Dele Oye: CBN’s Reluctance to Settle Matured FX Forwards’ Breach of Contract

As the non-settlement of matured Foreign Exchange (FX) forwards by the Central Bank of Nigeria (CBN), continue to stoke interests among stakeholders, particularly Nigerian corporates and SMEs,  the National President, Nigerian Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA), Mr. Dele Oye, has further sounded the alarm that the development was dangerous for the economy.  In this exclusive chat with James Emejo, he said the association had been doing a lot to save the situation on behalf of its members, by  engaging with the Central Bank, the Federal Ministry of Finance and the National Assembly on the matter. Among other things, he pointed out that the CBN’s failure to honour its commitments had put enormous financial strain on affected companies and damaged their reputations with international trading partners. He also hinted that the development could have legal and constitution repercussions for the apex bank. Excepts

Sir, a lot of  your members currently have a running battle with the Central Bank of Nigeria (CBN) over their outstanding FX forward transactions which are deemed mature for payment. What is NACCIMA doing to ensure that these liabilities are cleared?

NACCIMA has been proactive in addressing the issue of outstanding FX forwards. We have engaged in rigorous advocacy, urging the CBN Governor to reconsider their stance for several reasons.

First, the lack of fair hearing.  Now, the CBN’s decisions lack procedural fairness. The affected companies were neither issued queries nor given an opportunity to respond to the findings before conclusions were drawn.

Secondly, there is a unilateral breach of contract. The CBN’s appointment of Deloitte and subsequent actions without involving the companies breach contractual agreements. Such unilateral decisions are null and void, infringing on the companies’ right to fair hearing.

Again, there are legal and constitutional concerns.  NACCIMA has communicated that the CBN’s current position is legally untenable. We have escalated the matter to the Hon. Minister of Finance, the Hon. Minister of Industry, Trade and Investment, and the House Committee on SME at the National Assembly, highlighting the unconstitutional nature of the CBN’s actions.

SMEs are indisputably catalysts for economic growth. However, given the unresolved FX scenario, what is the fate of the sector?

The unresolved FX scenario is devastating for SMEs, which are crucial for economic growth. The uncertainty and financial strain are stifling their potential, leading to business closures and stunted economic development.

Looking at the larger picture, what economic impact does this portend?

The economic impact is vast and multifaceted, affecting almost every sector. The size of the transactions and the number of companies involved necessitate urgent intervention. Asking the banks and the affected companies to report to the nearest efcc office for clearance without any prior invitation is not a viable solution. The President should step in to ensure a swift resolution.

How has this development impacted businesses, particularly the cash flow, operational efficiency, and their overall financial health?

The non-payment of FX forwards has severely crippled the affected companies, pushing many towards bankruptcy. The businesses and banks involved are now burdened with exorbitant interest rates, averaging over 35 per cent. This financial strain has damaged their reputations and strained relationships with international trading partners, who are perplexed by the CBN’s failure to honour its commitments. The CBN’s actions have eroded trust and credibility, significantly harming Nigeria’s financial standing on the global stage.

What are the broader economic implications of the forward liabilities, especially their potential impact on inflation, foreign investment, and the exchange rate?

Well, the broader economic implications are dire. One is erosion of reputation. The reputation of Nigerian companies with their trading partners has been severely damaged. Again, the companies face immense financial pressures, threatening their continued operations.

In addition, banks’ reputation and financial health have been adversely affected.

Interestingly, if the issue is not resolved amicably, forcing companies to settle at current exchange rates could lead to a further crash in the value of the Naira, as the market cannot sustain such a massive demand for US dollars. Also, the inability of companies to absorb the exchange rate differences and loan interests could lead to widespread bankruptcies, exacerbating economic instability.

How much damage has this done to investor confidence in the Nigerian economy, and how could the situation be remedied?

Thank you. The delay has severely undermined investor confidence. The CBN must resolve this issue promptly to prevent further reputational damage. Restoring confidence requires transparent communication. The CBN should communicate directly with each affected company, providing specific details and resolutions. Upholding international financial commitments is crucial to maintain credibility. Also,  ensuring consistency and predictability in financial policies will help restore investor trust.

Given that these forward transactions occurred between 2022 and 2023, what does this delayed settlement portend for the reputation of the apex bank?

The CBN’s reputation has been severely tarnished. Reneging on financial commitments involving international parties is a significant embarrassment, damaging the institution’s credibility both locally and globally.

At a period when the country is facing unemployment challenges, what does the non-settlement of forwards mean?

The non-settlement of FX forwards exacerbates unemployment issues. Affected companies are unable to optimise or expand operations, leading to closures and downsizing. This results in significant job losses, further aggravating the country’s unemployment crisis.