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  • Allow margin loans for investors to buybanks’ shares, stockbrokers urge CBN

    Allow margin loans for investors to buybanks’ shares, stockbrokers urge CBN

    Stockbrokers have urged the Central Bank of Nigeria (CBN) to allow the shares and other securities of publicly listed banks as marginable securities, which enables investors to take loans specifically for purchase of shares.

    Stockbrokers, under the auspices of Chartered Institute of Stockbrokers (CIS), said while the capital market has the capacity to support the ongoing recapitalisation of banks as directed by the apex bank, the market will not be able to reach its full potential without modern practices like margin lending.

    The stockbrokers spoke during a visit by the leadership of the CIS to the CBN Governor, Dr. Olayemi Cardoso in Lagos.

    President, Chartered Institute of Stockbrokers (CIS), Mr Oluwole Adeosun, urged the apex bank to take some strategic initiatives to bolster financial intermediation roles of stockbrokers and boost transactions in the Nigerian securities market.

    “The Nigerian capital market, has the capacity to support the recapitalization exercise. It was amply demonstrated during the indigenisation a far back as 1972 and successive banking sector recapitalisation programmes over the years up till the last major banking recapitalisation exercise between 2004 and 2006.

    “As we did in the last exercise as issuing houses, financial advisers and stockbrokers to the capital issues amongst others and with technology and new subscription channels like mobile apps, the current exercise should record even greater success and bring in more and younger Nigerians into the investment community.

    “We request that securities of publicly listed banks should be allowed as marginable securities as long as these securities pass the “Criteria for Determining Marginable Securities” test. Margin lending drives the growth of capital markets in the advanced countries by enabling investors to acquire securities in excess of their direct savings within a regulated market framework.

    “Our market will not be able to match the required growth rate if investors remain restricted to just their own funds for investments. Our perspective is that bank stocks be allowed, but a specific borrower should not invest in the shares of the bank that gave them the margin loan. The banking sector is one of the most active sectors in the Nigerian stock market and the first choice for most investors’ portfolios,” Adeosun said.

    He pointed out that pension funds are globally the foundational base that drive sustainable liquidity for the local equity market.

    He however noted that while the Pension Act permits the Pension Fund Administrators to invest up to 25 per cent of their pension assets in the equity arm of the capital market, only about 10 per cent of the funds are invested in the equity market, despite the enhanced regulation, investor protection, and high return in the market.

    Read Also: CBN sells $10,000 to each BDC at N1,021/$

    “Given the critical role of pension fund investment in galvanizing liquidity in the domestic equity market, Pension Fund Administrators (PFAs) should be investing a substantially higher proportion of their funds on equities. We, therefore, seek the support of the CBN to engage with PenCom in this regard,” Adeosun said.

    While applauding the appointment of senior stockbrokers in some key positions in the economy by the federal government, Adeosun said stockbroking firms required some supports from CBN to enable them operate optimally and attract more participants into the market.

    He noted that Cardoso has been a long-standing member of the institute and affirmed the capacity and willingness of stockbrokers to support the recapitalisation of banks.

    Responding, Cardoso appreciated the visit and assured the institute that all the issues raised would be looked at dispassionately.

    He assured that he would establish an enduring institutionalised structure.

    The newly launched book of CIS, titled: “History of The Nigerian Capital Market was presented to Cardoso. Adeosun was accompanied on the visit by other office holders and five past presidents.

  • CBN sells $10,000 to each BDC at N1,021/$

    CBN sells $10,000 to each BDC at N1,021/$

    The Central Bank of Nigeria (CBN) has announced the sale of $10,000 to each licensed Bureau De Change (BDC) operator nationwide. This marks the second such intervention this month by the apex bank.

    In a circular addressed to the President of the Association of Bureau De Change Operators (ABCON), the CBN outlined the details of the intervention. BDCs will be able to purchase dollars at the rate of N1,021 per dollar.

    They are then authorized to sell this forex to eligible end users at a maximum spread of 1.5 percent above the purchase price, translating to a maximum selling price of N1,036.15 per dollar.

    On the 8th of April 2024, the CBN sold $10,000 FX to each of the 1,588 participating BDC at a fixed rate of N1101 per US dollar at a spread capped at 1.5 percent above the purchase price from the CBN (approximately N1,116.15 per dollar). This limited the potential profit BDCs could make on each transaction

    Read Also: The APC governorship primary in Ondo

    The latest circular has instructed all eligible BDCs to commence immediate payment of the Naira equivalent for their allocated $10,000 into designated CBN Naira Deposit Accounts.

    This deposit must be accompanied by the submission of necessary documentation to facilitate the disbursement of forex at respective CBN branches.

    The latest intervention by the CBN is likely to be met with cautious optimism by market participants. The continued injection of US dollars into the BDC segment aims to improve access to forex for legitimate transactions, potentially alleviating some pressure on the parallel market.

    However, the effectiveness of this strategy hinges on several factors: the extent to which the allocated amount meets the current demand for forex remains to be seen; strict adherence to the stipulated maximum selling price by BDCs is crucial for ensuring transparency and preventing market distortions; and while stop-gap measures like these can provide temporary relief, addressing the underlying causes of forex scarcity is essential for achieving long-term market stability.

    The CBN’s recent actions since February 2024 highlight its ongoing efforts to manage forex liquidity and ensure the smooth functioning of the foreign exchange market. The success of this strategy will depend on continued monitoring, adjustments as needed, and fostering a more market-driven approach to forex allocation in the long run.

  • JUST IN: CBN Injects fresh Dollars into BDCs at N1,021/$1

    JUST IN: CBN Injects fresh Dollars into BDCs at N1,021/$1

    The Central Bank of Nigeria (CBN) has announced the sale of $10,000 to each licensed Bureau De Change (BDC) operator nationwide.

    This marks the second such intervention this month by the apex bank.

    In a circular addressed to the president of the Association of Bureau De Change Operators (ABCON), the CBN outlined the details of the intervention.

    BDCs will be able to purchase dollars at the rate of N1,021 per dollar.

    They are, therefore, authorized to sell this forex to eligible end users at a maximum spread of 1.5 percent above the purchase price, translating to a maximum selling price of N1,036.15 per dollar.

    On the 8th of April 2024, the CBN sold $10,000 FX to each of the 1,588 participating BDCs at a fixed rate of N1101 per US dollar at a spread capped at 1.5 percent above the purchase price from the CBN (approximately N1,116.15 per dollar). This limited the potential profit BDCs could make on each transaction

    The latest circular has instructed all eligible BDCs to commence immediate payment of the Naira equivalent for their allocated $10,000 into designated CBN Naira Deposit Accounts.

    This deposit must be accompanied by the submission of necessary documentation to facilitate the disbursement of forex at respective CBN branches.

    The latest intervention by the CBN is likely to be met with cautious optimism by market participants. The continued injection of US dollars into the BDC segment aims to improve access to forex for legitimate transactions, potentially alleviating some pressure on the parallel market.

    Read Also: CBN boosts sustainable banks’ lending

    However, the effectiveness of this strategy hinges on several factors: the extent to which the allocated amount meets the current demand for forex remains to be seen; strict adherence to the stipulated maximum selling price by BDCs is crucial for ensuring transparency and preventing market distortions; and while stop-gap measures like these can provide temporary relief, addressing the underlying causes of FX scarcity is essential for achieving long-term market stability.

    The CBN’s recent actions since February 2024 highlight its ongoing efforts to manage forex liquidity and ensure the smooth functioning of the foreign exchange market.

    The success of this strategy will depend on continued monitoring, adjustments as needed, and fostering a more market-driven approach to FX allocation in the long run.

  • CBN boosts sustainable banks’ lending

    CBN boosts sustainable banks’ lending

    • LDR reduction to safeguard banks

    The Central Bank of Nigeria (CBN) yesterday indirectly enhanced the ability of banks to provide healthier credits without necessarily exposing themselves to higher risks, in line with the ongoing regulatory stance of the apex bank.

    In a circular to commercial banks, the apex bank in a circular titled: “Re: Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy” announced a scale down of the Loans to Deposits Rate (LDR) by 15 percentage points from 65 per cent to 50 per cent.

    Analysts said the new policy measure reduces banks’ exposure to liquidity risks while enhancing their ability to optimize their loans.

    The apex bank stated in the circular, signed by the Acting Director of Banking Supervision, Adetona Adedeji, that the review was to “align with the current monetary tightening”.

    According to the apex bank, the review followed the shift in the CBN’s policy stance towards a more contractionary approach.

    Read Also; Tinubu’s economic reforms yielding results, says Alake

    “Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50 per cent, in a similar proportion to the increase in the cash reserve requirement (CRR) rate for banks. All deposit money banks (DMBs) are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.

    “While DMBS are encouraged to maintain strong risk management practices regarding their lending operations, the CBN shall continue to monitor compliance, review market developments, and make alterations in the LDR as it deems appropriate,” CBN stated.

    The previous CBN administration had on July 3, 2019 increased banks’ LDR to 60 per cent from 57 per cent. The LDR was further raised to 65 per cent in January 2020.

    Professor of Economics, Olabisi Onabanjo University, Ago Iwoye, Prof. Sheriffdeen Tella, said the increase could lead to increased lending.

    “It will give banks opportunity to create more money for lending,” Tella said.

    Explaining the implications of the yesterday’s LDR review, analysts at Afrinvest said the downward review would enable the banks to optimize their deposits in a more sustainable way.

    “In our view, this downward review of LDR allows banks comply with the 45.0 per cent CRR directive, and eases off pressure on the lenders considering the restrictive nature of other CBN directives including the Net Open Position (NOP) ceiling of 20.0 per cent short and 0.0 per cent long.

    “Thus, we believe this policy would enhance ability of banks to sweat out assets without creating unnecessary risks,” Afrinvest stated.

    Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the reduction was in the right direction given the current policy reforms and challenges being faced by banks.

    “The recent tightening measures by the Monetary Policy Committee (MPC) and the CBN has meant some banks are probably already struggling with liquidity with a significant portion locked up in the form of CRR. Some will struggle to maintain the 65 per cent LDR in the first place, so it’s sensible for it to be reviewed downwards to a level that is reasonable given the change in regulatory policy stance. This however is unlikely to mean bank credit levels will increase over the short term,” Amolegbe said.

    President, Association of Capital Market Academics, Professor Uche Uwaleke,  said the review was consistent with the CBN’s tightening policy.

    ” The implication is that lending to the real sector is reduced, borrowing costs will further go up and output growth may be adversely affected,” Uwaleke said.

    Analysts noted that excessively high LDR exposes banks to liquidity challenge and could impair the ability of the banking sector to operate sufficiently in the event of unexpected challenges.

    A study: “Measuring the Impact of Loan-to-Deposit Ratio (LDR) on Banks’ Liquidity in Nigeria”, published by the CBN established that excessively high LDR may reduce banks’ liquidity.

    The study found that increasing LDR beyond 70.0 per cent may impact banks’ liquidity negatively.

    The study also confirmed “a direct relationship” between LDR and inflation.

    “The findings conform to a priori expectations as higher LDRs translate to increases in lending by banks’ which could boost output and ultimately cause a spike in inflation. The study emphasises the importance of caution by not increasing the LDR above 70.0 per cent, as this could cause excessive credit growth, increased inflation, and erosion of banks’ liquidity,” the report stated.

  • CBN not defending naira with Foreign Reserves, says Cardoso

    CBN not defending naira with Foreign Reserves, says Cardoso

    The Central Bank of Nigeria (CBN) is not defending the naira with foreign reserves, its Governor Olayemi Cardoso, said yesterday at the ongoing Spring Meetings of the International Monetary Fund (IMF)/World Bank in Washington DC.

    Cardoso said: “Defending the naira seems to be a prevalent theme. Let me be very clear: it is not our intention to defend the naira.”

    He acknowledged recent discussions on declining reserves, but argued that “defending the naira goes against our core philosophy and policy. We want a naira that performs based on market forces, as long as we have a vibrant foreign exchange market.”

    Cardoso, who acknowledged the past reliance on Bureau De Change (BDCs) to meet forex needs for essential purposes, like education and travel, said the bank has shifted towards a market-driven approach.

     “The recent changes in our reserves are not for defending the naira”, the CBN boss clarified, adding “they are for settling obligations that were due. After all, that’s the primary purpose of holding foreign reserves.”

    Read Also: Cardoso and renewed hope in the CBN

    He highlighted the importance of collaboration with the federal government, particularly regarding fiscal policy. “Monetary policy is just one side of the coin. We need a strong handshake with the fiscal authorities he stated.”

    The governor pointed out to specific examples of cooperation, such as advocating for the release of fertilizer reserves held by the previous administration to enhance food production and address food inflation, which he acknowledged falls outside the direct purview of the CBN.

    “The issue of Ways and Means [borrowing by the government from the CBN] is no longer an issue,” Cardoso declared, indicating a key point of contention has been addressed.

    The CBN governor defended his decision to embrace orthodox central banking practices, which included a substantial interest rate hike of 600 basis points within a short period. He acknowledged the difficulty of the decision but insisted that it is necessary to build confidence in the naira.

    Cardoso pledged increased communication with Nigerians and stakeholders to manage expectations.

    “We want Nigerians to be realistic. The Monetary Policy Committee (MPC) has consistently explained the rationale behind our actions,” the CBN boss asserted.

    He promised to strengthen communication channels and utilize various platforms to improve transparency.

    Expressed satisfaction with the early results of his policies, he said: “Within two months of taking office, the naira was considered the worst performing currency globally. Within six months, it became the best performing.”

    Cardoso stressed the importance of trust in achieving policy objectives.

    “Boldness alone is not enough,” he cautioned, adding that “without trust, even the most well-intentioned policies will underperform. There seems to be a disconnect between public expectations and the realities of what the CBN can achieve.”

  • NIPSS seeks CBN collaboration for 12% GDP growth

    NIPSS seeks CBN collaboration for 12% GDP growth

    Nigeria’s foremost policy think-tank, the National Institute for Policy and Strategic Studies (NIPSS), has urged Central Bank of Nigeria (CBN) leadership to achieve a 12 percent annual GDP growth over the next five years.

    Professor Ayo Omotayo, Director-General of NIPSS, made the call during a visit to the CBN by participants of the institute’s Senior Executive Course Programme, Study Group 6.

    Omotayo said: “We at NIPSS believe that we can do 12 percent growth of our economy, GDP growth, year in and year out for the next five years if we are serious about it. If it’s going to work the CBN is very critical in ensuring that it works, a whole lot of what is going to happen in Nigeria in the next five years depends on how successful CBN drives everything.”

    The NIPSS director general added: “CBN for us at NIPSS is like the man holding the screwdriver, he has a whole lot of screws, a whole lot of things it can screw together because he is the only one that holds the screwdriver.

    Professor Omotayo stated: “We at the Institute believe that the CBN, because of its own regulatory role has a whole lot of importance on the matter of the digital economy, after everything runs digitally we need to be able to pay people digitally, move money digitally, we are asking ourselves that how many things can we move digitally. The more of our activities we can put in digital format, the more we get the opportunity to provide access to a whole lot of the 120 million active Nigerians.

    NIPSS he said came to the CBN to seek to understand how digitalization can drive financial inclusion for all Nigerians, considering existing literacy challenges and out-of-school children. Professor Omotayo envisioned a future where “almost every service can be delivered digitally,” including healthcare. He presented a thought-provoking scenario where medicine purchases could be linked to a user’s phone and even pharmacology delivered electronically.

    Read Also: How I collected $3m cash for Emefiele – CBN employee

    Responding to NIPSS’s call for collaboration, CBN governor, Yemi Cardoso, represented by the Deputy Governor of Corporate Services Dr. Bala M. Bello acknowledged Nigeria’s rapidly evolving digital landscape.

    He emphasised the importance of NIPSS’s study, stating, “A critical study of this nature is imperative in unveiling the huge potential of digitalization towards contributing to sustainable job creation and youth empowerment.”

    Cardoso reiterated the CBN’s commitment to leveraging digital technologies for financial inclusion, productivity growth, and fostering an environment for innovation and entrepreneurship. He concluded by highlighting the alignment between NIPSS’s chosen theme and the CBN’s core priorities.

    The CBN Governor assured members of the NIPSS that “as a forward-thinking central bank, we are committed to harnessing the power of digital technologies to enhance financial inclusion, boost productivity, and create an enabling environment for innovation and entrepreneurship to thrive.

    “The Bank has also deployed robust digital technologies in driving most of its processes towards achieving optimal performance. Thus, your chosen theme deeply resonates with the core priorities and strategic focus of the CBN.

  • Implications of CBN’s bank recapitalisation policy

    Implications of CBN’s bank recapitalisation policy

    As part of the strategy to achieve President Tinubu’s vision of making Nigeria a $1Trillion by 2025, the Central Bank of Nigeria under the leadership of Mr. Olayemi Cardoso, has rolled out a policy to recapitalize the Nigerian Banks in the next 2 years, by introducing new minimum capital requirements for banks of all categories. This policy will further strengthen Nigeria’s financial system by pegging the minimum capital base for commercial banks with international authorization at N500 Billion. In addition, the new minimum capital base for commercial banks with national authorization is N200 Billion, while the new requirement for those with regional authorization is N50 Billion.

     Accordingly, after the recapitalization, the top 5 Nigerian banks could have a combined paid-up capital/ share capital of N2.5 trillion at N500b each. It is worthy of note that based on the latest financial results of the top 5 Nigerian Banks, the current combined capital of the 5 top banks is about N1.3 trillion, i.e. slightly above 50% of the targeted capacity. The recapitalization will essentially improve the resilience of the Nigerian Financial sector which is key to economic development.

     The recapitalisation policy by Mr. Cardoso led CBN as he tries to tidy up our monetary policy in the bid to turn around Nigeria’s economy, is commendable. This is in addition to the stabilization of the Naira achieved so far from N1,950.00 to about N1,100.00 in the past 2 months.

     Therefore, the timing for re-capitalization is right, given that the last recapitalization was done about 19 years ago in 2005, during the tenure of Professor Charles Soludo as the CBN Governor. The Banks have so far weathered the storm, but in recent years, we have witnessed some stress and fault lines emerging in the Banking sector, based on which some interventions are undertaken by the government to save some corporate governance issues for example at First Bank, about 2 years ago when an interventionist Board of Directors were appointed for the First bank group by the CBN, and also about 1 month ago, the CBN had to intervene to stabilize some Banks by dissolving the board of directors and appointed new executive directors to “oversee the affairs of the deposit money Banks” at Keystone Bank, Polaris Bank,  and Union Bank, which is an indication of some fault lines in the Banking sector.

     Recapitalisation will certainly reinforce the Banking sector and prepare it as a strategic pillar for effective socio-economic recovery and, as a critical support achievement of the $ 1 trillion by 2025. Interestingly, despite the brutal socio-economic headwinds that we face in Nigeria, the Banks are smiling as they declare huge profits year-on-year, therefore the CBN is correct to say that the Banks should recapitalize at this point in time. Let us consolidate the Banks and further institutionalize corporate governance and resilience for the Banks.

     Options available for banks

    Given that none of the top five Banks in Nigeria that even have an international presence, currently has more than N200bn capital base, which is far less than the N500b minimum required per bank, there is a shortfall of about N1.4billion to meet the N2.5tn. The CBN has rightly advised the banks to raise funds through the 3-key means, i.e.; through private placements; mergers, and acquisitions whereby the Banks can explore partnerships through mergers and acquisitions to consolidate and become stronger Banks as we have seen in the past which was how the likes of the current Access Bank, UBA, Fidelity, etc. emerged. Another option available for the Banks is to re-consider their status as Commercial and re-strategize and consider other segments of the sector. So from a strategic perspective, why not strategise and invest in the regional and/ or sectoral market for better strategic positioning to play and play big, i.e. to become regional Banks or Merchant Banks, or other segments of the Banking ecosystem to play in? In the end, the new policy will tidy up the Banking sector, consolidate the Banks, and make them more competitive, productive, and value-adding to Nigeria’s economy.

      FDI opportunities for the banks

    The recapitalization policy is an opportunity for Foreign Direct Investments (FDIs) to come into our economy. Given that the top 6 banks are churning out huge profits year on year with increased capital and asset bases, suffice it to say that the Banks have healthy balance sheets and good financial and economic outlooks and therefore they will be very attractive to foreign investors. FDIs have a good investment appetite when they see a business with healthy balance sheets, and the prospects are showing a mid-long-term Return on Investment (ROI) outlook. Even though I dare say here that some of us want to know the magic the banks are doing in boasting of healthy balance sheets and profits while the Nano, Micro, Small, and medium scale enterprises (SMEs) and the informal sector are struggling under the vagaries of socio-economic hardships. But that will be a conversation we should have another day because thriving SMEs and the entire informal sectors are critical success factors to economic recovery and the attainment of the N1 trillion economy by 2025, otherwise, the vision will be a mirage.

     Banks should focus on value innovation for sustainability

    I reckon that this round of recapitalization will force the banks to imbibe value innovation and move beyond operational transactional banking to banking that is value-creating and value-adding to the critical and informal sectors of the economy, consequently supporting economic diversification and growth of Nigeria.

    Read Also: CBN steps up measures to strengthen naira against dollar

     For instance, the banking sector has been contributing marginally to the Agri sector which is a critical sector to diversifying Nigeria’s economy and a low-hanging fruit for economic recovery while conversely, investing in the Agri will reposition the Banking industry’s strategic growth potential and realization of mid to long term growth and sustainability. All the Banks do not have to be Commercial. There is vision, sense, strategy, and value in focusing on sectoral, regional, and/or market-specific models of banking in an economy like. Nigeria with such huge diverse and viable resources like Solid Minerals, the informal sector, etc. This is why I believe that the Banking industry could grow with the economy organically in Geometric progression because sustainability is key.

     Apart from a few, most of the Agric desks in the Banks have been underperforming because of a lack of broad Agric business strategy and investment-friendly policies. The Banks need to be creative from business continuity and growth perspective because Banks are not insulated from the global and national socio-economic challenges we are facing in Nigeria. So, if they craft their strategy for the Agric sector from a value innovation to support perspective; they will support our teeming youths who have very innovative mindsets, capacities, and potentials. They could support them with the right investment offerings in the entire Agric value-chain; production, quality control,  storage, value-addition, packaging, logistics and supply-chain, inland trading and export, i.e. mid and downstream subsets of the sector; the Agric sector has the potential capacity to provide more opportunities for the youth than even the digital technologies sector in terms of deep and wide multidimensional socioeconomic impacts in Nigeria down to our hinterlands; based on which he Banks can make more income and profits.

    Robust stakeholder engagement to get buy-in

    I wish to draw the attention of the CBN to the criticality of robust stakeholder engagements so as to get the buy-in of critical stakeholders and achieve success. There is a need to manage sentiments and optics from the get-go. For example, in my opinion, the recent movement of some departments of the CBN drew unnecessary criticisms that could have been better managed. The CBN has a lot of work to do in engaging industry stakeholders, citizens, Country Residents/ expats, etc. who are all actually the Bank depositors so that they rest assured that the policies are in their best interests. The stakeholder engagements will also de-emphasize sentiments of regionalism, ethnicity, etc., and direct attention to the laudable, noble, and necessary intention of the Bank recapitalization or any policy of such crucial nature. By doing so, the CBN’s job will be much easier.

     Other expectations of the impacts of the banks recapitalisation

    Some of the expected impacts of the recapitalization, in my opinion, should include better efficiency, customer service, and better competition regionally, and internationally. I also expect that there will be available funds to support the domestic economy by way of loans with lean and reasonable interest rates over more practical timelines to support sectors and markets.

     While I commend the CBN Governor on the positive trajectory they have achieved so far, I encourage Mr. Cardo and his team that sustainability is key. I will put a pause here on this very important topic of our banking reforms in Nigeria, as I intend to make more contributions on the topic in due course. Thank you for reading.

  • CBN steps up measures to strengthen naira against dollar

    CBN steps up measures to strengthen naira against dollar

    • Apex bank sells forex to BDCs at N1,101/$ • Using dollar as security for naira loan banned

    The Central Bank of Nigeria (CBN) yesterday announced two fresh strategies aimed at strengthening the Naira.

    One is the prohibition of the use of foreign currency as collateral for Naira loans.

    The second is the slash in the amount it sells the dollar to licensed Bureau De Change operators.

    The measures were contained in separate circulars by the Acting Director of the Banking Supervision Department, Dr. Adetona Adedeji and the Director of the Trade and Exchange Department, Dr. W.J Kanya.

    In the circular by Kanya, the CBN  said it sold $15.88 million to 1,588 eligible Bureaux De Change (BDCs).

    The latest intervention is the third in one month. 

    The circular, addressed to the Association of Bureau De Change Operators of Nigeria (ABCON) President Aminu Gwadabe, explained that it sold a dollar at N1,101.

    The BDCs are to sell at N1,116.15 or 1.5 per cent margin above the purchase rate.

    The previous dollar purchase rate for BDCs was N1,251/$.

    According to Kanya, each of the eligible BDCs will access $10,000. 

    The circular reads: “We write to inform you of the sale of $10,000 by the CBN to BDCs at the rate of N1101/$1.

    “The BDCs are in turn to sell to eligible end users at a spread of not more than 1.5 per cent above the purchase price.

    “All eligible BDCs are, therefore, directed to commence payment of the Naira deposit to the under-listed CBN Naira Deposit Account Numbers from today (yesterday), April 08, 2024, and submit confirmation of payment with other necessary documentation for disbursement at the appropriate CBN branches.

    “All BDCs are strongly advised to continue to abide by the rules and conditions as stipulated in our earlier letters/circulars.” 

    ABCON had at the weekend appealed to the CBN to lower its applicable exchange rate downward below N1,251/$.

    It insisted that naira’s speedy recovery which was faster than expected had made CBN’s selling rate to its members very expensive and difficult to offload to retail end buyers trooping to undocumented forex operators for cheaper rates.

    The association insisted that with the naira appreciating across markets, many of its members who bought the dollar at N1,251/$ would lose significant capital if they sold at the open market rate of N1,235/$.

    “We discovered a worrisome development where many of our members who paid for dollar allocations at N1,251/$ with a margin of 1.5 per cent are yet to receive their disbursement.

    “This is happening in the face of prevailing open market rate of N1,235/$ which is lower than the authorised applicable exchange rate by the CBN to the BDCs,” ABCON had said.

    According to the circular by Adedeji,  banks can no longer accept deposits denominated in foreign currencies like USD, EUR, or GBP as security for loans issued in Naira.

    The ban extends to most foreign currency-based financial instruments, excluding those specifically permitted by the CBN.

    Read Also: UPDATED: CBN bans foreign currency collateral for naira loans

    The circular outlined two specific exceptions to the new regulation: Nigerian government-issued Eurobonds can still be used as collateral for Naira loans.

    Guarantees provided by reputable foreign banks, including Standby Letters of Credit, will also remain acceptable forms of collateral.

    The directive to banks provides a timeframe to address existing loans secured by non-compliant collateral like foreign currency deposits other than Eurobond or foreign bank guarantees.

    Banks now have 90 days to “wind down” these loans, meaning they must restructure the loan to utilise acceptable collateral as defined by the new regulation.

    If restructuring is not feasible, the bank must take steps to recover the outstanding loan balance.

    The circular reads in part: “The CBN has observed the prevailing situation where bank Customers use Foreign Currency (FCY) as collaterals for Naira loans.

    “Consequently, the current practice of using foreign currency-denominated collaterals for Naira loans is hereby prohibited, except, where the foreign currency collateral is: Eurobonds issued by the Federal Government of Nigeria; or Guarantees of foreign banks, including Standby Letters of Credit.

    “In this regard, all loans currently secured with dollar-denominated collaterals other than as mentioned above should be wound down within 90 days, failing which such exposures shall be risk-weighted 150 per cent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.”

    This effectively increases the capital reserves that banks must hold against these loans, making them less profitable.

    The CBN did not specify the nature of these additional sanctions, but they could include fines.

    Yesterday, the naira closed at N1,218/$ at the parallel market. It gained 1.3 per cent to close at N1,230.61 at the official market.

  • Row over CBN’s policy on import duty rate

    Row over CBN’s policy on import duty rate

    • Importers complain over ‘Customs’ arbitrary tariff imposition’
    • Our operations are guided by WTO, ECOWAS, NCS Acts, says Customs

    A clash between the Central Bank of Nigeria (CBN) and the Nigeria Customs Service (NCS) has cast a shadow over import duty calculations. The CBN’s directive, issued on February 23, 2024, aimed to stabilise import duty assessments by pegging them to the closing forex rate on the date of opening Form M. However, the NCS’s adherence to existing regulations and laws has led to a deadlock, sparking concerns among importers, clearing agents and other stakeholders. As tensions simmer and uncertainty looms, OLUWAKEMI DAUDA reports that there is an urgent need for collaboration and clarity between the CBN and Customs for the smooth operation of trade activities.

    Why did the Central Bank of Nigeria (CBN) peg import duty exchange rate on opening of Form M  in a circular dated February 23, 2024, without adequate consultation with Nigeria Customs Service (NCS)? Why is the Customs not using the policy? Why is the CBN turning blind face and keeping mute over it?

    The prolonged delay in the NCS adhering to the CBN’s directive to adopt the closing forex rate on the date of opening Form M for computing Customs duty on imported goods is causing significant concern among various stakeholders. Importers, clearing agents, operators, members of the public, the business community and port users are all eagerly awaiting clarification and action from the leadership of both institutions to address these pressing issues.

    The failure to implement this directive not only creates uncertainty but also undermines the efforts to make the port more attractive for business, generate revenue and boost international trade.

    They accused the Customs of flouting CBN directive on the rate payable on their imported goods as at the time of clearing their cargoes from the port, which is higher than the amount they expected as at the time of opening Form M.

    Importers and clearing agents, who are directly impacted by these policies, require clear guidelines and consistency in order to conduct their operations efficiently.

    Furthermore, the lack of adherence to the directive could potentially lead to financial losses and hinder the competitiveness of businesses operating within the import sector. This situation underscores the urgent need for effective communication and collaboration between the CBN and the NCS to resolve any outstanding issues and ensure the smooth implementation of policies that support trade facilitation and economic growth.

    Form M is a mandatory statutory document used as a declaration of intention by importers or their clearing agents for the importation of physical goods into any part of the country. But the Customs insisted that they are collaborating with the CBN and have no problem with the apex bank because its operations in the determination and assessment of import duty are guided by relevant provision of World Trade Organisation (WTO), Economic Community of West African States (ECOWAS Consolidation Act) and the Nigeria Customs Service (NCS) Act 2023, which they cannot violate under any circumstances.

    Also, the NCS import duty collection platform (NICIS II), which is an automated system, was designed to collect uniform FX rate at the time of submission of declaration by importers or their clearing agents. The platform, it was learnt, appropriates revenue for the government and cannot be compromised by any Customs officer at any given time.

    But the apex bank gave the directive to Customs to adopt the closing forex rate on the date of opening Form M in a circular dated February 23, 2024,  and signed by its Director of Trade and Exchange Department, Hassan Mahmud,  following complaints by importers on the irregular changes in the import assessment levies applied by the NCS. In the circular, the CBN noted that arbitrary increase in the forex rate used to compute Customs duty has created uncertainties around the pricing structure of goods and services in the country, thereby creating “abnormal increases” in the prices of goods across the nation.

    The circular signed by the apex bank’s Director of Trade and Exchange Department, Mahmud, reads in part: “Following the liberalisation of the FX market on Willing Buyer-Willing Seller trading principle, the Central Bank of Nigeria has noted the concerns of importers of goods and services in the irregular changes in the Import Duty Assessment levies applied by the Nigeria Customs Service.”

    These developments, the CBN said, “have further built uncertainties around the pricing structure of goods and services in the economy and creating abnormal increases in the final sale prices of items, which is largely driven by uncertainties, rather than traditional  market fundamentals, with implications to near term inflation trends.”

    It said further, “To this effect, the Central Bank of Nigeria wishes to advise that the Nigeria Customs Service and other related parties adopt the closing FX rate on the date of opening Form M for the importation of goods, as the FX rate to be used for Import Duty Assessment. This rate remains valid until the date of termination of the importation and clearance of goods by importers.

    “This would enable the Nigeria Customs Service and the importers to effectively plan appropriately and reduce the uncertainties around varying daily exchange rate in determining their revenue or cost structure, respectively

    “Therefore, effective 26 February, 2024, the closing rate on the date of opening of Form M for the importation of goods and services would be the rates that would apply for the assessment of import duty. This supersedes the requirements of Memorandum 9, J (2) of the Central Bank of Nigeria Foreign Exchange Manual. (Revised Edition), 2018.”

    The CBN added that while it is mindful of the initial volatility and price distortions in the aftermath of the forex market liberalisation, it remains confident that these reforms would, in the medium term, ensure stability in the market and entrench market confidence necessary to attract investment capital for the growth and development of the nation’s economy.

    But investigation conducted by our correspondent revealed that the NCS, instead of following the directive given by the CBN, is adhering strictly to the NCS Act 2023, which is the rule guiding its operations. The current management of the Service, it was learnt, has no option than to jettison the CBN’s directive because it does not want to violate its newly enacted law by the  National Assembly despite the fact that the CBN said that it took the decision to tackle the volatility and frequent updates on the Customs website concerning the liberalisation of the foreign exchange market.

    Speaking with The Nation on the issue, the National Public Relations Officer of Customs, Abdullahi Maiwada, said that the Service is mindful of the initial volatility, price distortions and its implications on the trading public and the overall economy, “the NCS, with the support of the Honourable Minister of Finance, has initiated periodic consultations with the Central Bank of Nigeria (CBN) to mitigate the potential impact of exchange rate fluctuations on import activities.”

    The NCS operations in the determination and assessment of import duty, he said, “are guided by relevant provisions of World Trade Organisation (WTO), Economic Community of West African States (ECOWAS Consolidation Act) and the Nigeria Customs Service (NCS) Act 2023.” According to him, “Article 9 (paragraph 2) of WTO Agreement on Customs Valuation clarified that the conversion rate to be used shall be rate in effect the time of exportation or importation, which means conversion rate at the time of declaration.

    “Also, article 11 of ECOWAS CET (Consolidation) Act specified that where the conversion of currency is necessary for the determination of the Customs value, the rate of exchange rate to be used shall at the date of lodgement of the Customs declaration.”

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    The NCS spokesman added that “Section 67, subsection 1 (a) (iii) of NCS Act clearly states that the official currency of the Federal Republic of Nigeria, using the prevailing official exchange rate issued by the CBN and applicable at the time of submission of declaration of the goods into Nigeria or the exportation of goods from Nigeria.” He said further that it is important to note that “the NCS import duty collection platform (NICIS II), which is an automated system, is designed to collect uniform FX rate at the time of submission of declaration.”

    Maiwada said further that “there is a consultation by this institution to address these challenges as soon as practically possible. Mindful of these implications on the trading public and the overall economy, the NCS, with the support of the Honourable Minister of Finance, has initiated periodic consultations with the Central Bank of Nigeria (CBN) to mitigate the potential impact of exchange rate fluctuations on import activities. The relative stability in the past days can be attributed to the interventions of the Honourable Minister of Finance and the Governor of the CBN.”

    Recently, the NCS, through the CBN, has been regularly reviewing and adjusting the exchange rate for import duties and clearance of goods on its website to reflect the prevailing market rate following the unification of the forex market in June last year. Since the beginning of the year, the Service has adjusted the forex rate almost twice weekly, and lately, the rate has been coming down.

  • No going back on daily FX rate for import duty calculations, says CBN

    No going back on daily FX rate for import duty calculations, says CBN

    Tensions are escalating between the Central Bank of Nigeria (CBN) and the Nigeria Customs Service (NCS) over the determination of foreign exchange (FX) rates used in calculating import duties. The CBN has doubled down on its position, underlining that the FX rate at the close of business on the date an importer submits Form M, a crucial document for importation, should be the foundational metric for duty computations.

    In an exclusive interview with The Nation, a CBN official made it clear that the apex bank disavows any ambiguity regarding the FX rate applicable to import duties. The CBN pointed to an official circular delineating the usage of the FX rate on the submission date of Form M. The central bank asserts that any deviation from this directive lies squarely with the NCS, absolving importers of responsibility. Highlighting the transparency of its directive, the CBN stressed that the circular outlining the daily FX rate policy is readily accessible on its official website. This accessibility aims to ensure clarity for all stakeholders involved in the importation process.

    Furthermore, the CBN clarified that the enforceability of the policy remains intact even if the NCS did not physically receive the circular. The mere presence of the circular on the CBN’s website is deemed sufficient to establish its validity and mandate its implementation. According to the official, “It is not on us; we have issued a circular on the need to use the day’s rate; that is the day the importer fills the form M to calculate the duty due importers. If they (Nigeria Customs) don’t comply, it is not our issue. They can’t say they didn’t see the circular because the circular was on our site. Whether the circular was handed over to them or not does not stop it from being binding.”

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    The CBN’s position comes amid reports that the NCS has continued to utilise the exchange rate prevailing on the date of clearing goods, not the date on the Form M as directed by the CBN. This practice puts importers at a disadvantage, as the naira’s depreciation translates to higher import duties when a later exchange rate is used. The discrepancy in FX rate application creates uncertainty and potential financial strain for importers, as businesses may face difficulties in accurately budgeting and pricing their imported goods due to fluctuating import duty costs. The CBN’s firm stance highlights the need for a clear resolution between the two government agencies. Consistent application of the daily FX rate policy, as outlined by the CBN, would promote transparency and predictability for import businesses. Stakeholders are watching closely to see if the NCS will adhere to the CBN’s directive, ultimately impacting the ease of doing business in Nigeria.