CBN Warns Banks on Foreign Exchange Policy Infractions
With the impacts of low-interest environment on the industry’s earnings outturn, the Central Bank of Nigeria (CBN) has warned Deposit Money Banks (DMBs) to always observe due diligence and desist from all forms of malpractices in foreign exchange (FX) transactions.
The apex bank gave the warning in a letter by Ozoemena Nnaji, Director of Trade and Exchange Department, addressed to the DMBs. Nnaji urged the banks to not only ensure to know their customers but also to know their customers ‘businesses. She said the directive was necessitated by recent occurrences in the foreign exchange market.
“The CBN wishes to remind all banks that it is their responsibility to not only know their customers (KYC requirements) but also know their customers’ businesses (KYCB requirements). Given this responsibility, and in view of recent occurrences in the market, the CBN will like to remind banks to desist from all forms of FX malpractices.
“We wish to reiterate that FX operating licences of any bank or banks that are found culpable with ongoing investigations will be suspended for at least one year,” the director said. She urged all the DMBs concerned to take note and ensure compliance.
Recall the Nigerian lenders in an email separately sent to customers had cautioned customers from the possible diversion of foreign currencies for business and personal travelling allowances obtained from banking halls.
Banks asked customers to return unused foreign currencies bought, adding that the CBN will treat such as financial crime and melt appropriate sanctions, including prosecution.
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Reacting to the apex bank decided to cut off weekly dollar supply to bureaux de change operators, the naira has spiked to N545 a dollar in the parallel market while BDCs sell at N540 on Friday.
However, the apex bank maintains that legitimate transactions can be met via Nigerian banks amidst a plan to constantly improve supply. Some analysts see widened spreads between the parallel market and N412 official rate as creating opportunities for arbitrage.
Many banks had been caught in round-tripping in the past, and the new foreign exchange policy could trigger actions as banks struggle with their earnings growth due to Nigeria’s low-interest rate environment.
The CBN dovish stance on the benchmark interest rate, a move to support economic growth and sustainability has seen local banks earnings from interest yielding assets dropping low.
Both interest income lines and yield from investment securities have tumble below the historical average while most banks improve profitability with gains from their net dollar positions.
Resulting from a weak appetite for credit creation, many banks have seen pressure on their funding following serial cash reserves ratio debits for failing to meet the 65% loan to deposit ratio despite macroeconomic pressures.
CBN Warns Banks on Foreign Exchange Policy Infractions
