The Nation Newspaper

Tag: forex

  • BVN cuts forex to $50,000

    The Bank Verification Number (BVN) initiative, when fully implemented, will help to curb arbitrage in the foreign exchange (FOREX) market and reduce the spending limit on the use of the naira denominated debit cards for transactions abroad, from $150,000 to $50,000 per person yearly. The daily cash withdrawal limit on the card was also fixed at $300 per person.

    Sterling Bank’s Executive Director Abubakar Suleiman, who disclosed this at an interactive session with reporters in Lagos, explained that with the BVN, each bank customer will have a unique identification, which will make it easy to prevent people from flouting the Central Bank of Nigeria (CBN)’s policy on the use of naira-denominated debit cards for transactions abroad.

    According to the Managing Director/Chief Executive Officer, Union Bank of Nigeria Plc, Mr. Emeka Emuwa, the decision was taken because of some cases of card abuse abroad which impacted exchange rate stability.

    The Union Bank boss had explained: “We did find that in a number of cases people were using the cards in a manner that they were not expected to use them and there have been cases of arbitrage. So, in order, to sustain stability, what was agreed by the committee was that the limit for the use of the naira debit cards would be reduced.”

    However, industry watchers argued that bank customers could attempt to circumvent this policy by opening several bank accounts and using the naira debit cards they will be given to make withdrawals above the limit.

    But, according to Suleiman, this will not be feasible when the BVN initiative is fully implemented, as each bank customer will have a BVN that will give him/her a unique identity that will be known to every player in the financial sector. Thus, when such a customer has reached the limit of his naira debit card spending abroad, he will not be able to use another card as the system will immediately recognise him.

    The BVN, which is an initiative of the CBN and the Bankers’ Committee, was launched on February 14, last year.  It is a unique identifier for each bank customer across the financial industry, making it possible to build and track customer financial history and activity. This will allow banks access to more reliable information that could inform decisions on customer loan and credit applications and other complex transactions.

    The initiative is expected to boost financial inclusion as those who have typically stayed away from mainstream banking due to low literacy levels will be able to open and access their bank accounts using their biometric information rather than traditional identification methods.

    To encourage enrolment for the BVN, the CBN had directed banks to  honour only transactions over N100 million from customers with BVN from March 2015. Such transactions,  the Central Bank said, include but not limited to, money transfers, loans, and contingencies.

    The CBN also urged bank customers to register for their BVN by this month, warning that any customer without a BVN would be deemed to have inadequate Know-Your-Customers by that date.

    The Managing Director, Nigeria Interbank Settlement System Plc (NIBSS), Mr. Ade Shonubi, said customers who have done the mandatory biometric registration at any bank branch would soon start collecting their BVN cards as the cards were already with the banks awaiting collection by customers.

    Shonubi said bank customers would not be charged for the cards.

    The NIBSS boss said: “We are giving the BVN cards out for free. The cost is borne by the Bankers’ Committee, which considers the whole biometric project very important. They have been bearing the cost; the cost of the cards, cost of almost everything else that has to do with the BVN.

    “I have got my BVN card. I would encourage bank customers to talk to their banks as well. They have been printing them and sending them to the banks to distribute to the branches where you have enrolled, you would be sent an SMS. For those that have given email address, it would be sent to their emails.”

    Indeed, investigations reveal that some banks have started giving the cards to their customers.

     

  • Battle to save naira may be long, complex

    Battle to save naira may be long, complex

    Last week’s decision of the Central Bank of Nigeria (CBN) to scrap the Retail Dutch Auction System (RDAS) and focus on the Interbank Foreign Exchange (IFEX) market has generated  reactions from stakeholders.  Although the apex bank acted to save the naira and foreign reserves against falling oil prices, many people doubt that this measure will do the magic in an import-dependent economy like Nigeria’s, writes COLLINS NWEZE.

    DESPITE the scrapping of the Retail Dutch Action System (RDAS) by the Central Bank of Nigeria (CBN), the trouble with the naira may linger longer than envisaged.

    The pressure on the foreign exchange reserves following falling oil prices is not helping matters.

    Compounding the woes of the naira the market’s anticipation of the eventual unification of the different exchange rates.

    It is expected that the RDAS exit, the window under which foreign exchange was previously available at a subsidised rate, will effectively be discontinued. Going forward, all demands for foreign exchange will be channelled through the interbank foreign exchange market instead.

    The trouble with the naira has long been associated with political volatility and bad economic policies that encourage the government to spend more than its earnings.

    The announcement that elections would be postponed to 28 March and April 11 subjected the markets to greater volatility.

    The naira losses were so large that the CBN had to shutdown the foreign exchange market twice in on week, to save the naira.

    While that lasted, the CBN intervened directly through special auctions, filling demand for foreign exchange directly, but at a much higher dollar to naira exchange rate than that prevailing at the then official window.

    They craned their necks and stared as he made his way into a conference room in Lagos where an emergency meeting of stakeholders in the Foreign Exchange (FOREX) market was summoned on January 27 at the instance of the Central Bank of Nigeria (CBN).

    The over 2,000 guests, including  Bureau de Change (BDC) operators, bank chief executives, and captains of industry, were waiting eagerly for him to address them on the FOREX market and the fate of the naira.

    When Central Bank of Nigeria (CBN) Governor Godwin Emefiele finally began to speak, it dawned on all present that Nigeria was heading for a major crisis, and that unless something urgent was done to stop FOREX speculators, the economy is doomed.

    Emefiele told the audience that the coming weeks would be tough for FOREX speculators and importers, who misuse dollar allocations from the apex bank to import commodities that could be produced locally. He said the urgent nature of the meeting implied that activities of speculators and importers were hurting the naira, foreign exchange reserves and the economy and must be halted at all cost.

    So, many saw it coming when last weekend, the CBN scrapped the Retail Dutch Auction System (RDAS) and replaced it with the Interbank Foreign Exchange (IFEX) market because of “undesirable practices” by those it called economic agents.

    By scrapping the RDAS, a key part of its currency-management system, the CBN has effectively devalued the naira for the second time in three months.

    Before now, Emefiele had threatened to withdraw the FOREX dealing licences of banks that engage in speculative demand for the dollar at the market. He said the speculative activities had led to artificial demand for the dollar and an unnecessary pressure on the naira.

    “We will not hesitate to suspend the dealing licences of banks speculating on the dollar. Companies caught involved in sharp practices under the guise of seeking dollars to import items into the country will lose their licences,” he said.

    Emefiele, who described currency speculation as sharp practice, said the CBN would not shy away from dealing with the unpatriotic behaviour which could make the nation “plunder its external reserves and throw the country into crisis”.

    The CBN chief said frontloading demand for FOREX and other speculative practices made the apex bank to come up with certain measures aimed at stabilising the markets.

    The CBN Director in charge of Corporate Communications Department, Ibrahim Mu’azu, said that with the scrapping the RDAS, all demands for FOREX should be channelled to the IFEX market.

    He noted: “With the sharp decline in global oil prices and the resultant fall in the country’s FOREX earnings, the bank has observed a widening margin between the rates in the interbank and the RDAS window, thus engendering undesirable practices including round-tripping, speculative demand, rent-seeking, spurious demand, and inefficient use of scarce foreign exchange resources by economic agents.”

    This, he said, “has continued to put pressure on the nation’s foreign exchange reserves with no visible economic benefits to the productive sector of the economy and the general public” as a result it had to wield this big stick to protect the naira.

    Mu’azu added: “It has become imperative that appropriate actions be taken to avert the emergence of a multiple exchange rate regime and preserve the country’s foreign exchange reserves.”

    He said the managed float exchange rate regime, which the CBN had adopted following the liberalisation of the foreign exchange market, has for the most part been successful in ensuring exchange rate stability in line with its mandate, but giving the infractions commuted by the so-called economic agents the CBN he said, had no choice but to take this decision.

     

    Stakeholders speak

     

    When the news hit the market, it triggered diverse reactions.

    President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gbadabe, said the policy was ill-timed. He told The Nation that the policy would push  interbank rate to N250 to dollar and  increase the panic in the sector.

    “It is not the right time to cancel RDAS now; there is panicking in the FOREX market,” he said.

    Gbadabe said the policy will aggravate challenges faced by importers. He said that the CBN should have punished banks that violate the RDAS rules, instead of scrapping it.

    “I expected the CBN to conduct a forensic examination of the of FOREX trading and punish erring banks. There were cases where banks used fake documents or no documents at all to demand for FOREX at RDAS,” he said.

    But the former President, Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, described the policy shift as mixed blessings. He said the problem started when Emefiele came in and made statements that triggered a rush for the dollar.

    “Many people started changing their naira to dollar and that created dollar scarcity. It was made worse when oil price started coming down and banks not disciplined enough, have also been accessing FOREX without proper documentation,” he said.

    To him, the economy is very weak because of the drop in oil price.

    Foreign investors only come in and make huge returns without investing in the economy, he said, adding that the policy shift will equally increase market speculation.

    Unegbu advised the government to solidify the economic base by diversifying the economy and covering the leakages that encourage corruption.

    He predicted a rise in unemployment, saying that he was already thinking of how to downsize as an employer of labour to enable him cope with the expected rise in cost of production.

    The Managing Director, Bluewall Bureau De Change, Lucky Aiyedatiwa,, said the policy has made it easy for the interbank to be the centre of attraction and allowed the naira to defend itself.  He said the RDAS  created room for abuse, and that the policy will check round tripping.

    “Let the naira defend itself. The CBN can on its own sell to the banks once. The CBN has also brought everyone on the same page by unifying the market. I think we have finally gotten it right,” he said.

    The President, Lagos Chamber of Commerce and Industry (LCCI), Remi Bello, said the CBN’s action was inevitable since the country had been running on a mono economy. He said the level of gap that existed between the RDAS and interbank was too high and created room for speculation and volatility.

    He said the gap that created will only be felt now, but later, it will benefit the economy. He predicted that inflation will go up and that locally-made products will now be cheaper overseas.

    Bello, however, cautioned that Nigerians with penchant for foreign goods should have a rethink.

    The Managing Director of Financial Derivatives Company Limited, Mr Bismack Rewane, said the RDAS structure meant buyers get FOREX in official market at N168 per dollar and sell at the parallel market at N215 to the dollar, leaving a profit margin of N47 on every dollar for doing nothing. He said the CBN has now converged the market and rates into interbank and parallel markets which leads to pure competition and reduced arbitrage opportunity.

    He said that the IFEX will make aggregate demand for FOREX to fall, aggregate supply will increase, while price system will be efficient.

    To Rewane, there can never be a good time to adjust a currency to its fair value but it will always be better late than never. Only 10 to 15 per cent of transactions are covered by the subsidised RDAS rate, according to him.

    He said: “After a period of heightened uncertainty, the CBN restored some calm in the markets by scrapping the RDAS forex segment. Nigeria now leaves the club of 34 countries in the world operating multiple exchange rates. Most countries have gone through this phase in the journey towards full currency convertibility.”

    Rewane said the new system has one big advantage because it discontinues the practice of all the banks mobilising their naira and queuing up to purchase dollars.

    The interbank system, he said, is not only more efficient but it allows interest rates to find their levels naturally.

    “The cost of imported raw materials will increase; part of which will be passed on consumers. Besides, devaluation is not inflation as it will lead to compressed profit margins for companies; about 15 per cent decline in corporate earnings is expected,” Bismack said.

    The Head, Markets at the FBN Capital, Olubunmi Ashaolu, described the scrapping of the RDAS  as a ‘bold but necessary step by the CBN’, even as he admitted that the slide in oil prices effectively forced the hand of the CBN.

    His words: “Official reserves at the beginning of this week stood at $32.7 billion, 18 per cent below end-February 2014 levels. In December, the CBN spent $2.3 billion defending the naira. Despite the occasional interventions, the pressure on the naira intensified, forcing the CBN to shift demands out of RDAS to the interbank market. While this brought some relief to the RDAS, the interbank rate diverged sharply from the official rate. The writing was on the wall for the de-facto devaluation.”

    He said the CBN has effectively shifted all RDAS demand to the interbank market, thus minimising its role as the ‘prime’ market maker.

    “The move”, he said, “is a necessary one to ensure the stabilisation of the naira and reflect the demand and supply dynamics. This will improve market depth and efficiency. It effectively closes the arbitrage opportunity for “round-tripping, speculative demands, rent-seeking and spurious demands,” he said.

    Ashaolu said the naira will get more support with a slight recovery in oil prices to $60/barrel.

    According to him, the CBN decision will bring a positive impact on the raw materials being imported by companies dealing in consumer goods.

    Head, Macro Research Africa at Standard Chartered Bank, Mrs. Razia Khan described the policy as positive news that will create more transparency in the market.

    She, however, suggested the close monitoring of the CBN’s support of the interbank FOREX with the current oil prices and the difficulty in replenishing the foreign exchange reserves.

    Her words: “With Nigeria’s foreign exchange reserves under pressure as a result of sliding oil prices, markets had anticipated eventual unification of different exchange rates. Following the announcement in February that presidential and parliamentary elections would be postponed to 28 March, Nigerian markets were subject to greater volatility.”

    Mrs. Khan said that with foreign reserves under pressure and amid growing concern that a wide RDAS-interbank spread will encourage ‘round-tripping’, the CBN will now stop RDAS auctions; effectively discontinuing its foreign exchange subsidy for certain categories of demand.

     

    Naira woes

     

    For two consecutive days last week,  FOREX market operators pulled the plug on electronic trading in the naira,  after it slid past N200 to the dollar on fears that the postponement of the elections could trigger a constitutional row.

    For the first time, frontline bankers in Lagos agreed to deploy a ‘circuit-breaker’ and halt trade after the naira dropped more than two per cent. At its weakest, it was quoted at a record low of N204.25 to the dollar, a decline of 20 per cent since November last year. The rout has been driven by the combination of tumbling oil prices and a rise in political risk.

    While these lasted, the CBN stopped banks from reselling dollars bought at the RDAS to other lenders, or use them for purposes they were not meant. The move was aimed at curbing currency speculation and strengthening of the naira against the greenback.

    The naira on Friday closed at N197 to the dollar at the IFEX but exchanged at N210 at the parallel market. It has lost five per cent over the past 10 days – the most on a weekly basis since December 2008.

    The 2008 global financial meltdown contributed to the naira’s freefall.

    According to Rewane, Nigeria was not prepared for the shock.

    “The Nigerian economy believed to be one of the most resilient in the world was caught unawares by the global crisis,” he said.

     

    Previous measures and BDC’s regulation

     

    The CBN has for long, been making changes in the BDC sub-sector. On June 23, last year, it raised the minimum capital requirement of BDCs to N35 million from N10 million. It also raised the mandatory caution deposit to N35 million from $10,000.

    It recently gave approval to additional 102 BDC operators, bringing the total to 2,544 since the recapitalisation deadline lapsed in July, last year.

    The CBN has also directed that all importations including electronics, finished products, information technology, generators, telecommunication equipment and invisible transactions must henceforth be funded from the interbank FOREX market only. The policy was introduced to maintain the existing stability in the market and strengthen the various measures already initiated by the regulator.

     

    Failed promises?

     

    The misfortune of the naira began in November 2008, when it first crashed to N120 to the dollar from N118.

    By the middle of that month, it fell to about N134 to the dollar and the  free-fall continued in the following year.

    Before the close of the first week of January 2009, the naira had fallen to about N144 to the dollar at the IFEX market.

    The situation became even worse at the parallel market as the currency exchanged for N147 to the dollar. It later fell to N160 to the dollar, causing greater shocks for international business transactions.

    Against all odds, former CBN Governor Prof. Charles Soludo said he was taking full charge to bring stability to the economy and restore the glory of the naira.

    “I can tell you that those who have bought up dollars and are stock-pilling them in anticipation for profit will regret because it will soon bounce back,” Soludo had said.

    His successor, Mallam Sanusi Lamido Sanusi believed strongly on exchange rate stability.

    Under his wtach, the apex bank consistently pursued a policy aimed at achieving exchange rate stability, banking sector stability and single-digit inflation target.

    Sanusi’s successor, Emefiele has also promised to sustain his predecessor’s legacy.

    The apex bank chief said in his inmaiden speech in June 2014: “In view of the high import-dependent nature of the economy and significant exchange rate pass-through, a systematic depreciation of the naira will literarily translate to considerable inflationary pressure with attendant effect on macroeconomic stability.

    “Therefore, under my leadership, the CBN will continue to focus on maintaining exchange rate stability and preserve the value of the domestic currency.”

    Despite these promises, the fate of the naira has clearly shown that successive CBN regimes have all failed to protect the local currency from  value erosion.

    The development has grave consequences for the economy.

     

  • Impact of election delay on forex, reserves, by analyst

    Impact of election delay on forex, reserves, by analyst

    The prolonged election-related uncertainty is expected to cut inflow of foreign exchange or at most, delay such inflows, Managing Director, Head -Africa Macro Global Research at Standard Chartered Bank, Razia Khan, has said.

    She explained in a report that many offshore investors, still attracted to Nigerian yields, have been waiting for the uncertainty of the election period to pass before recommitting themselves to Nigerian markets.

    Nigeria’s presidential and parliamentary elections, originally scheduled for February 14, were at the weekend, postponed to March  28. Gubernatorial elections will be delayed to April 11. This comes after security agencies informed the Independent National Electoral Commission (INEC) that they would be unable to provide adequate security for elections on February 14.

    Khan said the Central Bank of Nigeria (CBN) has adopted a pragmatic approach to exchange rate and reserve management during the period of weaker oil prices.

    “The CBN tightened policy in November while simultaneously devaluing the official retail Dutch Auction System (RDAS) rate to more realistic levels (at the time). Access to foreign exchange through the RDAS window was also limited in order to safeguard foreign exchange  reserves. Perhaps recognising that investor inflows ahead of an election were unlikely, the CBN did not tighten policy further at its January 2015 policy meeting,” she said.

    Khan said with investor inflows delayed, it is expected that the foreign exchange  reserves would come under further pressure.

    She predicted that further CBN tightening in March looks increasingly doubtful. Slowing growth may also have been factors behind that decision. “The election delay puts at risk our call for further policy tightening at the March Monetary Policy Committee (MPC) meeting. With oil prices still languishing at low levels, resulting in minimal injections into the foreign exchange reserves, we expect the reserves to come under further pressure, perhaps dropping to about six months of import cover,” she said.

    The analyst said that a further tightening of administrative controls is plausible, with fewer categories of demand eligible for RDAS auctions.

    “We expect spreads between Nigeria’s parallel and interbank foreign exchange rates to remain pressured, although an agreement by Nigeria’s Financial Markets Dealers’ Association limiting daily NGN depreciation in the interbank market to two per cent will likely slow the pace of weakening,” she said.

    She predicted that the postponement of election will also potentially delay the formulation of policy aimed at helping Nigeria cope with lower oil prices. “The 2015 federal government budget currently assumes a benchmark oil price of 6$5/barrel (bbl). Efforts to accelerate non-oil revenue collection, especially measures that do not require legislative approval, are likely to continue in the near term. These include new levies on luxury imports, a review of tax exemptions granted to some investors, accelerated tax audits, and a potential doubling of the Value Added Tax (VAT) rate to 10 per cent. We see little reason why the VAT rate increase would have to wait until after the election, although there is likely to be some uncertainty around the timing,” she said.

    She added: “We do not share the view of many market participants that the authorities will wait until after the election to announce a large official devaluation of the naira.”

  • A push to stop forex abuse

    A push to stop forex abuse

    The use of foreign exchange (forex) to import commodities that could be produced locally and rising cases of forex speculation are giving the Central Bank of Nigeria (CBN) headache. Last week in Lagos, CBN met with banks’ helmsmen, forex operators and other captains of industry to address the matter. It also spelt out sanctions to defaulters, writes COLLINS NWEZE.

    The coming weeks will be tough for forex speculators and importers, who misuse dollar allocations from the Central Bank of Nigeria (CBN) to import commodities that could be produced locally. That was the verdict of the CBN Governor, Godwin Emefiele, when he met with stakeholders in Lagos last week.

    The urgent nature of the meeting  implied that activities of speculators and importers are hurting the naira, foreign exchange reserves and the economy.

    Giving the large dependence of Nigeria on oil and the level of importation of non-oil products, less dollar inflow from oil exports and high import bills have threatened external reserves with attendant impact on domestic currency.

    Emefiele was quick to point out that the correlation between the crude oil price, exchange rate and reserves and how forex abuse has made the CBN’s role in defending the naira difficult.

    He said between June 30 and December 31, last year, price of Bonny Light dropped by 50.7 per cent from $112.78 per barrel to $55.57 per barrel. It further recorded 15 per cent decline between December 31, last year and January 23, this year from $55.57 per barrel to $42.22 per barrel.

    Also, he said the foreign reserve dropped by 12.3 per cent from $39.07 billion in July last year to $34.26 billion on January 22, while the naira depreciated by eight per cent and 13 per cent at the official and Interbank Markets last year respectively. The naira also depreciated by 5.6 per cent at the interbank markets as at January 23, this year.

    These declines in macroeconomic indicators, he said, showed that as crude oil price rises, external reserves increase. It also proved that exchange rate appreciates with increase in external reserves and that external reserves dwindle as crude oil prices decline, which may lead to a depreciation of the naira.

    To save the naira, reserves and protect the economy, Emefiele insisted that abuse of the forex must stop and has therefore, taken some steps to achieve this objective.

     

    Steps taken

    Emefiele told the stakeholders at the meeting that the CBN would no longer allow rice importers to access forex from the CBN, if the pressure on the naira does not recede. He regretted that so much forex was being wasted on importation of products that could be produced locally.

    He stressed the need for local production of most of the commodities that are presently imported into the country, in order to strengthen the naira and develop the country.

    “In the course of time, we are not going to ban the importation of rice, but we are not going to provide foreign exchange if you are going to import rice into the country. So if you are interested in rice, I will advise that you go into the production of rice. If you want to use your dollar that you have kept somewhere, there is no problem but at some point we will not allocate foreign exchange for you to import rice. The same way, we will graduate it to other products,” Emefiele said.

    While dispelling fears of a further devaluation of the naira and the ability of the CBN to continue to defend the currency, he, however, gave the assurance that the apex bank would continue to provide foreign exchange for legitimate investors and businesses.

    The CBN boss insisted that Nigeria had survived an oil price crash with $10 billion in foreign reserves, adding that at $34.2 billion, Nigeria’s reserve is enough to scale through the present oil price crisis.

    “The important thing is that anyone who needs foreign exchange for legitimate purposes will get their forex. Even when the interbank is unable to meet the demands in the market, the CBN will, from time to time, step in. We will provide the foreign exchange that is needed to meet everybody’s legitimate demand,” the CBN boss said.

     

    Sanctions for defaulters

    Emefiele also threatened to withdraw the foreign exchange dealing licences of banks that engage in speculative demand for the dollar at the forex market. He said the speculative activities had led to artificial demand for the dollar and an unnecessary pressure on the naira.

    “We will not hesitate to suspend the dealing licences of banks speculating on the dollar. Companies caught involved in sharp practices under the guise of seeking dollars to import items into the country will lose their licences,” he said.

    Emefiele, who described currency speculative activities as sharp practices, said the CBN would not shy away from dealing with the unpatriotic behaviour because they could make the nation “plunder its external reserves and throw the country into crisis.”

    For the CBN boss, frontloading demand for forex and other speculative practices have made the CBN to come up with certain measures aimed at stabilising the forex markets.

    They include the review of banks’ foreign currency net open position, weekly forex sales to Bureau de Change operators, and increased scrutiny of items to been imported with the forex purchased from the banks. But, he insisted that local production of imported commodities remained the best way out of the quagmire.

    Emefiele said the demand pressure needed to stop and that people engaging in speculative activities would lose money.

     

    Stakeholders speak

    The President of Dangote Group, Alhaji Aliko Dangote, said his company was planning to be the major seller of foreign exchange after the CBN by 2018. He also disclosed that Nigerian would be the biggest exporter of urea and ammonia by 2017.

    He said: “Based on our plans we will be the highest foreign exchange seller in the market by the first quarter of 2018, and it’s not from just refinery alone”. Dangote will be investing about $9 billion to build a refinery expected to produce 500,000 barrels of crude oil per day.

    Dangote also said the country could not continue to import consumables and “things that we don’t even need.” He urged Nigerians to get involved in manufacturing not only for local consumption, but also for export.

    He advised the business community to support the government and the country by seeking to export commodities rather than import perpetually. “We need to set a foundation for the country’s revenue base. We need to become an exporting country after which we can then allow the naira to float without supporting it,” Dangote said.

    A former Chairman of Diamond Bank Plc, Pascal Dozie, said the current challenges in the economy presented the best time for wise investors. He, however, advised the government on the need to restructure the economy, while urging the CBN to encourage fiscal authorities to ensure that the economy was diversified and that unnecessary expenditures are curtailed. “If there is no corresponding action from the fiscal authorities, the CBN will continue to be under pressure,” he said.

    President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe said bureaux de change operators take issues bothering on the economy very seriously. He said his members would do everything needed to bring respite to the naira.

    He also praised Emefiele for raising the weekly dollar allocation to BDCs from $15,000 to $30,000, adding that such policy would help them remain in business and support the economy.

    Michael Okoro, a stockbroker based in Lagos, said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.

    The official devaluation of the naira, he said, allowed the Retail Dutch Auction System (RDAS) to move within the range that straddles the interbank foreign exchange rate. “While the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria.

    “While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” he said.

     

    Regulation of BDCs

    The CBN has for long, been making changes in BDC subsector. On June 23, last year, the CBN, among other things, raised the minimum capital requirement of BDCs to N35 million from N10 million. It raised the mandatory caution deposit to N35 million from $10,000. Again, on July 7 last year, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of ABCON and both chambers of the National Assembly.

    CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would, on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.

    The CBN had recently given approval to additional 102 Bureau De Change (BDC) operators, bringing the total to 2,544 since the recapitalisation deadline lapsed in July last year.

    The apex bank last August, published a list of 2,442 licensed BDCs, which it said, had complied with its new capital requirements of N35 million as at July 31, last year.

    There were 3,208 registered BDCs before the expiration of the deadline. The CBN had in June, announced a new minimum capital requirement of N35 million for the operation of BDCs, up from the N10 million.

    To ensure that forex dealers comply with the new capital requirements, the CBN had extended the deadline to July 31, last year. The forex dealers were previously given a deadline of July 15, last year. The apex bank had also stated that interest would be paid on the mandatory cautionary deposit of N35 million, based on banking industry savings account rate.

    It, among other requirements, reviewed the mandatory cautionary deposit for BDCs upward to N35 million. The regulator had pointed out that on the expiration of the deadline on July 31, last year, that it would cease to fund any BDC that failed to comply with the new requirements, adding that “only BDCs that meet the new requirements would qualify to be engaged as agent by the licenced international money transfer operators for inward and outward transfer business in Nigeria.

    The CBN has also directed that all importations involving electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions would henceforth be funded from the interbank foreign exchange market only. The policy was to maintain the existing stability in forex market and strengthen the various policy measures, already initiated by the regulator.

     

  • Commission releases forex rate benchmark

    Commission releases forex rate benchmark

    THE foreign exchange benchmark for global players has been released by the FSB, The Nation can authoritatively report. The report was prepared by FSB in collaboration with International Organisation of Securities Commissions (IOSCO) in line with discussions of FX market participants across the globe, along with submissions received in response to an interim report published in July 2014 for wider public consultation.

    The work of the FSB in this area was initiated in response to concerns raised in 2013 about the integrity of FX benchmarks. These concerns stemmed particularly from the incentives for potential market malpractice linked to the structure of trading around the benchmark fixings.

    As a result, the FSB Plenary formed a working group to focus on FX benchmarks. The mandate of the group was to undertake analysis of the FX market structure and incentives that may promote particular types of trading activity around the benchmark fixings. The group was tasked to propose possible remedies to address these adverse incentives as well as to examine whether there is a need and scope to improve the construction of the benchmarks themselves.

    Based on discussions with the relevant market sectors, the FSB believes that all the recommendations above can and will be accepted and implemented by the market groups concerned, thus the report is expected to deliver a substantial improvement in market structure and conduct.

    The FX benchmark group was co-chaired by Guy Debelle (Assistant Governor, Financial Markets, Reserve Bank of Australia) and Paul Fisher (Deputy Head of the Prudential Regulation Authority: Bank of England.

    The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability.

    The FSB brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.  The FSB also conducts outreach with 65 other jurisdictions through its six regional consultative groups.

    The FSB is chaired by Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

    The report was prepared by a Review Team constituted by IOSCO’s Task Force on Financial Benchmarks and Assessment Committee members, in response to a request from the FSB for IOSCO to undertake a formal review of the closing spot rate against the Benchmark Principles.  The FSB report published today sets out a number of recommendations for reform in the FX markets, and in particular the benchmark rates.

  • Killing BDCs?

    Killing BDCs?

    Expectedly, the new leadership of Central Bank of Nigeria (CBN) is leaving no one in doubt about its intention to make indelible imprints on the nation’s financial system. And its newly unfurled guidelines on the operations of the Foreign Exchange Market (FOREX) seem to be a pointer in that regard. But the guidelines are generating serious systemic hullabaloo because of some of the provisions, seen as stern in some quarters.

    These include the stipulation of a minimum capital requirement of N35million for Bureau de Change (BDC) operation in the country. Hitherto, the minimum capital was N10 million. Also, under the new regime, the mandatory cautionary deposit which was N3million has been increased to N35million for each BDC and this is expected to be deposited in a non-interest-yielding account in the CBN, upon the grant of an approval-in-principle.

    This development is a strict departure from the past when anyone with just $20,000 deposit with the CBN could operate a BDC. The new rules, among others, further require payment of a BDC licence application fee of N100, 000; another licensing fee of N1million and an annual renewal fee of N250, 000. The guidelines frown at ownership of multiple BDCs and also at the avalanche of rent-seeking operators in the forex market that are merely motivated by profit margin, regardless of prevailing official and inter-bank rates. The guidelines become operational from July15.

    We do hope that the guidelines, ostensibly meant to sanitise the parallel market, would go a long way in ridding it of crooked elements as there is need to check its current inefficiency and sharp practices. There have been several reports of some BDC operators who deployed purchased foreign exchange to fund unauthorised transactions, depleting the nation’s foreign reserves in the process.

    For instance, we are aware that the CBN recently revoked the licences of 101 BDC companies because of their inability to provide satisfactory evidence of the purchase and utilisation of autonomous foreign exchange.  About 17 others were fined N2 million each for alleged infractions of the BDC guidelines, even though they allegedly adduced satisfactory evidence of their utilisation of the autonomous foreign exchange allocated to them. Also, last year, the CBN reportedly revoked the licences of 20 BDCs over foreign exchange malpractices.

    No doubt the market in its present state is rowdy and the need to streamline it is long overdue. The CBN record, for example, reportedly shows that there are about 3,208 officially registered BDCs by the apex bank, with an additional 1,417 awaiting approval. If the last batch of approval seekers scales the hurdle, the total number of BDCs would eventually rise to 4,625. This is without prejudice to the fact that more applications might still be filed. Each of these BDCs is entitled to $50, 000 from the CBN every week, which translates to about $12billion forex per annum. However we may look at it, this is still a vast drain on the nation’s foreign reserves; hence, the new regime seeks to reduce each BDC’s entitlement to $15,000 per week.

    Without doubt, an effective management of the guidelines might, over time, avail the country the opportunity of combating awkward financial outflows. All said, we call on the CBN to have another look at the apprehensions of the public as exemplified through members of the House of Representatives over the issue because of its implications on employment generation drive that is at its lowest ebb at the moment, and institutional building process of that sector. By the new policy, most BDCs would simply close shop, with a sizeable number of people, sadly, joining the unemployment market.

    The CBN definitely needs to strengthen foreign exchange transactions. But in  achieving this, we expect it to concentrate more on institutional development rather than pecuniary and punitive sanctions. The apex bank should, henceforth, saddle its competent professionals with the task of coming up with better ways of ridding the market of unscrupulous elements .

     

  • China’s forex reserves may stoke inflation, a ‘big burden’, says Premier

    China’s war chest of foreign currency reserves has become a headache as its continued rise could stoke inflation in the long term, Premier Li Keqiang has said, pledging to cut1 the country’s trade surplus.

    China’s foreign exchange reserves, the world’s largest, grew by $130 billion (77.14 billion pounds) in the first quarter, to a record $3.95 trillion.

    The central bank has pledged to keep foreign exchange reserves at reasonable levels, partly by reducing its intervention in the currency market.

    “Frankly speaking, foreign exchange reserves have become a big burden for us, because such reserves translate into the base money, which could affect inflation,” Phoenix New Media Ltd quoted Li as saying during a visit to Kenya.

    “From China’s perspective, macroeconomic controls could face tremendous pressures if the overall trade is imbalanced.”

    China will take steps to reduce its trade surpluses with the rest of the world, including Kenya, Li was quoted as saying.

    Large foreign currency purchases by China’s central bank, which regularly intervenes to cap yuan rises, amount to creation of base money and can fuel inflation unless the central bank soaks up the excess yuan injected into the system.

    In recent weeks, the central bank has been suspected of engineering a fall in the yuan in a bid to punish speculators betting on yuan rises.

    Vice central bank governor, Yi Gang, said in November that the cost of holding the reserves would surpass earnings from them when reserves exceed a certain level.

    China’s inflation has been benign in recent months as its economy slows, but analysts point to long-term pressures as the government loosens its grip on utility and resources prices.

  • Forex trading resumes

    Foreign exchange (Forex) trading suspended by the Central Bank of Nigeria (CBN) on December 18 resumed on Monday.

    The CBN had offered $2 billion to foreign exchange bidders at the December Retail Dutch Auction System (RDAS) trading.

    Data obtained from the CBN website showed that five auctions were held during the month, namely, December 4, 9, 11, 16, and 18, with $300 million, $300 million, $300 million, $400 million and $400 million offered.

    Equally, the CBN sold nearly same volume during the five auctions held during the month.

    Findings from the CBN website showed that the apex bank maintained steady supply of dollars to the RDAS market throughout the periods, with maximum of $400 million. Other dollar supplies were pegged at $300 million.

    According to the CBN naira exchange rate remained stable at the RDAS segment of the foreign exchange market during the period.

    Head of Research Africa, Standard Chartered Bank, Razia Khan has said by adopting the RDAS in place of Wholesale Dutch Auction System (WDAS), the CBN is now able to closely monitor forex utilisation of each customer and sectors of the economy for documentation and policy formulation.

    Analysts said despite occasional upsurges in forex demand due to interventions by the CBN and the increased supplies from autonomous sources, the exchange rate never exceeded a two per cent appreciation or depreciation margin. They said the year has seen some of the CBN policies on forex reflect on the dollar-naira parity at both the local and international market.

     

     

  • Forex traders seek standard regulator

    Forex traders seek standard regulator

    Foreign Exchange (FOREX)traders have decried the absence of a regulator which can curb the scamming of traders by unauthorised brokers who hoard funds.

    The traders lamented the way some brokers keep traders funds with impunity.

    They said brokers must ensure that traders were adequately protected.

    The Chief Executive Officer (CEO) of Kards Nigeria Limited/FXPULP, Mr Kunle Adeyeri, said forex trading could work as an effective panacea to unemployment crisis in Nigeria.

    Adeyeri, whose company was one of the exhibitors, said this is the best time for people to engage in the trade and reap proceeds.

    The Chief Executive Officer of Naira4Gold, Mr Ifeanyi Uche, who at the expo addressed the evolution of online currency trading in Nigeria, said protection and regulation should not only cover brokers collecting the money, but traders also. He said traders can come together as a body to protect their interest with proper organisation to yield good results.

    Uche said the problems of Forex trading in Nigeria includes the focus on the use of mathematical indicator which often fail to analyse market moves, the focus on making profits and taking profitable tables, and most lack interest in developing themselves to become successful traders among others.

    He recommended that traders should study the market deeply and identify the prevailing trend.

    Uche urged brokers to adjust their policies to ensure fair play for everyone adding that brokers should not only encourage policies which favour them but also traders. He said the qualities expected of traders are discipline, consistency, confidence, courage cum patience.

    The business development manager of the IronFX, Mr Yagub Rahimov, admonished traders to carry out proper investigation about brokers and confirm if they are licensed. He said: ‘I am aware of the fact that so many people have lost a lot of money and like they said, the brokers really don’t care but this is not true. I believe before you walk up to a broker to invest a fund, profit is not the first thing you should be thinking of, the first thing you should be thinking of is how regulated your broker is. When a broker says I’m regulated with Financial Conduct Authority, send an email to the FCA asking them this registration no that is being provided by this broker, how true is it? Find out if the broker has been involved in any previous or current price manipulation.”

     

  • Forex market hit by N1tr public sector fund withdrawal

    The N1 trillion public sector funds withdrawn from banks on August 7 is taking its toll on the foreign exchange (FOREX) market. The withdrawal followed the decision of the Central Bank of Nigeria (CBN) to raise the Cash Reserve Ratio (CRR) from 12 per cent to 50 per cent.

    The CRR is the portion expressed as a percentage of banks’ deposit balances, which lenders must have as reserve in cash, with the CBN.

    The regulator’s plan was to mop up excess liquidity from the system, have less naira in circulation and get the currency strengthened. But the Managing Director, Bluewall Bureau De Change Limited, Lucky Aiyedatiwa, said the reverse had been the case.

    He said rather than the naira appreciating, the currency has been dropping in value. The naira on Friday retreated for three consecutive days, after the CBN and oil companies failed to selle the needed dollars to strengthen the currency.

    The naira last week lost 50 kobo at the inter-bank market, to close at N163.60 to a dollar from N163.10 to a dollar. The Bureau De Change (BDC) and parallel market were in line with the trend in the inter-bank market, both markets lost 100 kobo to close at N164.50 to a dollar and N165 to a dollar respectively

    The naira has fallen 4.6 per cent against the dollar this year.

    Aiyedatiwa said: “Forex market is not funded. There has been a serious reduction in dollar supply into the interbank and autonomous markets. The condition has put pressure on both markets.”

    However, he said the market position remained temporary, and would be corrected as soon as dollar inflows from the Nigeria National Petroleum Corporation (NNPC) and CBN improve.

    Debate among Federal Reserve officials over whether to reduce monetary stimulus has roiled financial markets since May. Oil companies in Nigeria, which sell the dollar mainly at the end of the month to pay domestic expenses, are the second-biggest supplier of dollars after the CBN.

    CBN spokesman, Ugochukwu Okoroafor told The Nation on phone that there is nothing to worry. He said the naira should be allowed to find its feet, adding that what is happening is temporary.

    He said the impact of the CRR hike on the naira will not be immediate, adding that over time, the naira will stabilise. The CBN auctions foreign exchange on Mondays and Wednesdays.

    The banking watchdog offered $600 million at the Wholesale Dutch Auction System (WDAS) last week while a total of $525.1 million was sold. This comprised $266.6 million on Monday and $258.5 million on Wednesday’s auction. The Marginal rate at both auctions remained at N155.76 to a dollar.

    Analysts said the CBN support for the naira notwithstanding, strong demand pressure from corporate to meet dollar obligations would continue to influence its depreciation. Also, the down-side risk of declining oil receipts still exist, as Nigeria receives over 70 per cent of its forex inflows from oil proceeds. Also, decline in oil revenue is expected to affect Nigeria’s balance of trade position and ultimately, the value of the naira.