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Nigerian Banks resist regulatory forex intervention

by Business News Report

Banks have started resisting the efforts of the regulatory authority to intervene in the interbank foreign exchange market.
Investigation reveals that most of the banks shunned the CBN intervention dollar sales on last week, in protest of the limit of 10 kobo margin imposed on sale of such dollars. Consequently, the interbank bank exchange rate closed above the N170 mark.
Recall that two weeks ago, the CBN said that banks must sell dollars purchased through its intervention within two days at a delivery rate not more than 10 kobo above the purchase rate.
The CBN also said that if intervention dollars not sold within two days must be returned at the original rate. It also banned banks from selling intervention dollars in the interbank market and also to bureaux de change.
“The 10 kobo margin imposed by the CBN makes the intervention dollars of little use to the banks”, an interbank source told Vanguard under anonymity. “If the CBN wants banks to continue to buy its intervention dollars, it has to remove the limit of 10 kobo margin”, the source said.

As a result many banks became reluctant to purchase the intervention dollars. Investigation revealed that on Thursday, many banks shunned the CBN when it called to request for their exchange rate quote. It was gathered that those who bought explored how they can circumvent the 10 kobo limit.
Realising this, the apex bank on Friday issued a warning to all the banks, threatening to sanction any bank found circumventing the 10 kobo margin limit. Consequently, the intervention dollars sold on Friday had minimal impact on the interbank exchange rate. From N172.3 to the dollar on Thursday, the interbank exchange rate moderated to close at N171.2 to the dollar on Friday, translating to 90 kobo appreciation for the naira.
But on a week-to-week basis, the naira depreciated by N5.4 during the week as the interbank rate rose from N165.8 to the dollar the previous week, to N171.2 last week.

In the same vein, the naira last Wednesday suffered its largest official depreciation in three years. At the Bi-weekly Retail Dutch Auction System (RDAS) session conducted on Wednesday by the CBN, the official exchange rate rose to N156.39 to the dollar from N155.85 at the previous session conducted on Monday. This translated to 54 kobo depreciation of the naira against the dollar, and the biggest in three years. This combined with the five kobo depreciation at the RDAS session on Monday, translates to 59 kobo depreciation of naira during the week.
Until last month the CBN had fiercely defended the naira, maintaining the official exchange rate at the N155.75 since April 2013. But following the increasing decline in the nation’s external reserve, rising demand for foreign exchange occasioned by foreign investors divesting from the country in response to decline in price of crude oil, the apex bank started depreciating the naira at the official exchange market. On October 15th, it depreciated by the naira by one kobo, and by two kobo on the 3rd and 5th of November. On Monday, November 10th, the CBN allowed the naira to depreciate by five kobo and then yesterday by 54 kobo. The last time the CBN allowed the naira to depreciate more than 50 kobo at the official market was on 28th of November 2011.

External reserves fall by $37.59bn

The nation’s external reserve maintained its downward trend last week, falling by $390 million to $37.59 billion. This was despite 46 percent decline in dollar sales through the bi-weekly RDAS sessions last week. Result of the dollar sales real that the amount of dollars sold by the CBN dropped to $319.96 million from $599.73 million the previous week. The effect of the reduced dollar sales through RDAS on the external reserve was however nullified by the increased sale of intervention dollars in the interbank market. Cumulatively, the external reserve has fallen by $1.17 billion this month and by $6.34 billion this year. With the price of crude oil falling further last week, and the CBN still bent on defending the naira, the external reserve is expected to fall further.

Treasury bills record 225% oversubscription

Treasury bills trading last week recorded 225 percent oversubscription, reflecting continued impact of the interest rate limit imposed on banks’ deposit with the CBN. Recall that the CBN, the previous week, said that banks should not deposit more than N7.5 billion with it, and anymore deposited beyond this limit will not attract interest rate. As a result, banks have been seeking for alternative investment channels for their idle cash.
Result of the treasury bills trading show that the CBN offered N80 billion worth of secondary market (OMO) bills but banks and other investors demanded for N260 billion, while N228 billion was allotted. During the week, the CBN paid for N244.17 billion treasury bills that matured. This moderated the effect of liquidity outflow through foreign exchange and treasury bills purchases.


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