foreign exchange exposure<\/a>\u00a0by February 1 (Thursday) in a bid to shore up dollar supply. It said the net open position limit of banks\u2019 overall foreign currency assets and liabilities both on and off-balance sheet should not exceed 20 percent short or zero percent long of shareholders\u2019 funds unimpaired by losses, using the gross aggregate method.<\/p>\nThe apex bank also removed the cap on exchange rates quoted by International Money Transfer Operators (IMTOs), allowing them to quote exchange rates for naira payout to beneficiaries using the prevailing market rates on a willing seller, willing buyer basis.<\/p>\n
Previously, IMTOs were required to quote rates within an allowable limit of -2.5 percent to +2.5 percent around the previous day\u2019s closing rate of the Nigerian foreign exchange market.<\/p>\n
The naira appreciated to 1,400 per dollar on Thursday from a record low of 1,520\/$ on Wednesday at the parallel market, commonly called black market, data collated from different street traders show.<\/p>\n
\u201cThe reason for the removal of the cap is to incentivise the IMTOs to transparently transfer their receipt into the country,\u201d Aminu Gwadabe, president of Association of Bureau De Change Operators of Nigeria (ABCON), said.<\/p>\n
He said the IMTOs were hitherto not remitting the actual remittance proceeds into the official market but mostly kept it in the jurisdictions of receipts at parallel market rates.<\/p>\n
\u201cIt is hoped with the removal of the cap on IMTOs proceeds, the diversion from the official markets of the proceeds will be reduced drastically or eliminated. The likely impacts will be an increase in liquidity in the market which will influence exchange rate and stability positively,\u201d he said.<\/p>\n
\u201cAlready, we have started seeing the local currency appreciating against the dollar in the parallel market by about 6 percent from N1,520 yesterday to N1,420\/$ this afternoon in the market.\u201d<\/p>\n
The ABCON boss called on the management of the apex bank to sustain the tempo. \u201cThere is the urgent need in the immediate time to consider the effective transmission mechanism roles of the BDCs through their inclusion as the third leg of the market,\u201d he said.<\/p>\n
Nigeria\u2019s currency today is the cheapest and best value of any in Africa, or any of the emerging or frontier markets, according to FIM Partners\u2019 currency model.<\/p>\n
\u201cGlobally, only the Japanese yen is cheaper (and that\u2019s a pretty unique story). The model doesn\u2019t have Lebanon\/Venezuela\/Zimbabwe,\u201d said Charlie Robertson, head of macro-strategy at FIM Partners.<\/p>\n
Following the CBN\u2019s directives to banks, the volume of dollar transactions by willing buyers and willing sellers, consisting of banks, exporters and investors, increased by 85.36 percent in the Nigerian Autonomous Foreign Exchange Market.<\/p>\n
The daily FX market turnover increased to $134.07 million on Wednesday from $72.33 million on Tuesday at the official market.<\/p>\n
The naira appreciated to 1,455.59 from 1,482.57 on Tuesday, data from FMDQ Group shows<\/p>\n
Analysts at CSL Stockbrokers said the FX market may not witness a significant influx of liquidity despite CBN\u2019s directive for banks to sell down significant net long FX positions running into billions of dollars in 24 hours.<\/p>\n
\u201cMany of these dollar assets are not in cash. Firstly, we believe that many banks will require CBN to grant a forbearance and will find other ways besides throwing liquidity into the market to comply such as negotiating the conversion of foreign currency loans to naira loans, a conversion that many customers would likely require, given the devaluation of the naira,\u201d they said.<\/p>\n
They said banks with swap positions with the CBN may likely take on the naira equivalent of such positions.<\/p>\n
\u201cWe do not believe many banks will be in the market to sell dollars, so we do not expect a significant influx of liquidity into the FX market,\u201d they added.<\/p>\n
They pointed out that banks that decide to sell their dollar assets at current exchange rates would make significant realised gains which would boost their 2024 earnings.<\/p>\n
According to them, banks with more FX liabilities may suffer revaluation losses when there is a devaluation of the naira, although banks will likely avoid such a position if the currency points to a devaluation.<\/p>\n
The analysts said the loss of revaluation gains may weaken banks\u2019 capital adequacy ratio (CAR), and impact banks\u2019 ability to boost capital.<\/p>\n
\u201cThe new CBN directives imply these windfall gains from long FX positions will no longer be available to boost capital following a devaluation, which may imply a weakening of the Capital Adequacy Ratio (CAR),\u201d they said.<\/p>\n
The directive may also negatively impact customers\u2019 ability to access foreign currency loans, according to them.<\/p>\n
\u201cWe also believe these new directives will likely reduce banks\u2019 appetite for foreign currency assets, which earn less than local currency assets and may have negative consequences for the supply of foreign currency loans to support needed projects.\u201d<\/p>\n
<\/p>\n
Analysts at SBG Securities expect CBN\u2019s policy changes on banks\u2019 FX exposures to have mixed effects on the Nigerian economy.<\/p>\n
\u201cWe anticipate a positive impact on foreign currency liquidity in the interim, as banks move to achieve the new regulatory limit set by the central bank. We estimate a range of USD4 billion \u2013 USD6 billion of liquidity that could potentially enter the market as banks attempt to sell down the excess above the new regulatory limit of 0 percent long,\u201d they said.<\/p>\n
They however said some banks might have the long position on their balance sheet but without the liquidity in the immediate and may need forbearance from the CBN as they might not be able to meet \u201cthe very tight deadline\u201d.<\/p>\n
\u201cWe anticipate the market reacting negatively to this information in the interim, as the impact of the policy on bank earnings in the short-term is assessed. However, as the Central Bank continues to take steps to address the FX liquidity situation, we think that market expectations for green shoots appearing over the medium to longer term might not be out of reach,\u201d they added.<\/p>\n","protected":false},"excerpt":{"rendered":"
The market reacted positively yesterday to the recent reforms by the Central Bank of Nigeria (CBN), with the Naira appreciating by 13.3 per cent on the parallel market to close at N1,350 to the Dollar compared to N1,530\/$ on Wednesday. The naira pared some of its recent losses against the dollar on Thursday as markets\u00a0digested […]<\/p>\n","protected":false},"author":14,"featured_media":18029,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[173],"tags":[],"class_list":["post-18022","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"aioseo_notices":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/posts\/18022","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/comments?post=18022"}],"version-history":[{"count":1,"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/posts\/18022\/revisions"}],"predecessor-version":[{"id":18030,"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/posts\/18022\/revisions\/18030"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/media\/18029"}],"wp:attachment":[{"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/media?parent=18022"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/categories?post=18022"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/abujacityjournal.com\/livenews\/wp-json\/wp\/v2\/tags?post=18022"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}