CBN Pumps $500m into FX Market, Banks Take up Only $371m

•  Sells $491m in two days as naira appreciates on parallel market
• Says request for submission of tax clearance by customers erroneous, will be corrected wednesday

Obinna Chima in Lagos and James Emejo in Abuja

In keeping with its promise to ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions, the Central Bank of Nigeria (CBN) tuesday carried out special wholesale intervention forward sales in the interbank forex market by offering $500 million.

But 23 banks were only able to take up $370,810,810.79 to meet the visible and invisible requests of the customers.

On Monday, the CBN also sold $80 million to banks to meet the demands of their customers who had applied for forex for school fees, medicals, and personal and business travel allowances, out of the $125 million uncleared backlog for invisibles.

A breakdown of the forwards indicated that $216,465,671.02 was for 30 days, while $154,345,139.77 was for 60 days.

The CBN also yesterday did spot sales of $1.5 million to four banks, totaling $6 million.

The Bank also offered $41 million for sales, of which $35 million was taken up for the payment of school fees, medical bills and personal and business travel allowances.

With the interventions on both days, the CBN sold $491.8 million to commercial banks and authorised dealers in the market.

A source at the CBN disclosed that the qualified bids for the greenback ranged from N315 to N360, adding that seven banks received full allotments of their respective bids valued at $37,500,000 each.

Other banks received allotments ranging from $46,512.50 to $15,578,081.51.

A CBN source informed THISDAY that the central bank actually offered $500 million to the banks yesterday through special wholesale intervention forward sales.

But of this amount, the banks were only able to take up $371 million at a marginal exchange rate of N315 to the dollar.

“The reason the banks could not take up the entire $500 million offered by the central bank was because of lack of naira liquidity,” the source explained.

For the $500 million on offer, forex authorised dealers were required to send their request for sums not exceeding 7.5 per cent of the amount on offer.

Confirming the wholesale intervention by the CBN yesterday, central bank spokesman, Mr. Isaac Okorafor, said the Bank’s intermediation in the forex market was the first wholesale intervention aimed at easing the pressure of access to forex by Nigerians who intend to meet obligations that fall under visible and invisible needs categories.

He further confirmed that the CBN offered $500 million for sale to the banks, but not all of them provided enough naira backing to pay fully for their respective bids.

While expressing optimism that the wholesale intervention of the CBN would substantially ease the forex pressure on visible and invisible needs of customers, Okorafor assured that the Bank would continue to make interventions based on qualified bids from the banks on the requests of their customers.

He reiterated that the central bank was more than ever ready to support the interbank market by ensuring liquidity and transparency to guarantee efficiency in the forex market.

Okorafor asked all market participants to contribute their quota and assist in ensuring that the new measures put in place by the CBN can guarantee the steadiness of the financial market, as well as the growth and development of the economy to the benefit of all Nigerians.

The CBN, after a meeting with Deposit Money Banks (DMBs) last Friday, issued new policy actions aimed at easing access to forex for personal and Business travel allowances, as well as educational and medical fees, among others.

As part of its new policy action, the CBN also directed all banks in the country to open forex retail outlets at major airports as soon as logistics permit them to do so.

The impact of the new FX policy had a positive impact on the parallel market yesterday, where the naira appreciated by N10 to close at N515 to the dollar, stronger than the N525 at which it closed on the previous day.

Before the close of business, market watchers said the naira actually appreciated to N510 to the dollar before settling at N515 over concerns that the CBN, in its circular on Monday, had asked authorised dealers to demand for tax clearance from their customers.

In line with the circular, banks were reported to have started demanding for tax clearance from their customers, resulting in added pressure on the parallel market.

However, a CBN official informed THISDAY last night that the demand for tax clearance was erroneous and would be corrected today in a revised circular to be issued on the new actions for the forex market.

He said: “The CBN is not FIRS. The inclusion of the tax clearance was a mistake and will be corrected. Our desire is to meet all genuine demand and not drive bank customers back to the parallel market.”

In addition, CBN yesterday issued operational guidelines for the special wholesale intervention forward sales for forex transactions not exceeding 60 days.

It restated that the policy was aimed at enhancing transparency and confidence in the sector.

The CBN noted that it would not apply all the provisions of Clause 2.4.3 (SMIS-Wholesale) of the revised guidelines for the operation of the Nigerian Interbank Foreign Exchange Market of June 2016 for the new window.

The CBN in a circular signed by its Director, Financial Market Department, Dr. Alvan Ikoku added that banks will not be allowed to allocate funds for customers’ letters of credit (LCs) which had already benefited from past SMIS that are yet to mature.

The circular further restricted any bank from exceeding its Net Trading Position limit at any particular time under the new FX regime.

The central bank also pegged the allowable spread between bid and offer at 50 kobo and banks will be required to open equivalent amounts of fresh LCs (confirmed or unconfirmed) for any of their customers and send evidence of such fresh LCs within a week of release of reaction results.

Among other conditions for participating under the special intervention window, the CBN also forbade multiple bid entries and insisted that all allotments be trade backed.

It warned that any bank, which fails to comply with the rules of the special wholesale window and other extant forex guidelines, will be sanctioned, including executives and other officers of the affected bank.

This came as market analysts threw their weight behind the new FX measures announced by the CBN on Monday.

The CEOs spoke in separate interviews with THISDAY yesterday.

Commenting on the action, the chief executive of Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane said the CBN was moving slowly in the right direction. “But a lot more work needs to be done.”

Rewane added: “It is commendable on the fact that they had the courage to finally understand that the naira is overvalued.

“Secondly, we must move away from multiple exchange rates. Multiple exchange rates are a recipe for round-tripping.

“There is a crisis of confidence and crisis of supply. As the crisis of supply is being dealt with, the crisis of confidence also needs to be dealt with as well and we need additional courage to do that.”

The Director General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, held the view that the new measures announced by the CBN would help address the misalignment between the official and parallel market rates.

According to the former university vice chancellor, “They (CBN) figured out that part of the problem was access to forex.

“So, if the banks open retail offices at the airports, it would facilitate access to a lot of people and it may become more transparent.

“The misalignment in the currency is causing a lot of distortions in the economy.

“But I am advising that the CBN should continue to prioritise forex access to manufacturers so that they can import raw materials and equipment.

“But in the long term, we cannot keep importing the things that we can produce here. If you look at the data, imports have reduced due to the removal of those 41 items from accessing forex.”

He stated that the improvement in forex supply in the country would help dampen the effect of rising rate of inflation.

Ekpo, however, added: “But we must all understand that Nigeria has a forex supply problem. It is not really a CBN problem. We get forex majorly by selling crude oil.

“So, we need to change the structure of our economy so that we can have other sources of earning forex. If we have a viable manufacturing sector that exports most of its products, we would have enough forex.”

Also, the chief executive of BIC Consultancy Services, Dr. Boniface Chizea, expressed optimism that the CBN would be able close the wide gap between the parallel and interbank FX markets “if and only if we meet all the demand for foreign exchange at the official window”.

He added: “Once demand is sought outside this window, it must be at a premium, even if it is from the bureau de change.

“The move to make dollars available to the banks to sell to those who demand for PTA, school fees and medicals at a rate lower than the parallel market rate, which was dangerously trending south, is a masterstroke.

“This should reduce the demand pressure at the parallel market, resulting in an appreciation which would catch some economic agents that if they are not careful they would get their fingers burnt.”