Anxiety as forex scarcity hit banks - THE NATION

20 July 2020

By Ibrahim Apekhade Yusuf and Charles Okonji

 

Indications are that most deposit money banks (DMBs) operating in the country are practically struggling to meet daily demands of foreign exchange to customers, The Nation has learnt.

This is despite the reported weekly cash lodgments of $100million being disbursed by the Central Bank of Nigeria (CBN) to the banks for prospective customers.

Speaking with some bank customers who would not be named because of the sensitive nature of the report, they confided in our correspondents that most of the banks were unable to meet their daily forex obligations thus leaving them with no other option but to patronise bureau de change operators at the black market.

While reacting to the development, Aminu Gwadabe, President, Association of Bureau De Change Operators of Nigeria (ABCON), the umbrella body for registered bureau de change operators said this was expected because his members, who remain a key factor in the forex trade value chain, were not operating.

"Clearly, the absence of BDCs is responsible for the spike and volatility of exchange rate as far as Iím concerned. As long as the CBN continues to do unification of the exchange rate without factoring the BDCs, we will continue to experience a wider gap in the exchange rate," he said.

Expatiating, the ABCON boss said, "The problem is that the retail end of the market cannot withstand the pressure thus leaving the parallel market a free for all.

Now the exchange rate at the black market is N470 to a dollar. If the BDCs get to work, in no time, we can bring down the price to as low as N400.

The concept of the CBN is that since the airlines are not working, the BDCs canít operate. This whole idea of thinking that the BDCs only deal with travellers is erroneous because that alone is not only our scope. Until this is taken care of, we will continue to have a spike and volatility in the foreign exchange."

Echoing similar sentiments, Prof. Jonathan Aremu, renowned economist and one-time Assistant Director, Research and Planning at the CBN, said the scarcity of forex in banks could be attributed to a combination of factors from poor remittances and inflows from other major sources of foreign exchange such as import and export activities.

According to the Professor of International Economic Relations at the Covenant University, "The situation is beyond the banks as well as the CBN. The problem really is that with the major sources of forex drying up, this was only expected, with the advent of Covid-19."

To address this shortfall in forex, the university don said there is need for the country to set machinery in motion to explore trading activities across the sub-region and at the continental levels.

Specifically, Prof. Aremu said, "There is need to ratify our position on the African Continental Free Trade Area (AfCFTA) so that by the time it kicks off in January, Nigeria would be among the beneficiary. Besides, the Pan African Payment and Settlement System, which is another window being proposed by the AFREXIM Bank, is an added advantage to Nigeria. All these will enable the country shore up her forex reserve ultimately."

Mazi Okechukwu Unegbu, banker, stockbroker and lawyer is also on the same page with Prof. Aremu.

"Our forex reserve is very low. I doubt if it can support our import consumption for the next three months. Unfortunately, our debt service ratio is sourced from our reserve, which is less than $30b and they keep borrowing more. Currently, we have a problem with production with many companies closing down as a result of the ravaging Covid-19.

All the governments including the legislatures need to do is to cut down on needless expenses. That way, we can conserve and grow our foreign reserve," he stressed.

It may be recalled that the CBN had at two different occasions devalued the local currency amidst lower oil prices, first from N306 to N360 and later followed it up by another adjustment of July 7, 2020, which moved the rate at the Special Secondary Market Intervention Sales (SMIS) to N381 per dollar.

Reacting to the new policy regime, the Manufacturers Association of Nigeria (MAN) lauded the apex bank, saying that a unified exchange rate in the country would facilitate stable production planning and engender sustainable economic growth.

In a statement signed by MAN president, Engr Mansur Ahmed, he said, "It is a welcome development that should engender increased investment inflow into the real sector of the economy and a laudable initiative that has come at the right time, particularly now that the economic outlook is gloomy in light of the impact of the ravaging Covid-19 pandemic that has culminated in uninspiring macroeconomic situations."

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Steven Rich
Sep 17, 2018:
Well done
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