The Central Bank of Nigeria (CBN) has accused commercial banks of hoarding over $5 billion in foreign currencies, attributing the prevailing forex scarcity and the naira’s free fall against the dollar to the actions of Deposit Money Banks (DMBs).
As a response, the CBN has mandated these banks to release any excess foreign currency they hold to individuals and businesses in need of foreign exchange by a specified deadline. Failure to comply with this directive will result in sanctions in accordance with existing rules and regulations.
To ensure compliance, teams of examiners have been deployed to all commercial banks heavily engaged in forex transactions. The move is aimed at addressing the scarcity of foreign currency, increasing market liquidity, and alleviating the strain on the naira’s value.
While some banks have swiftly adhered to the directive, others are cautious about revealing their exact dollar reserves, considering potential disruptions to their operations and the impact on customers.
The CBN’s directive seeks to ensure that excess dollar liquidity is committed to transactions or obligations and not held without purpose. The objective is to stabilize the exchange rate, attract foreign investors, and provide adequate foreign exchange supply for critical sectors like manufacturing, agriculture, and essential imports.
Dr. Wahab Balogun of Ambosit Capital Managers acknowledges potential benefits and drawbacks in the CBN directive. While increased forex liquidity and a stabilized naira are desirable, managing potential disruptions to banks, inflation, and other sectors is crucial. Careful monitoring, adjustments, and communication will be vital for navigating the complexities and achieving positive outcomes.
The expert highlights potential positive implications for businesses reliant on foreign exchange and emphasizes the need for banks to adhere to regulations, promoting a more efficient and transparent forex market. On the negative side, releasing large amounts of foreign currency could cause temporary operational challenges for banks and impact their profitability. Balogun emphasizes the importance of managing increased liquidity to prevent inflation and potential challenges for sectors reliant on a weaker naira.
