Naira Rebounds as Banks Race to Comply with CBN Deadline

Deposit Money Banks (DMBs) in Nigeria engaged in a frenzied sell-off of excess foreign exchange holdings ahead of the Central Bank of Nigeria’s (CBN) midnight deadline on February 1, 2024. The move was prompted by the CBN’s directive to sell surplus dollars, resulting in increased forex activities and a subsequent rebound of the naira at the parallel market on Thursday.

The treasury departments of DMBs were reportedly immersed in processing numerous foreign exchange requests, selling surplus dollars to customers throughout the day. Top bank executives, speaking anonymously, confirmed significant forex transactions within the banking sector.

The CBN, in its effort to stabilize the volatile exchange rate, had issued a circular warning against hoarding excess foreign currencies for profit. The circular, titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” expressed concern over the growing trend of banks holding large foreign currency positions.

Banks with Net Open Positions (NOPs) exceeding the CBN’s limits were directed to adjust their positions and comply with the new regulations by February 1, 2024. The directive aimed to reduce risks associated with banks holding excess long foreign currency positions.

Following the CBN’s move to unify official and parallel market rates, several banks sold forex to customers on Thursday, contributing to a sharp rebound of the naira in the official market. Bureau De Change operators in Lagos, Kano, and Abuja also hurriedly sold their dollar holdings in anticipation of sustained gains.

The impact of the circular was evident as the naira traded at the parallel market between N1,300/$ and N1,350/$ in Abuja. Bureau De Change operators reported notable price rebounds, with the greenback selling between N1400/$ and N1420/$.

Bank officials emphasized their commitment to meeting the new FX prudential limit, with efforts focused on complying with the CBN’s directive. The recent circular followed closely after warnings against false exchange rates and adjustments in the methodology for calculating the nation’s official exchange rate by the FMDQ Exchange.

Meanwhile, there were reports of Bureau De Change operators planning to close their shops due to the success recorded on Thursday. The operators cited a scarcity of dollars, increased online transactions, and cryptocurrency activities affecting their business. Additionally, some bank officials suggested scrutiny of politicians and government officials hoarding dollars in their homes to further boost liquidity in the FX market.

In a related development, the CBN, in an effort to enhance liquidity, removed the previous cap on exchange rates quoted by International Money Transfer Operators in a recent circular titled ‘Guidelines on International Money Transfer Service in Nigeria.’