FDC Analysts Say Banks’ Documentation Process For Sale Of Forex to Public Is Cumbersome

Inflation: Forex Availability Crucial For Nigeria's Import-Dependent Economy

The Financial Derivatives Company Limited has stated that banks’ documentation process for the sale of foreign exchange is cumbersome, noting this situation poses a challenge to the public.

Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, last week, at the end of the Monetary Policy Committee meeting announced that the apex bank will no longer offer foreign exchange to Bureau De Change operators, stating that they had become“agents that facilitate graft and corrupt activities of people who seek illicit fund flow and money laundering in Nigeria”.

As an alternative, the CBN would offer a significant portion of its weekly allocation to commercial banks to serve the legitimate forex demand of Nigerians and businesses.

Analysts at FDC, led by Mr. Bismarck Rewane, stated in a fresh report that the development saw the Naira crash to N525/$ at the parallel market the following day as the markets attempted to process the implications of the CBN’s decision on businesses.

They said, “Since then, the naira has gradually appreciated, to currently trade at N508/$ (August 4). Other market rates have also appreciated. For instance, the IATA rate (the exchange rate used by airlines to issue tickets) moved from N460/$ to N412-N413.

“Since the CBN is expected to shift the forex supply previously sold to BDCs to the banks, we expect to see an increase in volume and turnover in the banking segment of the forex market, making dollar sales more accessible to the public. This will lead to an appreciation of the exchange rate for invisibles such as PTA (personal travel allowance), BTA (business travel allowance), tuition, etc.”

The analysts posited that the development in the parallel market will see exchange rate depreciation continue, albeit temporarily, causing the widening of the forex market premium.

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“However, as the market adjusts to the new forex ban, the spike in the parallel market premium will fizzle out, leading to a convergence of rates around the IEFX window,” they added.

It however noted that commercial banks stand to reap rewards from the increased forex supply from the CBN and, in return, witness growth in transactions.

“However, the cumbersome documentation process required by banks will remain a challenge for the public. We expect the markets to adjust to the new norm, while the BDCs will be forced to survive or become extinct in the new forex market era,” the analysts said.

About Author

Victor Okeh is a graduate of Economics from Lagos State University. He is versatile in reporting business and economy, politics and finance, and entrepreneurship articles. He can be reached via – [email protected]

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