Commercial banks in Nigeria engaged in a flurry of foreign exchange transactions on Thursday, attempting to sell off excess foreign exchange holdings before the midnight deadline set by the Central Bank of Nigeria (CBN) on February 1, 2024. The CBN directive mandated banks to divest all surplus dollar stocks and cautioned against hoarding foreign currencies for profit.
Throughout the day, the treasury departments of Deposit Money Banks (DMBs) were reportedly processing numerous foreign exchange request forms from customers, resulting in increased forex sale activities at the official foreign exchange market. The heightened transactions contributed to the rebound of the naira at the parallel market.
Several high-ranking bank executives confirmed significant forex activities within their institutions, as officials sought to meet the new prudential requirements imposed by the regulator. As of 6 pm on Thursday, bank officials, particularly those in the treasury departments, were working diligently to comply with the CBN’s directives.
In a circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” the CBN expressed concern over the growing trend of banks holding large foreign currency positions, creating an incentive for them to maintain excess long foreign currency positions. The regulatory authority directed banks exceeding Net Open Position (NOP) limits to adjust their positions and adhere to the new regulations by February 1, 2024.
The move followed another recent circular from the CBN warning banks and forex dealers against reporting false exchange rates. The central bank is taking measures to unify the official and parallel market rates of the naira.
In response to the directive, several banks sold forex to customers on Thursday, leading to a notable rebound in the national currency in the official market. Bureau De Change operators in Lagos, Kano, and Abuja also moved to sell their dollar holdings amid concerns that the local unit might sustain its gains in the coming days.
BDC operators in Lagos reported buying and selling the greenback for N1400/dollar and N1420/dollar, respectively. In Abuja, the naira traded at the parallel market between N1,300/$ and N1,350/$.
The CBN’s directive aims to ensure compliance with new FX prudential limits, with banks working to meet the deadline and offload excess forex holdings. The CBN’s effort to boost liquidity in the FX market also included the removal of the previous cap on exchange rates quoted by International Money Transfer Operators in a circular issued on Wednesday.
