Naira Surges As Banks Swiftly Divest Excess Dollar Reserves

Naira Surges As Banks Swiftly Divest Excess Dollar Reserves

In a race against the Central Bank of Nigeria’s (CBN) midnight deadline on February 1, 2024, Deposit Money Banks (DMBs) engaged in a frenzied effort to divest themselves of surplus foreign exchange holdings…..CONTINUE READING

Treasury departments within these banks worked tirelessly throughout the day, processing numerous foreign exchange request forms and selling excess dollars to customers, resulting in a surge of forex activities at the official exchange market.

The intensified forex transactions prompted a rebound of the naira at the parallel market on Thursday. Multiple high-ranking bank executives, speaking anonymously to The PUNCH, confirmed the substantial forex dealings within the banking sector.

By 6 pm on Thursday, bank officials, particularly those in the treasury departments, were actively striving to meet the new prudential requirements imposed by the regulator. The CBN had issued a circular just a day before, mandating DMBs to dispose of their excess dollar stocks by the specified deadline and warning against hoarding foreign currencies for profit.

Expressing concern over the escalating trend of banks holding large foreign currency positions, the CBN’s circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks” aimed to mitigate risks associated with such practices. Banks with Net Open Positions (NOPs) exceeding prescribed limits were instructed to adjust their positions to comply with the new regulations by February 1, 2024.

This directive followed closely on the heels of another CBN circular, released 48 hours prior, cautioning banks and forex dealers against reporting false exchange rates. The move also coincided with adjustments in the methodology used to calculate the official exchange rate by the FMDQ Exchange, resulting in a shift from around N900/dollar to about N1,500/dollar.

In response to the CBN’s directive to unify official and parallel market rates, several banks actively sold forex to customers, contributing to a notable strengthening of the national currency in the official market. Bureau De Change operators in Lagos, Kano, and Abuja rushed to sell their dollar holdings amid concerns that the naira’s gains might persist.

The parallel market saw the naira trading between N1,300/$ and N1,350/$ in Abuja, with reports of varied rates in Lagos. Bureau De Change operators reported a significant rebound, selling the greenback for N1400/$ to N1420/$, a notable improvement from the previous day’s rates.

Bank officials, while acknowledging the impact of the circular, emphasized their commitment to meeting the new FX prudential limits and ensuring compliance with the CBN’s directives. Additionally, concerns were raised about the need for scrutiny on politicians and government officials suspected of hoarding dollars.

To enhance liquidity in the FX market, the CBN, on Wednesday, issued a circular removing the cap on exchange rates quoted by International Money Transfer Operators (IMTOs). IMTOs were instructed to make payments to customers only in Nigerian currency, using the prevailing exchange rate on the day of transfer.

As a response to the CBN’s directives, some Bureau De Change operators in Abuja closed their shops due to the unavailability of dollars. There were indications of a planned market closure on Monday, with the aim of further reducing the price of the dollar.

Contrary to claims by an official at a first-generation bank, suggesting a shortage of physical foreign notes, sources insisted that the surge observed in the CBN’s Net Open Positions was primarily electronic notes, challenging the narrative presented in the circular.