financial institutions on linkage model and moving away from transaction access points.
The committee, which also deliberated on the current wave of retrenchments in the banking industry, resolved to soft-pedal in the interest of the economy.

The Managing Director/Chief Executive, Standard Chartered Bank of Nigeria, Bola Adesola, said banks understood the implications of the retrenchment and had resolved to minimise the exits even though there would still be retrenchments, especially those connected to fraud among others.
“We’ve noted the market sentiment and going forward, it would be different. It’s something we’ll manage,” she said.

Adesola said the central bank was fine-tuning the National Collateral Registry framework, adding that a policy statement would soon be announced.
The registry will allow the registration of movable assets like cars as collateral that could be used by customers to access loans from commercial banks.
It was initiated to help the ordinary Nigerian bypass the often cumbersome conventional collateral demands, which are rather frustrating to the common man.

In spite of the assurances by the Bankers’ Committee, international investors and domestic firms remain anxious about the specific plan of the CBN on the forex flexibility policy.
An investment road-show to London this week by federal government officials was professional and upbeat, according to money managers who attended. But Reuters revealed that they were alarmed at the lack of any clarity on what happens next in the country’s foreign exchange market.

This is just as the naira continued its downswing yesterday as it fell further to N372 to a dollar, lower than the N367 to a dollar it closed on Wednesday. But the official naira value is still at N197/$1- and a major chunk of transactions now happening at the unofficial rate.

Africa’s biggest economy is facing its biggest crisis for decades as a result of the halving in oil prices since 2014, followed by the 2015 introduction of a currency peg that triggered investors to flee, have produced a black market for the naira currency and brought economic growth to a standstill.
Inflation is at six-year highs of 13.72 per cent and the economy contracted 0.4 per cent in the first quarter – the first such drop since the 1990s.

Fund managers had hoped this week’s meeting with Finance Minister, Kemi Adeosun and other senior officials would shed light on when currency curbs would be removed.

Many pointed out that little has been heard on the subject since the central bank’s end-of-May announcement about ditching the peg and a move to use a different, weaker exchange rate for petrol imports.
They were little wiser after Tuesday’s meeting in London’s plush Corinthia Hotel.

“There was nothing on FX policy, which was disappointing, given that they are doing this round of meetings with investors. It was a straight bat – I don’t think they have worked out the details,” Standard Life Investments portfolio manager, Mark Baker, said.
“My feeling is the (central bank) felt pressured to make an announcement but have not worked out the finer details.”

The central bank has declined to comment since the meeting when the shift to a flexible naira was first announced. The Tuesday road-show was closed to the media.
Baker and other attendees said they were impressed with other aspects of the presentation by Adeosun, a British-born former banker, who outlined reform plans for a country where energy comprises 70 per cent of exports.

But the naira dominated discussions, with investors unwilling to buy into it until a devaluation is past.
“We are struggling to value the naira and the message we received from the finance minister yesterday did not indicate that we should expect to see a sizeable devaluation soon,” Pinebridge Investments portfolio manager, Anders Faergeman, said.

Equity investors too are wary of additional Nigeria exposure in the absence of currency convertibility, RWC Partners’ James Johnstone said, noting the huge hit domestic growth and consumption have already taken.

The CEO of Financial Derivatives Company Limited, Mr. Bismarck Rewane, stated in his latest economic bulletin that, “the delay in releasing the details of the new forex framework is causing heightening uncertainty in the forex and capital markets.”

Foreigners held $5.4 billion of Nigerian bonds in September 2013 but dumped them after the country was ejected last year from the most widely used GBI-EM debt index.
Nigeria stocks have fallen 6.5 per cent this year despite a near-doubling in oil prices. Foreign share dealing was N34.4 billion in March, down 66 per cent from a year ago, the Nigerian Stock Exchange (NSE) revealed, and more than half of those transactions involved share sales.

And the value of capital imported into Nigeria plunged to $710.97 million in the first quarter, a 73.8 per cent decline from year-ago levels, the National Bureau of Statistics (NBS) said.
“Part of frustration of the situation is that if they did devalue, they would trigger a wave of inflows into bonds … that would bring dollars into the market,” Baker said, citing 10-year yields at a juicy 14 per cent.
President Muhammadu Buhari who spent his first year in office supporting the peg, has confused matters further by apparently giving his blessing to a flexible exchange rate but saying he remains opposed to devaluation.

Local businesses have been hit much harder by the uncertainty, with the central bank rationing dollars for imports via auctions and exporters required to sell hard currency through banks at the official rate.
That paralysis has been exacerbated by the promise of change but with little sign of it actually happening, a top executive at a Nigerian commodity exporter told Reuters in Lagos.

“We heard post-MPC a lot was going to happen. If the central bank had a plan one or two days afterwards they would have released it. Post-MPC, they have created a lot of uncertainty,” the executive said, referring to the central bank meeting.
“We know that a two-window market is coming but don’t know when. We need a bit of clarity which should come as soon as possible,” he added.

Similarly, members of Nigeria’s currency dealers’ association (FMDA) last week said CBN Governor Godwin Emefiele’s failure to detail plans showed he “does not understand the meaning of signals”.
But any transition will be a tough one. A devaluation or a removal of curbs could cause a spike in dollar demand which would torpedo the exchange rate.

Exotix economist Alan Cameron estimated the demand backlog could be as big as $3 billion, or 10 per cent of central bank reserves. That may be behind the dithering, he said.
“They have allowed this to persist for too long. The risk is they find themselves in a situation where they devalue and find themselves unable to defend the currency even at a weaker rate,” he added.