Naira Springs Back After CBN Directive on Shelling Excess Dollar
Before the February 1, 2024 deadline given by the Central Bank of Nigeria (CBN) to commercial banks to sell all excess foreign exchange holdings, Deposit Money Banks on Thursday made frantic efforts to offload their surplus dollar stocks.
It was learnt that the treasury departments of the DMBs spent the entire day battling to sell their excess FX holdings. Officials processed several foreign exchange request forms of their customers as they sold more dollars to them.
The increase in the level of forex sale activities at the official foreign exchange market, it was learnt, led to the rebound of the naira at the parallel market on Thursday.
Amid its fresh moves to stabilise the nation’s volatile exchange rate, the CBN had in a circular released on Wednesday, ordered DMBs to sell their excess dollar stocks latest February 1, 2024. The CBN also warned lenders against hoarding excess foreign currencies for profit.
According to officials, the central bank believes some commercial banks hold long-term foreign exchange positions to enable them to profit from the volatile movements of exchange rates.
The new circular introduced a set of guidelines aimed at reducing the risks associated with these practices.
In the circular titled, “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks”, the CBN raised concerns over the growing trend of banks holding large foreign currency positions.
The circular read in parts, “The Central Bank of Nigeria has noted with concern the growth in foreign currency exposures of banks through their Net Open Position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks.”
The apex bank further directed banks with current NOPs exceeding its limits to adjust their positions and comply with the new regulations by February 1, 2024.
The latest circular came barely 48 hours after the CBN released a circular, warning banks and FX dealers against reporting false exchange rates, among others.
The new development came on the heels of the adjustment of the methodology used for the calculation of the nation’s official exchange rate by the FMDQ Exchange, a situation that has moved the official exchange to about N1,500 from around N900/dollar.
Following the latest CBN directive which is aimed at unifying the official and parallel market rates of the local unit, several banks sold forex to their customers on Thursday.
The development led to a sharp rebound of the national currency in the official market. Bureau De Change operators in Lagos, Kano, and Abuja also pushed to sell their dollar holding amid fear the local unit might sustain the gain in coming days.
Alhaji Lawan Ismael, a BDC operator in Ikeja, Lagos, said he bought and sold the greenback for N1400/dollar and N1420/dollar, respectively.
Another BDC at the Lagos airport, Sabiu Abdullahi, said the greenback went for between N1400/$ and N1400/$. This, he said, was a huge rebound from over N1500/$ it sold on Wednesday.
In Abuja, the naira traded at the parallel market between N1,300/$ and N1,350/$.
Meanwhile, some bank officials said beyond the FX in banks, the CBN and the security agencies would need to beam their searchlights on politicians and government officials who are hoarding dollars in their homes.
As part of its effort to boost liquidity in the FX market, the CBN on Wednesday issued a new circular that removes the previous cap on exchange rates quoted by International Money Transfer Operators.
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