Nairametrics| The Central Bank of Nigeria now allocates foreign exchange (FX) to banks based on the size of their unimpaired shareholders’ funds – the value of shareholder investment in a bank.

In a circular released by the CBN, which was not yet made public, the CBN announced a Special Wholesale Forwards Intervention not exceeding 60 days, with the following conditions (excerpts)

-US$100.00 million would be on offer
-Deposit Money Banks (DMBs) with unimpaired shareholders’ funds of N350 billion and above are limited to a maximum bid of 12.5% of the amount on offer
-DMBs with unimpaired shareholders’ funds between N200 billion and N350 billion are limited to a maximum bid of 10% of the amount on offer
-DMBs with unimpaired shareholders’ funds between N75 billion and N200 billion are limited to a maximum bid of 3.5% of the amount on offer, while DMBs with unimpaired shareholders’ funds below N75 billion are limited to a maximum bid of 1% of the amount on offer.
-Merchant banks are limited to a maximum bid of 1% of the amount on offer

The apex bank has somewhat conveniently decided not to apply Clause 2.43 of its Revised Guidelines For the Nigerian Inter-bank Forex Market, which it released in June 2016. In the rule, The CBN may, at its discretion, intervene in the FX market through the sale of FX to Authorised Dealers (wholesale) or to end-users through Authorised Dealers (retail) via a multiple-price book building process using the FMDQ-Thomson Reuters FX Auction Systems, or any other system approved by the CBN.

Crony CBN?

This move by the CBN segregate banks into 4 categories (starting from the largest) based on the size of their shareholders’ funds. It inadvertently favors the biggest banks – Zenith bank, First Bank, GTB, Access bank and UBA, as they will receive more FX allocations, while it adversely affects the smaller banks, including foreign-owned banks because they will receive less allocations.

Zenith bank, the former employer of Godwin Emefiele, has N730.4bn in shareholders’ funds; FBN holdings had 9 months unaudited shareholder funds of N622 billion; GTB, according to its 2016 audited financial statements had N496bn in shareholders’ fund; Access Bank had N449 billion and UBA N436 billion as at December 2016.

Going by this metric, as much as 50% of the total FX allocations in the system could potentially go to the top 4 banks. This could be significant for commercial bank profits considering how much Tier 1 banks have made from forex revaluation and fees in 2016 alone.

Poignant to note that the circular also emphasizes the word UNIMPAIRED. Assuming an impairment of 30% of shareholders’ funds, for mathematical rigour, Zenith, GT bank and First Bank would have been the only ones qualified for the maximum amount.

A tier 2 bank such as FCMB for example with shareholders’ funds of N170 billion as at December 2016 would qualify for just 3.5% of the offer. Same with Stanbic IBTC which had shareholder funds of N137 billion as at December 2016. Yet these banks may have several customers who need foreign exchange.

Critics of this latest move by the CBN insinuates a clear case of favoritism for Tier 1 banks, particularly Zenith Bank, the former employer of Godwin Emefiele. Recall, Nairametrics exclusively reported that Zenith bank, was considering raising additional capital of N100bn, but shelved the capital-raise plan when the MD was unable to explain to analysts and investors in its earnings call, why this extra capital was needed. Does this mean that the bank has suffered significant impairments, and was trying to shore up its capital in anticipation of this new CBN FX Intervention? Was Zenith bank forewarned of this intervention by Emefiele who was its former MD?

Wider Implications

This new FX intervention isn’t as clear as day, and it throws up some issues and implications: Will this be the norm going forward? Does it mean that the CBN will no longer disburse FX based on the needs of bank customers, as it had been doing prior to this latest intervention? Does it now emphasize banks over and above the actual number of customers that a bank has?

Finally, and more importantly’ is this intervention is meant to reduce the number of players in the FX game by channeling FX users to the few dominant banks, thereby achieving tighter control of the FX market?

This could have potential consequences. For example, it may lead to a scramble for more capital by the smaller banks, so that they can keep up their FX allotments and maintain their customers by extension. As smaller banks become unable to meet FX demands from their customers due to their reduced allotments, they will begin to lose customers to the larger banks, leading to a loss in business and revenue for them.

http://nairametrics.com/exclusive-%E2%80%8Bcbn-to-allocate-forex-to-banks-based-on-the-size-of-their-shareholders-funds/

Adesiji77

Do you work for Nairametrics?

When it comes to something as sensitive as selling Forex or dollars, CBN should be careful not to show a bias to anyone.

When it comes to Forex another method should be used to calculate the sharing formula.

Wema Bank can't compete with FirstBank.

many nairalanders Won't understand this news , wonder why its here

Just watching

What is cbn talking about? Can someone explain this new policy in simple term.

non capito

na wa oh

H

Na wah oooo

....ABEG !!!


ATTENTION. .!!!

I DEY BEG UNA !!! PLEASE MAKE UNA GO READ THE ARTICLE FOR NIGERIABULLETIN.COM BEFORE UNA COMMENT

Thank una !

All na runs.

The dollars dey go BDC hand.

This policy alone don make naira depreciate to 377/$ as against the 360/$

okay o

How much be heritage bank shareholders fund?

Obnoxious policy that will only reverse the gains hitherto made by the Naira.

Please anyone with the ears of Emefiele had better call him to order.

Is this part of Tinubu Policies used in Lagos State?

Well... thats what FGN said.

The risks (business) a bank can undertake is always a function of their capital (shareholder funds). So the CBN is in order. Even international conventions like the Basel I and II has clearly spelt this out.

Everyday new Forex policy. lol. Who cares anymore anyway? When I'm not Aboki change dollar. No difference between Forex and MMM now or baba Ijebu now. You may win or lose. Last year I changed 1000 dollars to naira at 340 naira to dollar and the next month the dollar rose to 415. This year I changed 5000 dollars at 495 naira to 1 dollar and the next month it became 375 naira to 1 dollar. Forex in naija now na eyi je eyi o je. You win or you lose.

If you are in the US or have relatives in the US trying to send money to naija, I will exchange the funds at 320/$, simply deposit into my US bank account and receive instant funding into your Nigerian account. Don't bother with western Union and co, they exchange at 300/$ , with fees and the exchange rate drops even lower.

See contact in signature..

Don't forget....

HandsomeJude:
many nairalanders Won't understand this news , wonder why its here

It's not bb naija or tonto.

kaboninc:


Do you work for Nairametrics?

No sir

So much money in circulation and yet. It seems things still fall apart. Nigeria must get it right.

Adesiji77:


No sir

You sure?? Lol.

davide470:
You sure?? Lol.

What risks are you talking about?
The CBN sells the dollars to the banks, it doesn't advance it to them as loans. So its simply buying and selling.
Like some persons pointed out, this is simply a move aimed at giving undue favour and preference for the big banks. I wonder what the Bankers' Committee is thinking.

otomatic:
The risks (business) a bank can undertake is always a function of their capital (shareholder funds). So the CBN is in order. Even international conventions like the Basel I and II has clearly spelt this out.