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Dollar glut hits market


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• Manufacturers, telecoms operators disagree

There is no agreement among stakeholders on whether the Central Bank of Nigeria (CBN) has succeeded in one of its foreign exchange (forex) transaction objectives, which is to ease access to the dollar.

While banks now complain of sharp drop in demand for it by customers, other stakeholders say they do not have access to the dollar for their operations yet. The Managing Director of Guaranty Trust Bank (GTBank) Plc, Segun Agbaje, said yesterday in Lagos that the financial institution was unable to exhaust the tranche it got from the apex bank last week.

Worried about the increasing rate of speculation in the forex market, leading to the free fall of the naira, which at one time peaked at N520/$1, the CBN recently began an intense intervention to not only shore up the local currency, but also increase access to the “scarce” dollar.

The intervention in the recent weeks through various offers and releases to the inter-bank market, the latest being the $240 million offered on Monday, has since seen the collapse of the multiple exchange rates in the market with the naira also gaining strength against other currencies.

Besides, the apex bank dispelled the fear about the impact of the interventions on the forex reserves, noting that even if it released about $5 billion into the market, the reserves will still be higher than $30 billion for as long as oil prices remain above $50/barrel at the international market.

Indeed, the CBN has pledged to continue with the efforts, adding that the naira is currently undervalued. Also, the banker of last resort assured the citizenry that there was adequate forex for Personal Business/Basic Travel Allowances (BTA, PTA), tuition and medicals. It also promised to sanction any bank that refused its customers’ demand for these purposes

But denying the allegation that banks were not selling to retail customers to execute the above, Agbaje said: “If anything, part of what I have heard is that some banks do not even have enough customers to sell the BTAs to.”

To underscore his point, he noted: “I find it difficult to speak for other banks, I can only speak for my own bank, and you can cross-check this with the Central Bank. Apart from last week, every dollar we had have been sold for BTA and the fact that we did not even sell out last week shows you that there were not enough customers asking for it.

“From the perspective of the GTB and our customers, who bought BTAs in the last three or four weeks, they will tell you how easy it is. So, I really don’t know where the accusations are coming from.”

The CBN promised to sustain the tempo of its interventions until it is comfortable with the exchange rate, currently at N360/$1, although the dollar exchanged at the rate of N392/$1 at the parallel or black market at the close of work yesterday.

Agbaje, who refused to comment on the exchange rate, observed: “As a bank, you do not take a position on the exchange rate, what you do is to plan for different scenarios. You plan for revaluation, devaluation and what have you.”

But some operators disagreed on the low demand, saying that supply has only improved, noting that if there is low demand as being claimed by the banks, it will reflect on naira appreciation in the parallel market.

To The Guardian’s observations that the financial services sectors, especially banks were the only ones declaring profits in the country and not too disposed to developments in the economy or advancing loans to the real sector, the GTBank boss dismissed the claims.

According to him: “First, there is a lot of myths than reality, and I am not sure the banks are the only people making profit in Nigeria. The reason it appears that way is because the banks are quoted so they have to publish their results.

“The people in fast moving consumer goods are making a lot of money today because you are feeding the population that is large and is a consuming population. The telecoms, some of them are still doing very well, those in the oil industry are doing very well. In fact the consumables are probably even more profitable than the banks today.”

He went on: “The second thing is the myth about lending, I showed you a loan to deposit ratio and it is 75 per cent. We had deposits of N1.9 trillion and loans of N1.6 trillion, which mean we are lending. If we were not lending, we would not have a loan to deposit ratio of 75 per cent.

“This thing called real sector, what is the real sector? This differs from country to country. The real sector is when you have a competitive advantage as a country. In some parts of the world, you might classify building aeroplanes and building ships as the real sector, so it depends on what your competitive advantage is as a country. We believe we are lending to the real sector, 72 per cent of our loans are with them, we have 10 per cent to retail. Most people in this room today have retail needs of one form or the other, which means again, we are supporting the real sector.”

In assessing banks’ financials, Agbaje advised the public to look beyond just the profits to the realities on ground, stressing: “In analysing the results of banks, have the banks profits really grown more than just the devaluation. What is the percentage of devaluation we have had in Nigeria?

“So if you take what the profits were in 2015 divide by the exchange rate of N199, and take the profits we had by the end of 2016 and divide by N312, has there actually been real growth? I am sure that if you are dealing with most banks, the best ones would be flat and most of them would have actually dropped in profitability. Again, I think we should not forget that there has been devaluation, and should not be looking only at absolute profits.”

Commenting on the accessibility of the dollar, the Director General, Nigeria’s premiere chamber, Lagos Chamber of Commerce and Industry, LCCI, Muda Yusuf, argued that “Once there is a glut it will show in the exchange rate, because every surplus leads to price drop.”

He told The Guardian on the telephone if customers were finding it easy to access dollars from the official windows, it will impact on the parallel market through naira appreciation.

Besides, he noted that what is being accessed now, is from the forwards and not spot market, where customers had booked for the scarce currency way ahead. Similarly, the President, National Association of Telecoms Subscribers of Nigeria (NATCOMS), Chief Deolu Ogunbanjo, claimed that telecoms operators were yet to benefit from the CBN’s efforts at making dollar available for service providers, noting that the glut, if any, should be for sectors like education and medical health.

He said: “They will need to go a step further, to deliberately encourage telecommunications operators to have access to foreign exchange so that quality of service can improve. As I am speaking to you, it is still a challenge for players in the ICT/Telecoms sector to have access to dollar. The Minister of Communications, Barrister Adebayo Shittu, at a forum in Lagos, last week still mentioned the challenge, urging the apex bank to relax the rules for the sector.”

An official of one of the major telecoms operator, who spoke with The Guardian, on the condition of anonymity, confirmed Ogunbanjo’s claims, saying: “getting access to dollar is still a challenge for operators. I know of a competitor, which was supposed to bring in some equipment for network upgrades for about two months now, they have been having serious challenge getting foreign exchange. I think the CBN should look into the matter as fast as possible.”

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  • Aristotle

    Somebody is definitely not telling the truth. You can’t have a glut of dollar in the market and at the same time have a high exchange rate. Simple economics dictates that when supply is higher than demand, prices crash and vice versa. So how come only the banks are “experiencing” this supposed dollar glut? It won’t surprise me to hear that banks buy at official rates from the CBN then resell to BDC at black-market rates. This wouldn’t be the 1st time such will happen in Nigeria. The earlier we scrap this dual exchange rate practice, the better for us.

    • Folake [Foh-lah-keh] Vaughn

      Absolutely right!

    • Musa Lawal

      It’s easy to comprehend. If CBN allows banks to manipulate the allocation for invincibles, the glut will disappear because the banks will resort to their round tripping mechanisms. But, since the CBN put checks and balances on the allocations for the invincibles, banks have found it difficult to divert the funds meant for these itemized invincibles. Because there are not enough demands for about $100 million every week for just BTAs, PTAs, Medicals and other items on the invincibles’ list, this glut is manifest. What does that tell you? The commercial banks have been sabotaging our economy through round tripping of forex allocations.

      • zung

        Yeah very well, along with probably with the CBN as they’re being checked now by the DSS too. Sorry state for us really.

    • Comfort Destiny

      The way forward is for the CBN to monitor the foreign exchange operation of banks and to sanction erring banks.

      • zung

        CBN keh! Same people being interrogated by DSS? It’s suspected that it’s the interrogation that has made them to release $ these days. They’re suspected along with the DMBs (commercial banks) along with politicians and civil servants to be owners of these BDCs. A long way to go man.

        • Comfort Destiny

          Then the Government should disband BDC.

          • zung

            You got the meat of the matter now. We know that when the BDCs are disbanded, they’ll still exist as black markets but it’s better that they’re illegal not as a legal way of sharing our commonwealth.

      • Peter O Peters

        Another way forward is to ban black market and let anything about money transaction be done with banks just as is done in other civilized countries. ONE RATE FOR ALL.

        • Comfort Destiny

          The Mallam could die of hunger since they majorly own and operate the business in Nigeria.

    • zung

      Why are you writing as if this is a strange thing? That has been a long time suspicion over several years ever since the naira stated being devalued. This is stale. Many believe that’s one of the round tripping streams.

  • ede

    The Website your boss doesn’t want you to know about

  • Concerned

    I can’t understand why the foreign exchange allocation to BTA/PTA is prioritised above infrastructural and raw materials procurement.

  • Folake [Foh-lah-keh] Vaughn

    The headline is very misleading. The CBN is only supply forex to the elite: those who send their children to study abroad, those who receive foreign medical treatment and overseas travellers. The CBN (and the press is falling into this misinformation) is not supplying forex to genuine importers of goods. They are only engaging in a futile attempt to bring down the gap between the official and parallel markets by burning reserves and meeting only part of the demand. They will not succeed. No country in history has ever succeeded.
    In the process, CBN officials and their counterparts in some commercial banks continue to make money by allocating the little forex left for the payment of LCs to desperate importers.

  • real

    again the central bank has spend 5 billion dollars and yet the productive sector is still complaining of lack of access and dollars. This 5 billion should have being focus massively on the productive sector not on BTA/PTA. What the central banks is failing to understand is that, oil prices are slowly coming down and there is a lot of noise of it going below 40 dollars. if that happens or when it happens, Nigeria would be in a massive mess because the central bank would have wasted our forex on consumption yet again.

  • The CBN was right initially to tighten forex use, conserve reserves, and aim to induce backward integration and increased local production but the elite class won’t have none of that. Eventually CBN was ordered by Osibanjo’s economic team a few weeks ago to embark on the current fruitless forex banzaar. There is pressure to remove the restrictions on 41 import items. With that Nigeria is back full circle to status quo until the next crises. Over the past two years, the ruling party APC have been accusing PDP of squandering the past oil price windfall. APC will likely face same in the next two years. Algeria earned less dollars than Nigeria during the last long oil price boom but it had saved $150 billion in reserves when the price crashed. Oil price is predicted to be in the range of $30-$40 for a prolonged period because of American Shell oil and Canadian oil sands activities as well as many new producers in Africa.

  • ade

    Please where is the dollar glut? If there is, then the dollar should depreciate in value and the Naira should appreciate.