FACTS emerged on Tuesday that banks in the country decided to stop their naira debit cards from working abroad after the Central Bank of Nigeria asked them to adopt the interbank foreign exchange rate as the basis for charging customers for foreign currency-denominated transactions.

Deposit Money Banks, including Standard Chartered Bank, Stanbic IBTC Bank and Guaranty Trust Bank Plc, had on Friday announced the suspension of the cash withdrawal from Automatic Teller Machines and PoS terminal transactions abroad using naira debit cards.

Also suspended by the banks are online transactions denominated in foreign currencies.

Top officials close to the development told our correspondent on Tuesday that the CBN had during the last Bankers’ Committee meeting held in Lagos last week directed the banks to add only N5 profit margin to the official interbank rate on all foreign exchange-related transactions carried out with naira debit and credit cards.

The development, the officials said, forced the banks to stop all foreign transactions on their payment cards.

A top official of a tier-1 bank, who spoke under the condition of anonymity, said, “During the last Bankers’ Committee in Lagos, the CBN directed banks to add only N5 to the official interbank rate of N305 to the dollar, or whichever rate is prevailing at the interbank market. Banks said this was not possible because the lenders had been sourcing dollars at rates above N400 per dollar to run their card services. We could not get dollars from the interbank market.

“We have to sell at the rate we sourced it. How can we charge say N310 per dollar for something we sourced at around N400 per dollar. This is why the banks decided that rather than lose, we should just stop it. The CBN has given the directive and we have to cope, because we will give returns. So, rather than being found wanting, it is better to stop the forex transactions on our naira debit cards.”

The decision of the banks to stop foreign currency-related transactions on naira debit cards has affected intending travellers and the sUnited Kingdom and Canadian visa applicants, with many of them finding it difficult to pay for their visa applications online with naira debit cards.

Sources told our correspondent on Tuesday that the CBN had wanted banks to stop dollar transactions on naira debit cards, arguing that only few Nigerians travelled abroad to use their naira debit cards to withdraw dollars and shop.

“I think it is a strategy by the CBN to reduce the dollar demand. They think if they reduce demand for dollar, the exchange rate will come down. They know that if they ask banks to add just N5 to the official interbank rate as their fees, many of us will not be able to cope and we will back down,” a top official in another tier-1 bank said.

The decision by some of the banks to suspend naira debit card usage overseas and online forex transactions came barely one week after the CBN had raised concerns about what it called the indiscriminate and suspicious manner in which some bank customers were spending dollars and other foreign currencies abroad through their naira debit cards.

Consequently, the regulator said it had concluded that bank customers who spent above the $50,000 annual forex limit it imposed would be barred from the nation’s forex market.

The Director, Banking Supervision, CBN, Mrs. Tokunbo Martins, stated this after the 329th Bankers’ Committee meeting in Lagos on Wednesday.

She said, “In the CBN’s move to manage the demand for forex, there was a rule that people were not allowed to withdraw more than $50,000 annually on their naira debit cards.

“For a while, the policy has been abused by bank customers, and the CBN has not taken any step to that effect. We have decided to take the step now to enforce the rule. So, we want members of the public to remember that that rule is in place.

“All your accounts are linked to a particular Bank Verification Number. Now, that the BVN only allows you to withdraw only $50,000 per annum, if people continue to breach that rule, they will lose access to the forex market.”

On Wednesday, the country’s external reserves hit an 11-year low of $24.21bn, according to data posted on the CBN website.

This means a limited amount of dollars will be available at the official interbank spot market, fuelling concerns over another round of depreciation of the naira.

The foreign exchange reserves fell by $600m in two weeks before shedding $1bn in four weeks, the CBN statistics showed.

Investment Banking firm Cardinal Stone Partners in its latest weekly report revealed why it thought commercial banks in Nigeria were charging customers parallel market rates when they use their debit card for online forex transactions.

In a research report sent to its clients, the firm opined that banks made a lot of money from Card/E-banking Revenue by charging customers parallel market rates after it agreed “informally” with the CBN to do so as a means of discouraging arbitrage.

Card revenue for the banks in our coverage universe grew by an average of 88% between FY’15 and H1’16 (annualized) respectively. The significant jump between FY’15 and H1’16 as we gathered was partly as a result of an informal agreement between the CBN and banks to set card rate close to parallel market rate so as to discourage FX round tripping and speculations. Card transactions are typically settled by Nigerian banks at a rate that is substantially higher than the interbank rate (spread to interbank rate is about 55% on average). With this many banks saw a substantial improvement in non-interest income despite the lack of liquidity in the interbank FX market.

Nairametrics readers will recall clearly that forex transactions on Naira debit cards were typically charged rates closer to the parallel market rates instead of the interbank of (fixed rate as it were before floating) that many had expected. This confused a lot of people who did not understand why the rates were that high.

This also explains why a lot of Nigerian banks posted significant rise in revenue from Card/E-Business. According to the report, Cards/E-banking Revenue on average accounted for 7% of total revenue representing a growth of about 88% year on year. However, they also opine that this revenue boom might dissipate in the final quarter of 2016, following then decision of most banks to suspend the usage of cards for online forex transactions.

We expect a significant reduction in the contribution of card revenues to non-interest income in Q4 if the suspension of card transactions persist. However, the impact on FY revenue would be minimal since only Q4 card revenues will be affected. On our previous FY’16 e-banking revenue estimate of N157.8 billion for the banks in our coverage, we estimate a 12% reduction across board. Access bank and UBA will likely be the most affected as e-banking revenues account for 10.8% and 10.9% of gross earnings for the two banks – the highest in the industry.

bigtt76:
So what of the dollars the banks were to sell to BDCs? Did they source it from the Black market ni? These people are not just telling us the truth. The banks stopped the card transactions after CBN suspended 19 banks from selling their forex.

What this meant is that when the banks are suspended, they cannot continue to payout Naira to customers while they have a horde of forex unused in their vaults.

They would end up not having Naira again since they cannot use the forex to settle their bills externally without CBN clamping down on them nor can they sell to the BDCs to get Naira. Just watch, when the suspension is lifted, they will resume ....#uselessBanks