TSA: Nine Banks Barred from Forex Market, CEOs Appeal

•  UBA complies, others ask CBN to sell them dollars to return NNPC/NLNG funds
• More sanctions loom over transfer of FX free funds

The Central Bank of Nigeria (CBN) on Tuesday barred nine banks from participating in the foreign exchange market for failing to return a total of $2.334 billion of Nigerian National Petroleum Corporation (NNPC)/Nigerian Liquefied Natural Gas (NLNG) Company dollar deposits to the federal government’s Treasury Single Account (TSA) domiciled with the central bank, as directed by the presidency last year.

In addition to suspending them from the FX market, the affected banks, according to industry sources, still face the prospect of further financial fines, which shall be communicated to them by the CBN in the coming days, THISDAY learnt.

As exclusively reported by THISDAY tuesday afternoon, the affected banks, whose suspension would remain in force until they remit all the funds to the TSA, are the United Bank for Africa (UBA) Plc – $530 million, First Bank of Nigeria (FBN) Ltd. – $469 million, Diamond Bank Plc – $287 million, Sterling Bank Plc – $269 million, Skye Bank Plc -$221 million, Fidelity Bank Plc – $209 million, Keystone Bank Ltd. – $139 million, First City Monument Bank (FCMB) Ltd. – $125 million, and Heritage Bank Limited – $85.5 million.

However, the executives of the affected banks have appealed the sanction by the central bank, explaining that the remittances were delayed by the dollar illiquidity in the system and the CBN should sell them the dollars by debiting their accounts so that the respective amounts can be returned to the TSA.

UBA, nonetheless, not wanting to take any chances, immediately complied with the CBN directive by transferring the NNPC/NLNG dollar deposits domiciled with it to the TSA.

UBA, sources revealed, was able to achieve this yesterday by asking the CBN to net off the federal government’s indebtedness to the bank which exceeded $450 million, thus enabling the bank to return the balance last night.

However, a CBN source said they were yet to get confirmation of UBA’s transfer, perhaps owing to the time it was sent, but would confirm the payment today.

Since the September 15, 2015 deadline set by the federal government for all accounts of ministries, departments and agencies (MDAs) with commercial banks to be closed and remitted to the TSA, the central bank has imposed hefty fines on erring banks for non-compliance.

First to face the ire of the central bank last November were FirstBank and UBA, which were respectively forced to cough up N1,877,409,905.12 and N2,942,189,651.45. The penalties represented five per cent of the unremitted funds.

Two weeks later, Skye Bank Plc came under the regulator’s hammer, when it was hit with a N4 billion fine, representing 10 per cent of the funds belonging to MDAs.
Other banks that paid fines for TSA infractions last year were Zenith Bank Plc (N60.1m), Guaranty Trust Bank Plc (N60.05m) and Sterling Bank (N13m).

Banks React

Reacting to the latest sanction, UBA in a terse statement last night said it had completely remitted all NNPC/NLNG funds to the TSA.
A statement by the bank’s spokesman, Mr. Charles Aigbe, said: “Our attention has been drawn to report of the ban of UBA from the foreign exchange market by the CBN over the non-remittance of NNPC/NLNG dollar deposits.

“We wish to state very categorically that UBA has completely remitted all NNPC/NLNG dollar deposits.
“We thank all our numerous customers, business partners and other stakeholders who have reached out to us on account of this report.”

UBA was however silent on when exactly it returned all dollar deposits belonging to NNPC/NLNG to the CBN.
Also, in their reactions, the Head of Corporate Communications at FCMB, Mr. Diran Olojo, and his counterpart at Skye Bank, Mr. Nduneche Ezurike, assured customers and stakeholders of the banks that the matter would be resolved.

Similarly, the spokesperson of Diamond Bank, Mrs. Ayona Trimmel, assured the bank’s customers that the matter was being resolved.

She explained that since October last year, Diamond Bank had refunded $700 million to the TSA, adding that full remittances of the balance of $287 million had been hampered by the dollar scarcity in the financial system.

“Diamond Bank is fully in a position to pay the naira equivalent and will comply with the CBN directive on the outstanding dollar amount promptly,” she said.

A senior executive officer of one of the affected banks, who spoke with THISDAY on the condition of anonymity, further explained that the failure of the financial institutions to comply was as a result of the on-going restructuring of oil and gas loans.

It was gathered that there was a meeting between the CBN and the affected banks last night on how to resolve the matter.

An official of Fidelity Bank also told THISDAY that his bank had been complying with a repayment schedule agreed with NNPC.
“We got a repayment schedule which we have been meeting. Our original indebtedness was about $500 million and it was only in June we were unable to make a refund based on the schedule due to the dollar scarcity,” he explained.

CEOs Appeal

However, two bank chief executives who spoke to THISDAY last night expressed concern over the decision to suspend the banks from the official FX market, cautioning that this could have unexpected consequences on the financial system and increase pressure on the parallel market, where the nine banks would be forced to turn to source their dollar requirements.

One bank CEO, who preferred not to be named, said: “While we are not fighting the government in its wisdom for setting up the TSA, but we should be given time to refund the outstanding amounts, because most of these funds were loaned to the power sector during the privatisation programme, as well as the oil and gas sector.

“For one, most of the power companies are not in a position to repay their loans because of the Niger Delta crisis, the non-availability of gas, transmission problems, and the huge indebtedness of government MDAs to the electricity distribution companies (DISCOs).

“Also, several of the oil and gas sector loans were given to the international oil companies (IOCs) to cover the gap arising from the federal government’s failure to pay its cash call arrears.
“So if the government can fund its cash calls obligations, the IOCs will be able to pay us back and we in turn can refund to the TSA.”

Another CEO of one of the affected banks said the bank would need more time to readjust their risk assets, adding: “We all have the naira to pay back but due to dollar illiquidity, it will be hard to do so immediately.”

He suggested that the CBN provides the nine banks with the dollars to pay back, saying: “If the CBN gives us the dollars tomorrow, we will pay.”

One market analyst also wondered why the same CBN which forced the states to restructure their loans to 20-year tenures has now turned round to ask the banks to repay the dollar deposits in 24 hours.

“If the CBN could help the states restructure their loans, the banks should also be given the same chance to do so to avoid any unintended consequences,” he said.

He said that it also did not make sense for the CBN to insist that the NNPC/NLNG dollar deposits be refunded because they would have to be domiciled with the JP Morgan overseas, where all of Nigeria’s foreign reserves and dollar deposits are domiciled.

“I do not understand the benefit of taking dollars from Nigerian banks and sending them abroad to the CBN’s account with JP Morgan. This will be counterproductive because under Chukwuma Soludo’s headship of the central bank, he introduced a policy that enabled some of the dollar deposits belonging to MDAs to be kept with Nigerian banks.

“This was done to grow their balance sheets, enable them to meet their foreign obligations and fund Letters of Credit (LCs), and this policy was continued by Sanusi.
“So by asking the banks to refund the dollar deposits to the TSA, the government must understand that the CBN does not domicile dollars and will have to export it to JP Morgan abroad, effectively strengthening those banks and weakening Nigerian banks,” he said.

In their review of the matter, Lagos-based CSL Stockbrokers Limited in a note yesterday said that most of the banks they spoke to blamed their inability to comply on the tight dollar supply in the system.

“Judging from a similar event last year when three banks (FBN, Skye and UBA) were fined for non-compliance with TSA, we believe the CBN may impose various fines on these banks as a disciplinary action.
“Of greater concern to us is the ability of these banks to remit these funds given the illiquidity in the market,” CSL added.

Furthermore, the investment firm pointed out that the inability to remit these funds would mean staying away from all FX transactions for an extended period, adding that the inability to participate in all FX transactions, among many other implications, would mean the loss of FX trading income for the period of the suspension; inability to carry out trade services as Letters of Credit (LCs) cannot be opened and this also implies loss of fee and commission income from such transactions; and the potential loss of customers.

“Though it is most unlikely that these banks will resort to the parallel market to get these funds given the huge losses that it would involve, the inability to access the official FX market may imply that the banks meet their immediate dollar obligations from the parallel market and this may mean a further hike in parallel market rates,” the firm added.

More Sanctions Loom

Meanwhile, the CBN is currently investigating the activities of exporters and banks that aid them in carrying out illicit FX transfers under the guise of free funds.

Free funds is a term used by banks that aid illicit transfer of funds for FX recipients that sell foreign currencies to buyers who do so without providing documentation in breach of CBN regulations requiring all users of FX to do so.

According to banking sources, the implication of dealing in free funds is that the official FX market is deprived of liquidity, thereby limiting FX supply to the market.

The CBN recently issued a circular forbidding banks from conducting free funds transactions for exporters.
It is estimated that by the illicit activities, the FX market is currently deprived of up to $6 billion annually, said an industry source, adding that in an environment of FX scarcity, the central bank intends to curb the activities of illicit exporters in the country.

This investigation, he explained, was triggered after CBN’s discovery that the inflow of FX proceeds by exporters had dropped drastically.

He said: “In order to rein in exporters, the CBN is in the process of strengthening its export regulations by forbidding exporters using Bills of Collection and open accounts in conducting their export businesses.”

Investigations by THISDAY further revealed that some exporters recently perfected a scheme that would enable them export goods from the country without documenting the transactions.

This is done with the aid of some unscrupulous customs officials at the country’s export terminals who deliberately allow the export of goods without documentation.
Investigations also revealed that large exporters, particularly those owned by foreigners, are involved in this scam.

The source disclosed that large quantities of cocoa, hides and skin, cashew and Gum Arabic are exported through these illegal channels without documentation by the exporters.