The Independent Media and Policy Initiative (IMPI) has said that the new policies introduced by the Central Bank of Nigeria (CBN) would help sanitize the banking sector, stem the volatility in the forex market, and stabilize the naira.
The group said in a policy document signed by its chairman, Niyi Akinsiju, that the new move is a reflection of the commitment of the new CBN management to check the excesses of banks gaming the system.
“The prudential guidelines as issued by the CBN unveil the gaming of the foreign exchange market by Nigerian money deposit banks that hoard forex, which they had either borrowed from foreign jurisdictions or raised locally on a long-term basis, and profiteer on the forex holdings by refusing their customers’ access to the forex while bidding the Naira to depreciate and exploiting the market; thereafter, by offloading the forex into the market when the Naira declines to their target percentage depreciation.
“On this count, we applaud the directive of the CBN to the banks to immediately sell off to zero level the foreign currencies they are holding on the long term and to reduce their short-term holding by 20 percent of the shareholders fund within 48 hours.
“It is estimated that between $6 and $7 billion is kept by banks in long positions either in cash or locked up in FX swap deals. This truly captures the CBN’s capacity for regulatory oversight,” it added.
IMPI also provided some insight into the new incentive for funds from the Diaspora to be channeled into the official market rather than the parallel market.
The group said: “The new policy translates to an incentive for IMTOs to redirect forex to the official market rather than the hitherto practice of diversion to the parallel/black market.
“This will, ultimately, rechannel more Diaspora funds to the Nigeria forex market with a possible enhancement of forex liquidity, which will ameliorate demand pressure with subsequent appreciation of the local Naira currency.
“As a corollary to effecting this policy, the CBN has banned banks and financial technology companies (fintechs) from international money transfer services. By restricting banks and fintechs from international money transfer services, the CBN is also strategically manoeuvring to fortify the currency and stabilise the forex market.
The group noted how the volume of daily forex transactions has increased in the aftermath of the new policies, but also pointed out some areas of concern.
“If these banks sell their holding positions at prevailing rate on the cue of the Net Open Position directive, they would still be making a killing; however, we are not under the illusion that these policies will immediately change the face of Forex transactions in the country and drive an influx of liquidity into the market as anticipated.
“This is because many banks can procedurally undercut the effectiveness of the policy because these dollar assets are not in cash.
“The banks can approach the CBN to grant a forbearance and will subvert the making excuses, such as negotiating the conversion of foreign currency loans to naira loans.”
It is, however, convinced that the apex bank can eventually take control of the volatility in the market if it continues its proactive oversight trajectory in the banking industry.
IMPI also urged the CBN to review the necessity of continuing the policy of allowing Nigerians and exporters to operate domiciliary accounts in foreign currencies, noting that:
“There is a near consensus among patriotic Nigerians that this policy is ripe for review as it is responsible for the scramble for dollars and unhealthy currency speculations, especially by individuals. Some Nigerians with excess Naira liquidity mop up the dollars in the market and store them in their domiciliary accounts when they do not need the dollars at that point in time.
“In 2015, the CBN, in a major policy review and in reaction to this trend of paying cash into domiciliary accounts, banned cash payments, allowing only wire transfers. There was a policy somersault a year later. The CBN needs to rethink the policy once again.”