CBN new policies to help sanitize banking sector, stem volatility in FX market, says IMPI

Kunle Sanni 

The Independent Media and Policy Initiative (IMPI) has expressed that the new policies introduced by the Central Bank of Nigeria (CBN) will help sanitize the banking sector, stem the volatility in the foreign exchange (FX) 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, unveils the gaming of the foreign exchange market by Nigeria money deposit banks who hoard forex which, they had either borrowed from foreign jurisdictions or raised locally on long term basis, and profiteering on the forex holdings by refusing their customers’ access to the forex while bidding the Naira to depreciate and exploit 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 per cent of 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 swaps deals. This truly captures the CBN’s capacity for regulatory oversight,” it added.

Last week, the CBN had launched several economic policies; one of which was to address the downward spiral of the exchange rate. As at Thursday, the naira to a dollar rate was N1500.

Meanwhile, IMPI in its statement, further 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 to IMTOs to redirect forex to the official market rather the hitherto practice of diversion to the parallel/black market.

“This will, ultimately, rechannel more Diaspora funds to the Nigeria forex market with 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 concerns.

“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 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 process by 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 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 in their domiciliary account when they do not need the dollars at the 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  payment, allowing only wire transfers.  There was a policy somersault a year after. The CBN needs to rethink the policy once again.”

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