Forex: CBNâââ€ÅÂ

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Following the successful consolidation exercise embarked upon by the Central Bank of Nigeria (CBN) in the banking sector of the nation’s economy, the nation’s apex bank, from all indications must have applauded itself for nicely kitting the banks with the requisite financial war chest to weather the storms ahead.

 

While still reeling in the euphoria of this ‘success story,’ and a few years after, the CBN still probably believes that after the consolidation exercise, the surviving banks have come of age and should be able to conduct themselves in a ‘gentlemanly’ manner.

 

Interestingly, the story, after all, may not be the same, and this is because, before the change from Retail Dutch Auction System (RDAS) to the Wholesale Dutch Auction System (WDAS), foreign exchange (forex) transaction was characterised by stories of round-tripping and speculations. A few banks were booked for related offenses.

 

But after sometime, the apex bank believed that banks, with their level of capitalisation could handle themselves in more matured manner if given unfettered access to operate the forex market freely.

 

Regrettably, that however does not appear to be the case. And to underscore this assertion, the CBN in its recently released guidelines confirmed this much when it stated that, “in consideration of recent developments in the Foreign Exchange Market, it has become necessary to review the guidelines on the operations of the WDAS.”

 

To stress this further, one of the major decisions reached by the apex bank is that the CBN will intervene in the Foreign Exchange Market through the Retail Dutch Auction System with effect from today.

 

The new dance step under the RDAS is that banks will no longer walk to the official market, buy some dollars and use at their own discretion.

 

The implication of this, especially as regards use of “discretion,” as far as the CBN is concerned, may have been deliberate to carpet the banks for not having used well enough such “discretions” in the past, meaning, banks will only be representing their clients at the official market.

 

Another implication of which is the fact that value of imports will become more realistic.

 

Pointedly, the CBN insists that, authorised dealers shall submit their customers’ bids on Mondays and Wednesdays, and that the CBN reserves the right to reject bids that are deemed to be unrealistic and/ or any application that contravenes foreign exchange regulations.

 

It added that authorised dealers shall ensure that they have adequate naira cover in their current accounts with the CBN at the time of the bid, and that the apex bank shall promptly debit the current accounts of banks with the naira equivalent of the foreign exchange purchased on behalf of their customers, at the bid rates plus one percent commission.

 

The banking regulatory body further maintained that it shall effect delivery of foreign exchange purchased by each authorised dealer within two business days after the auction.

 

The real dance step here comes to play if the Bureaux de Change (BDCs) and the banks want to play ‘extra-time’ they are free to source forex from other sources outside the CBN as is done in most countries.

 

Even as the banks are not seen as matured enough, one of the new tunes introduced by the apex bank is that banks should reduce their forex Net Open Position (NOP).

 

“Authorised dealers are hereby informed that the management of the Central Bank of Nigeria has approved a further reduction of the foreign exchange NOP of all banks.

 

Accordingly, the NOP is reduced from 10 percent to five percent of shareholders’ funds with effect from January 19, 2008 (today),” a CBN statement stated.

 

Wale Abe, chief executive officer, Money Market Association of Nigeria (MMAN) meanwhile observed that the reduction in NOP was to ensure that banks do not get their fingers burnt. “The exercise is to limit losses that result from foreign exchange transactions.”

 

It would be recalled that the banks when unguided, lost several billions of naira to margin account at the Nigerian Stock Exchange (NSE).

 

After the stock market went awry, banks’ attention turned on forex market where the apex bank has intervened to ensure sharp practices are at least reduced. - BusinessDay

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