To Boost Liquidity, Rates’ Convergence, Others, CBN Unveils Guidelines for FX Deposit by Banks

*Imposes 0.30% handling charge 

*Stock market gains N15.68tn in first half of 2024

James Emejo, Emmanuel Addeh in Abuja and Kayode Tokede in Lagos

Citing the need to deepen the foreign exchange (FX) market, boost liquidity and attain convergence in exchange rates between the parallel and official markets, the Central Bank of Nigeria (CBN) has approved that banks may deposit their excess foreign currency notes with its Lagos and Abuja branches.

This comes as data compiled by THISDAY showed that despite FX volatility, soaring inflation rate, the Nigerian stock market appreciated by N15.68 trillion in the first half of (H1) 2024 as investors continued to invest in blue-chip companies.

The central bank stated that the approval of FX deposit at its branches was sequel to the increasing demand by banks to deposit their FX cash with the CBN for onward credit to their off-shore accounts with the correspondent banks.
The new directive which becomes effective immediately is contained in a circular issued yesterday, and signed by acting CBN Director, Currency Operations Department, Solaja Olayemi, addressed to all banks, a copy of which was posted on its website.

The framework mandates banks to give at least three working days’ notice of their intent to deposit forex cash, in writing to the Branch Controller, CBN Lagos or/and Abuja, adding that this must be accompanied by the list of owners of foreign currency to be deposited.
The CBN also requested that all deposits must be within a maximum limit of $10 million consisting higher bills of $100 and $50 per day while the lower bills including $20 and below must not exceed $1 million.

In addition, British Pound Sterling (GBP) and Euro cash have maximum limits of £1 million and €1 million respectively.
The CBN further stated that two representatives of the depositing bank must be present to witness and confirm the amount to be deposited.
The circular stressed that the deposits may be in $100, $50, $20, $10, $5, $1 and all GBP and EURO denominations – adding that each denomination shall be in separate boxes.

The revised guidelines also mandates deposit money banks (DMBs) to engage the services of only CBN-registered CIT companies for deposits of foreign currency notes, noting that the time for accepting deposits shall be between 8 a.m and 12 p.m.
The apex bank further clarified that Abuja and Lagos branches would receive, count and authenticate such deposits in the presence of the representatives of the depositing bank on the same day.

The bank shall credit the DMBs account through their offshore correspondent bank within the cycle time of T+5.
Also, the handling charge of 0.30 per cent of the authenticated amount shall be recovered from the DMBs current account with CBN.
The CBN however, warned that it  would not accept forex deposits from any DMB that fails to comply with any of the guidelines.

Meanwhile, the Nigerian stock market appreciated by N15.68 trillion in the first half of (H1) 2024 as investors continued to invest in blue-chip companies.
THISDAY checks revealed that the NGX market capitalisation closed yesterday, the last trading day for H1 2024 at N56.601 trillion, representing about N15.68 trillion or 38.3 per cent gain in investors’ net returns in H1 2024, from the N40.918 trillion the stock market opened for trading this year.
Consequently, the NGX All-Share Index closed June at 100,057.49 basis points, about 25,283.72 basis points or 33.8per cent from 74,773.77 basis points the stock market closed for trading in 2023.      

The reported 33.8 per cent year-to-date (YtD) gain in NGX ASI means the Nigerian stock market still maintain its position as the best Exchange in Africa.  
Commenting on the stock market performance in H1 2024, the Vice President, Highcap Securities Limited, Mr. David Adonri, stated that investors were still trading based on sentiment.
Adonri, was optimistic that the stock may maintain its positive momentum in H2 2024, on the backdrop of banking sector recapitalisation and expected H1 2024 corporate earnings by most especially the banks listed on the Exchange.  

Amid hike in Monetary Policy Rate to 26.25 per cent, capital market experts stated that its impact has created sentiment trading among investors who see fixed-income market as alternative investment opportunity to hedge against double-digit inflation.
Responding also, an Investment Banker & Stockbroker, Mr. Tajudeen Olayinka, stated that the N15.68 trillion market capitalisation gain in the first half of 2024 tells us the presence of huge liquid funds in the hands of institutional investors who currently dominate activities in the stock market.

“It also holds the fact that the future is brighter for some of the listed companies, hence, investors are positioning their portfolios for that brighter future. This is also the reason market remains resilient in spite of high interest rate regime,” he said.
On the stock market projection for H2 2024, he said, “the second half of the year may be a bit challenging for a rapid price movement, given a catalogue of offers from banks raising fresh capital to meet the new capital requirements for banks.

In the meantime, the naira weakened for a ninth straight day against the dollar yesterday, making it the worst-performing currency in the first half as a steep devaluation, insufficient dollar liquidity and market volatility hampered efforts to stem its rout.
It weakened 0.2 per cent to 1,510 per dollar by the close a day earlier, FMDQ data compiled by Bloomberg showed. The losing streak is the longest since July 2017 and takes the decline since the start of the year to 40 per cent.
The naira’s performance was the worst among global currencies tracked by Bloomberg beside that of the pound in Lebanon, which is undergoing an economic crisis and witnessing dollarisation.

“While the naira is undervalued and has seen significant adjustment, the supply of dollars needs to improve for the currency to be supported,” head of Africa strategy at Standard Chartered Bank Plc in London, Samir Gadio, said by email.
 “Portfolio inflows have yet to pick up, even amid still-attractive local rates,” he added.
Nigeria has faced years of acute foreign-exchange scarcity and instability arising from lower crude production and a lack of economic diversification.
The local unit has lost about 70 per cent of its value against the dollar since June 2023, when President Bola Tinubu’s government introduced policy changes to lure inflows to help revive the economy, Bloomberg said.

The currency was volatile between mid-April and May due to the imbalance between demand and supply for the greenback, before the swings moderated in June on an improvement in dollar inflows.
Central bank Governor Olayemi Cardoso, said this week that the lender believes the currency’s volatility may be a thing of the past and will work to promote investor confidence.
Since assuming office in September, he has increased interest rates by 750 basis points to 26.25 per cent, cleared a foreign-exchange backlog and negotiated multilateral dollar inflows to help prop up the currency.

Besides the naira, Egypt’s pound and Ghana’s cedi were the world’s other worst performers in the first half.

“Adjustment and rebalancing in 2024 after years of a heavily managed and misaligned currency regime,” account for the currencies weakening, Gadio said.

 For the naira, “what will matter going forward is whether it can stabilise on improving foreign-exchange inflows and perhaps see some appreciation,” he stressed.