Respite Seen for Naira as CBN Intensifies Settlement of FX Backlogs

Obinna Chima

The Central Bank of Nigeria (CBN) has intensified its clearance of backlogs of foreign exchange (FX) forwards, raising hope for the strengthening of the naira in the coming days.

THISDAY gathered from a top chief executive officer of one of the leading banks that more FX forwards were cleared last week, with a promise by the apex bank that before the end of the month, a substantial amount of the outstanding FX forward obligations would have been settled.
The move, the officer stressed, had ushered in improved FX liquidity in the market. He expressed optimism that in the coming days, the naira would rebound, but warned currency speculators to desist from economic sabotage.

The bank CEO, who pleaded to remain anonymous, said, “For the smaller Nigerian banks and the foreign banks, the CBN cleared not less than 80 per cent of their FX forwards. But for the big Nigerian banks, they just started clearing ours and the central bank has cleared about five to 10 per cent of the FX forwards.
“The plan is that in the next two weeks, they would clear 30 per cent for the big banks. So, they are injecting liquidity into the system and there is a scheme of arrangement to take care of the balance.

“The banks are happy and this has certainly started driving up confidence and we are certain that in the coming days, FX speculators would lose their shirts.
“Realistically, the naira should be trading between N700 and N800/$ if not for the activities of those that are pushing the speculative attack on the naira. So, I am telling them to be careful and they must desist from such act.”

The officer expressed confidence that as the federal government took steps to block leakages in the economy, especially as they addressed issues around crude oil theft and with improved coordination between the fiscal and monetary policy authorities, FX supply in the country would continue to improve.
The naira closed at N1,110 to a dollar on the parallel market yesterday. Market analysts are optimistic that with the improved FX inflow, the naira versus dollar exchange rate would appreciate in the coming days.

The CBN, about 10 days ago, started clearing backlogs of FX forward contracts through some banks as part of efforts to rebuild confidence in the Nigerian economy.
An FX forward contract is a bilateral agreement where one party (the seller) agrees to sell FX to another party (the buyer) at a predetermined settlement date in the future and at a strike price, which is fixed at the time of entering into the contract. It is also a binding contract in the FX market that locks in the exchange rate for the purchase or sale of a currency on a future date.

Minister of Finance and Coordinating Minister of the Economy, Olawale Edun, had disclosed that up to $6.8 billion of overdue forward payments in FX needed to be addressed before the naira could stabilise. Edun noted that resolving the overdue contracts would allow the naira to strengthen and “pave the way for additional foreign exchange flows.”

He said, “The issue we have now is that the market is not liquid enough.”
Edun added, “We are committed to encouraging liquidity based on reforms that have been made at the moment, on the fiscal side and the monetary side. And together with the restoration of trust and confidence we think the FX flows will return.”

The CBN governor, Mr. Olayemi Cardoso, had also said, “We are aware that there are unsettled obligations by the CBN. Whether it is $4 billion, $5 billion or $7 billion, I don’t know, but definitely the immediate priority is to ascertain the extent.
“We need to find a way to take care of that. It will be naive for us to be expecting to succeed if we are not able to handle that side of the foreign exchange market.”