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CBN’s New FX Guidelines Hold Mixed Fortunes For Banks - Business - Nairaland

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CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by Adesiji77: 9:20am On Jun 17, 2016
Wednesday’s decision by policy makers in Africa’s largest economy to adopt a market driven foreign exchange policy holds upsides for lenders, even as it retains its fair share of upheavals.

In a June 15 note to BusinessDay, Renaissance Capital, an investment banking firm, said the new policy would result in revaluation gains as banks use the interbank rate for balance sheet conversions.

“[There will also be] FX trading gains. To better appreciate this however, we need clarity on the modus operandi of the liberalised interbank FX market,” the note penned by Adesoji Solanke, head of research and sub-Saharan bank analyst, Renaissance Capital, stated.

“Will the interbank rate be fixed again, albeit at a higher price, or will it be freely liberalised or within some sort of band? What happens to the backlog of FX demand, particularly those that affect banks’ asset quality?” the report read.

Razia Khan, chief economist at Standard Chartered Bank, also weighed in on the positives of the new FX structure.

“A weaker FX rate will likely boost Nigeria’s receipts from oil revenue, and help contain the overall fiscal deficit,” Khan said in an emailed note to BusinessDay.

However, on the flip side, negatives abound.

“The foreign exchange exposure of the Nigerian banking system, given the preference for USD-lending in previous years, remains a key concern. A much weaker FX rate may initially bring loan deterioration, with higher system NPLs and even in the presence of accommodative monetary policy, appetite for new bank lending may take some time to recover,” Khan added.

Renaissance Capital’s Solanke also highlighted the woes the new policy had in store for lenders in his note.

“Capital and NPL [non-performing loan] risks are the biggest potential negatives of the new FX guidelines,” the report read.

BusinessDay gathered that the lenders were well aware of the NPL and capital risks a weaker naira will bring, yet they wanted to see more flexibility in the interbank rate, which would be supportive of growth and facilitate planning.

In other words, though Nigerian banks view Wednesday’s FX decisions positively; they had anticipated the upheavals to follow.

“For NPLs, the reality is that many small businesses are already either starved of FX or have had to access this at parallel market levels; therefore, some adjustment to a weaker rate has already happened.

The big businesses with significant volume demand were still in queue and operating at the official/fixed interbank rate.

A further move of significant FX demand away from the official rate to a weaker and floating interbank rate should now have a more notable impact on larger corporates; these nevertheless tend to have relatively larger buffers to absorb currency swings,” the report read.

One of the positives of not devaluing for this long is that the banks have had the opportunity to think through the risks of a devaluation compared with 2009, and implement some measures, however small, to deal with this, such as holding customers’ naira at a weaker exchange rate and prioritising liquidation of legacy positions (including card liabilities) as they are able to get FX from the CBN, bank analysts say.

“The challenge is that depending on FX supply dynamics in a liberalised interbank FX system, the interbank rate could run away, at least at the outset. Where it settles is difficult to say but liquidity and confidence in the FX policy will be critical to keeping the markets stable,” they say.

Godwin Emefiele, governor of the CBN announced that the bank would begin the market driven foreign currency trading on Monday, abandoning the 16 month currency peg.

“This will bring confidence to the market. You can now begin to plan for your needs,” said Ini Ebong, Group Treasurer First Bank Holdings Plc, during an interview session at CNBC Africa.

“Fx inflow will spike with the return of foreign portfolio investors. The market has been reopened,” said Ebong.

Nigeria, Africa largest economy, hard hit by a significant drop in oil price by 60 percent, had its stock and bond indexes downgraded by international rating agencies as investors divested on the back of a rigid foreign exchange policy.

Standard & Poor’s (S&P), a global rating agency, revised Nigeria’s sovereign credit outlook to negative, from the stable it was previously. Nigeria currently has a B+ rating by the agency.

Moody’s Investors Service, in April, downgraded Nigeria’s long-term issuer ratings to B1 from Ba3 and has assigned a stable outlook, concluding the review for downgrade initiated on March 4th 2016.

The Central Bank governor said there will be primary and secondary dealers and that the number of dealers will not be more than 8 or 10. He added that the apex bank is working hard to see that there is more supply of foreign exchange in the market.

“If we improve on the level of supply in the market, those demands will be met in the market. If you rush, you may hurt your profit, balance sheet and spike the interest rate,” said Emefiele.
http://businessdayonline.com/2016/06/cbns-new-fx-guidelines-hold-mixed-fortunes-for-banks/
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by mandarin: 10:03am On Jun 17, 2016
We must admit that even if some of Buhari's policies look late, there are clearer approach than many previous regimes. Statistics are no longer brandied to show feigned performances for political and cheap popularity. The growth often announced by NOI our Harvard Economist were often circulating the oil and gas sector while apart from Adesina's process on improving the Agric sector, there was no such thing as holistic growth.

Some people were critical of those who called GEJ regime a failure, needless will I say because his performance rating was like someone who made provision for his home like he earn 100 thousand when his real income is 1million naira, the gap is scandalous.
What the current window mean is that you can peep, at least you are free to but you must wear a face guard to be sure the new monster isn't roaring for an ugly catch.Your risk management, trends analysis and trading skills must be sharpened. The guard against spread and basing transactions on OTC if not undermined by the very power that run the system should guide against speculators. I see a 220-260 naira to a dollar by December 2016.

34 Likes 1 Share

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by 989900: 11:18am On Jun 17, 2016
mandarin:
We must admit that even if some of Buhari's policies look late, there are clearer approach than many previous regimes. Statistics are no longer brandied to show feigned performances for political and cheap popularity. The growth often announced by NOI our Harvard Economist were often circulating the oil and gas sector while apart from Adesina's process on improving the Agric sector, there was no such thing as holistic growth.

Some people were critical of those who called GEJ regime a failure, needless will I say because his performance rating was like someone who made provision for his home like he earn 100 thousand when his real income is 1million naira, the gap is scandalous.
What the current window mean is that you can peep, at least you are free to but you must wear a face guard to be sure the new monster isn't roaring for an ugly catch.Your risk management, trends analysis and trading skills must be sharpened. The guard against spread and basing transactions on OTC if not undermined by the very power that run the system should guide against speculators. I see a 220-260 naira to a dollar by December 2016.

Well said.

What we do on the fiscal policies side, and implementation though, will either make or break us.

We can as well say a little prayer for oil prices too.

3 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by tolexy111: 12:30pm On Jun 17, 2016
Second to comment
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by meshacha1: 12:31pm On Jun 17, 2016
Am tired of issue of forex!!!
Naija ppl (common man in the street) are not interested in forex, not even the exchange of dollar to naira are they interested in but the price of goods in the market for consumption.

9 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by YchaseMe(m): 12:32pm On Jun 17, 2016
kolowerk grin
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by bebe2(f): 12:32pm On Jun 17, 2016
i still do money transfer oo

however the money fall reach

its business as usual,

both pounds and dollars exchanged.

3 Likes 1 Share

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by YchaseMe(m): 12:33pm On Jun 17, 2016
kolowerk grin
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by meganforex: 12:35pm On Jun 17, 2016
I don't Like this
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by PUSH1(m): 12:35pm On Jun 17, 2016
Well lets hope they would be able to sustain the supply of Forex to meet stability,
Left for me, they should leave it like this for sometime
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by yomalex(m): 12:35pm On Jun 17, 2016
hmm
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by fejicruz(m): 12:36pm On Jun 17, 2016
I hope this brings some respite to Nigerians
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by Nobody: 12:36pm On Jun 17, 2016
So in short, Emefiele has been playing ludo with our economy. The guy should be sacked
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by Nutase: 12:36pm On Jun 17, 2016
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by olamds(m): 12:43pm On Jun 17, 2016
I wish to Know more about Forex market
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by GreenNegro(m): 12:44pm On Jun 17, 2016
May God guide us
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by tinsel: 12:48pm On Jun 17, 2016
mandarin:
We must admit that even if some of Buhari's policies look late, there are clearer approach than many previous regimes. Statistics are no longer brandied to show feigned performances for political and cheap popularity. The growth often announced by NOI our Harvard Economist were often circulating the oil and gas sector while apart from Adesina's process on improving the Agric sector, there was no such thing as holistic growth.

Some people were critical of those who called GEJ regime a failure, needless will I say because his performance rating was like someone who made provision for his home like he earn 100 thousand when his real income is 1million naira, the gap is scandalous.
What the current window mean is that you can peep, at least you are free to but you must wear a face guard to be sure the new monster isn't roaring for an ugly catch.Your risk management, trends analysis and trading skills must be sharpened. The guard against spread and basing transactions on OTC if not undermined by the very power that run the system should guide against speculators. I see a 220-260 naira to a dollar by December 2016.
Well spoken. My fear is thew banking sector will undermine this well intentioned policy.

4 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by Infinitikoncept(m): 12:50pm On Jun 17, 2016
As far as I'm concerned will need to sit down to read all those opinions expressed by different parties to be sure of what they mean exactly but in reality when exactly is this government diversifying from total dependance on oil? Which area are they moving to? Cox seriously if we still import even pencil till date and all what a minister in that sector could say is a 2018 promise then this government is a real joke nothing better than GEJ

3 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by chuose: 12:51pm On Jun 17, 2016
Buhari Driven Economics

4 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by MrCow(m): 12:52pm On Jun 17, 2016
hmm, whether forex or forest. The economy should be better

3 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by espn(m): 1:17pm On Jun 17, 2016
we hope for the best..fayose and his cohorts are somewhere looking for a way to sabotage the FG and Nigerians... angry

2 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by neocortex: 1:20pm On Jun 17, 2016
989900:


Well said.

What we do on the fiscal policies side, and implementation though, will either make or break us.

We can as well say a little prayer for oil prices too.

Don't tell me you support this move because you have written many
pieces to defend Naira pegging and you warned about the "disaster"
of Naira devaluation.

2 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by 989900: 1:44pm On Jun 17, 2016
neocortex:


Don't tell me you support this move because you have written many
pieces to defend Naira pegging and you warned about the "disaster"
of Naira devaluation.

This is different from devaluation. This is 'dirty float'.

This could as well turn into either a successful coup, or a major disaster.

Kindly check my comments and topics about it from yesterday.

Hi . . .

1 Like

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by 989900: 1:49pm On Jun 17, 2016
meshacha1:
Am tired of issue of forex!!!
Naija ppl (common man in the street) are not interested in forex, not even the exchange of dollar to naira are they interested in but the price of goods in the market for consumption.

Prices of goods are heavily dependent on Forex rates everywhere in the world., especially in Nigeria.

You could buy a brand new Toyota corolla for N50,000, or N50m depending on the exchange rate. Just as you could as well buy one litre of petrol at current oil prices for N40/litre or N140/litre, depending on the exchange rate . . . BTW, pump prices ultimately filters into pricing of goods, especially in 9ja.

6 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by uchedydy: 1:54pm On Jun 17, 2016
meshacha1:
Am tired of issue of forex!!!
Naija ppl (common man in the street) are not interested in forex, not even the exchange of dollar to naira are they interested in but the price of goods in the market for consumption.

I cry when I see comments like this.

Let me take time out of my busy schedule to educate you. That forex you think the common ma dont care about, is the reason he either buys rice at 100 per cup, or 50 per cup, because the rice we buy is largely imported.
For an import dependent country like ours, forex is evrything, i did a quote for 1.2million for a client at 320 naira per dollar. now, dollar is 365 or 370, tell me how to deliver on that without eating on the profit margin which would have paid one of my staff, and if it continues like ds, i would sack one staff, meaning one of the common ma on the street that ddnt care about forex has lost his job. Do you now see the relevance of dollar to our daily lives.
As far as we continue to import items like bad, then dollar can be as important as the air you brethe.

Hope you are educated now....plz educate others and dont be among those who shout without brain.

Gracias!!!!! Edited cos a good mind advised me to....well done, just that some comments some persons post on this niaraland can be so so annoying.

8 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by frisky2good(m): 2:03pm On Jun 17, 2016
uchedydy:


I cry when I see comments like yours, it tells me that you are no better than the common man on the street who does not have avenue like this to get enlightened, however, I can forgive them , but I cant forgive your ignorance or better still, sheer stupidity.

Let me take time out of my busy schedule to educate you. That forex you think the common ma dont care about, is the reason he either buys rice at 100 per cup, or 50 per cup, because the rice we buy is largely imported.
For an import dependent country like ours, forex is evrything, i did a quote for 1.2million for a client at 320 naira per dollar. now, dollar is 365 or 370, tell me how to deliver on that without eating on the profit margin which would have paid one of my staff, and if it continues like ds, i would sack one staff, meaning one of the common ma on the street that ddnt care about forex has lost his job. Do you now see the relevance of dollar to our daily lives.
As far as we continue to import items like bad, then dollar can be as important as the air you brethe.

Hope you are educated now....plz educate others and dont be among those who shout without brain.

Gracias!!!!!

Remove the first paragraph and you will be well applauded.

2 Likes

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by uchedydy: 2:09pm On Jun 17, 2016
frisky2good:


Remove the first paragraph and you will be well applauded.

Edited!!!.....thanks bro. Just that some nairaland comments can make someone loose his cool. Make you wonder if the average nigerian student school fees paid is worth it.

Thanks a lot.

Merci!!!!!!!!

4 Likes 1 Share

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by Xano(m): 3:08pm On Jun 17, 2016
mandarin:
We must admit that even if some of Buhari's policies look late, there are clearer approach than many previous regimes. Statistics are no longer brandied to show feigned performances for political and cheap popularity. The growth often announced by NOI our Harvard Economist were often circulating the oil and gas sector while apart from Adesina's process on improving the Agric sector, there was no such thing as holistic growth.

Some people were critical of those who called GEJ regime a failure, needless will I say because his performance rating was like someone who made provision for his home like he earn 100 thousand when his real income is 1million naira, the gap is scandalous.
What the current window mean is that you can peep, at least you are free to but you must wear a face guard to be sure the new monster isn't roaring for an ugly catch.Your risk management, trends analysis and trading skills must be sharpened. The guard against spread and basing transactions on OTC if not undermined by the very power that run the system should guide against speculators. I see a 220-260 naira to a dollar by December 2016.

True; risk management, trend analysis and trading skills must be sharpened. But, this policy is 'cake' to speculators(also those who work stealthily with companies), which is Naira's achilles heel. Prices of raw materials may increase.
The major issue is: CBN determining the timing and amount of the instability and the necessary intervention.

Another important issue, in a country which is import dependent, do you think naira will be a strong currency? No
Exchange rate, no matter the range CBN allows it to float(which it has to save nigerian economy from dollarization) will be an artificial rate after a while, then black market surfaces.
That aside, naira will be above the amount your posted.

1 Like

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by bouncesmail(m): 3:23pm On Jun 17, 2016
Well said my brother,educate them
uchedydy:


I cry when I see comments like this.

Let me take time out of my busy schedule to educate you. That forex you think the common ma dont care about, is the reason he either buys rice at 100 per cup, or 50 per cup, because the rice we buy is largely imported.
For an import dependent country like ours, forex is evrything, i did a quote for 1.2million for a client at 320 naira per dollar. now, dollar is 365 or 370, tell me how to deliver on that without eating on the profit margin which would have paid one of my staff, and if it continues like ds, i would sack one staff, meaning one of the common ma on the street that ddnt care about forex has lost his job. Do you now see the relevance of dollar to our daily lives.
As far as we continue to import items like bad, then dollar can be as important as the air you brethe.

Hope you are educated now....plz educate others and dont be among those who shout without brain.

Gracias!!!!! Edited cos a good mind advised me to....well done, just that some comments some persons post on this niaraland can be so so annoying.

1 Like

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by frisky2good(m): 3:26pm On Jun 17, 2016
Good job. Let's just hope and pray that the new policy will favour all of us. If our leaders don't get things right, it hardly affects them. It is those of us praying that they fail that usually suffer when if they do fail.

uchedydy:


Edited!!!.....thanks bro. Just that some nairaland comments can make someone loose his cool. Make you wonder if the average nigerian student school fees paid is worth it.

Thanks a lot.

Merci!!!!!!!!

1 Like

Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by macino1(m): 4:12pm On Jun 17, 2016
Hmm. . .Noted
Re: CBN’s New FX Guidelines Hold Mixed Fortunes For Banks by Nobody: 5:03pm On Jun 17, 2016
mandarin:
We must admit that even if some of Buhari's policies look late, there are clearer approach than many previous regimes. Statistics are no longer brandied to show feigned performances for political and cheap popularity. The growth often announced by NOI our Harvard Economist were often circulating the oil and gas sector while apart from Adesina's process on improving the Agric sector, there was no such thing as holistic growth.

Some people were critical of those who called GEJ regime a failure, needless will I say because his performance rating was like someone who made provision for his home like he earn 100 thousand when his real income is 1million naira, the gap is scandalous.
What the current window mean is that you can peep, at least you are free to but you must wear a face guard to be sure the new monster isn't roaring for an ugly catch.Your risk management, trends analysis and trading skills must be sharpened. The guard against spread and basing transactions on OTC if not undermined by the very power that run the system should guide against speculators. I see a 220-260 naira to a dollar by December 2016.

Its all been nice analysis from the op and you too.
However, your last sentence may not suffice. 220-260 in December?
Emefiele himself said it, we need to increase our supply in the market, so demand will be met. To increase this supply in the market we need to trade, I mean export. If we do so and gets paid in dollar in the international market, that means we hold a significant amount of dollar out there. Then companies/government/individuals who export can put the dollar in the open market. But has our export increased? Has production for local consumption increased?
Emefiele also cautioned about rush, else we spike interest rate. Let us note that rush is a common gene in 170 million Nigerians.

1 Like

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