CBN flays forex dealers over abuse of discount

• Warns against non-compliance
• Banks may write off bad loans this year

The Central Bank of Nigeria (CBN) was again compelled to intervene on the interbank foreign exchange (forex) market on Tuesday to shore up the naira and check its free fall.

The bank had flayed authorised forex dealers for abuse of its discount window, forcing it to read the riot act to offenders, warning that further abuse would foreclose future access to the opportunity.

The naira had hit an all-time low of N350 to $1. It, however, appreciated significantly to close at N310.50 after the apex bank’s intervention, with traders revealing that a total of $6.86 million was traded.

Reports indicate: “A single trade of $100,000 was carried out at 350 to the dollar” before the intervention.

CBN said in a circular to all authorised dealers that it was forced to intervene because of what it described as “the observed abuse of access to the Central Bank of Nigeria Standing Lending Facility by authorised dealers.”

The circular, which was posted on the CBN official website, with reference number: FMD/DIR/GEN/CIR/07/005, explained: “It became imperative that some measures be taken to redress the trend and redefine the mode of operation by authorised dealers at the window.”

The circular, signed by its Director, Financial Markets Department, Alvan Ikoku, thereby directed all authorised dealers for forex “to refrain from accessing the discount window of the CBN on the settlement date for government securities’ auction.”

It clarified further: “The securities referred to here are CBN bills, Nigerian Treasury Bills and Federal Government of Nigeria Bonds.”