CBN Moves to Rescue Crashing Naira


The Central Bank of Nigeria (CBN) is about to step up supply of dollars to Bureau De Change (BDCs) operators by as much as $200 million a week with a view to narrowing the gap between the official and black market exchange rates. It has also threatened to impose heavy sanctions, such as blacklisting, on banks and their staff found to be engaged in the “ugly business” of de-marketing competitors.

Speaking at a media briefing in Abuja, yesterday, CBN Governor Chukwuma Soludo said: “We’ll supply whatever is necessary to get the economy on an even keel,” Soludo said. “If the market is going to absorb between $100 million and $200 million between now and next week, we’ll supply.”

Last month, the apex bank raised the minimum capital requirement for bureaus to access foreign exchange auctions to N500 million, up from N10 million, in a bid to stop funds flowing to the black market.

While that decision still holds, qualified bureaus will now be able to access more foreign exchange.

The official exchange rate is currently N146.6 to a dollar, compared with N175 on the street, according to a currency trader, who gave his name as Ilyasu Dogo, in the commercial hub of Lagos.

In the official market, the naira has tumbled 20 per cent against the dollar since November 26 as the global financial crisis and the slump in the oil price led investors to pull money out of the country.

The drop was finally triggered by the central bank’s decision to stop using foreign exchange reserves to defend the currency.

Crude oil, which accounts for over 90 per cent of Nigeria’s export earnings, slumped to as low as $40 a barrel yesterday from a record $147.27 a barrel last July.

As the supply of dollars to the market improves, the gap between the official and the black market rates will drop, Soludo said.

He recalled that the problem in the foreign exchange market started when the apex bank stopped funding of the market.

The stoppage, he said, was informed by the decision of the Federal Government to stop funding illegal foreign exchange market to cushion the effect of global financial crisis.

“Our first policy is to conserve the hard-earned foreign exchange resources, we cannot do this by selling foreign exchange to road side users,” he said.

The governor said all the currency speculators in the next few weeks would have themselves to blame as the apex banking would flood the market with foreign exchange

In a bid to ensure that the new policy achieves the desired effect, Soludo said that the CBN would only sell the dollars to class’A’ Bureau De Change and the bank Bureau De Change.

Over the past seven months, the apex bank had become the largest supplier of foreign exchange in the domestic market, controlling almost 90 per cent of total supply as against 10 per cent in the first quarter of last year.

Other supply sources, especially foreign direct and portfolio investments, home remittances (Western Union etc) have since dried up as a result of the global liquidity and credit crises.

Besides, further oil price weakness and the release of the 2009 preliminary budget last November coupled with the targeting of a deficit of N1.1 trillion ($9.4 billion) for this year, up from N560 billion ($4.8 billion) in 2008, may also have led to further weakness of the naira.

Meanwhile, Soludo has said that the total credits of the 24 commercial banks operating in Nigeria stood at N7.8 trillion as at January 2009, a significant increase from N1.19 trillion in 2003, that is, pre-consolidation era.

He said the total loans by all the 89 banks in 2003 was N1.19 trillion, while as at the end of December last year, it increased to N7.4 trillion and hit N7.8 trillion in January, 2009.

Soludo said the CBN has in place a contingency planning framework to protect the banks from crisis.

The total exposure of all 24 deposit money banks in the country to the capital market was less than N900 billion to date, he said, while maintaining that even if all this is lost, adequacy ratio of the banks would still be above 15 per cent – whereas capital adequacy ratio in many developed economies is below 10 per cent.

He assured Nigerians that the CBN and other regulators would continue to be vigilant and would deploy every necessary arsenal to ensure that the banks continue to be protected.

Soludo said the CBN has in place a contingency planning framework to protect the banks from crisis.

Beside the contingency planning framework put in place by the CBN to ensure that any bank with any sign of inadequacy is resolved decisively and timely, he said some of the measures put in place to ensure the safety of banks include the adoption of International Reporting Standards; provision of enough and adequate liquidity in the system so that any bank that needed help would get it immediately from the apex bank.

The governor also said any bank whose staff is caught de-marketing would both be sacked and blacklisted from working in any other bank in Nigeria.

As part of the measures to check the trend, Soludo said the CBN would soon make public telephone numbers and e-mail addresses of banks’ chief executives as well as that of his own through, which the banking and general public could report cases of de-marketing.

He said an open forum of banks’ CEOs would be convened next Monday in Lagos where issues relating to de-marketing, amongst other sundry issues, would be trashed out.

Decrying the “wicked rumour” making the rounds in the industry orchestrated to create crisis in the system, Soludo said yesterday’s briefing was designed to dispel the rumour.

“I understand that yesterday some people sent text messages. They want to stampede the system into a crisis where none exists and where none is likely.

“We want to use this opportunity to appeal to you the members of the media for some restraint in the way we write these things we don’t know about. You don’t have the fact, you just keep on blaring, no banking system, no financial system can survive on the kind of barrage of insinuations like this.

“There is absolutely no basis for that. Except some people decide to throw the banking system into a crisis our banking system remains strong and robust enough to weather through the crisis,” he said.

There have been widespread rumours through the media and text messages in recent times where names of some specific banks had been mentioned as being unable to meet their financial obligations to customers’ demand.

Only last Monday, the CBN had issued a statement saying Intercontinental Bank Plc was healthy and had not been found wanting in any area of its banking transactions.

To buttress his point on the soundness of the banks, Soludo made a particular reference to Intercontinental Bank, one of those being touted as unsound but which has over N100 billion savings with the apex bank and wondered how such a bank would be unable to meet its obligations.

The CBN governor said: “I can tell you at this end, we are taking every measure possible, everything that we have to do to make sure that our banks remain liquid and that our banks remain strong because the Nigerian economy needs or banking system, especially even more so, at this particular time of global crisis when you have global economic crisis of the proportion that the world has never experienced before today.

“The advanced industrial world can afford all manner of measures, but many developing countries don’t have the same luxury and in our own case one of the major pillars that will help the economy to weather through the crisis will be our banking system.

“All that I have to say for the avoidance of doubt is that our banks, individually and collectively remain strong and robust enough to weather through this crisis and we stand ready, the Central Bank as well as the government to continue to support our banks to remain sound and strong for the benefit of the Nigerian economy, especially during the trying period of the global financial crisis.”

In a related development, the Association of Corporate Affairs Managers of Banks (ACAMB) has condemned the rash of uninformed comments and criticisms on the state of the operating banks in the country stating that they are baseless.

In a statement made available to THISDAY yesterday, ACAMB noted with dismay that Nigerian banks were being unjustifiably criticised while false alarms were being raised against them in publications in some national newspapers last Monday.

The Association also cautions media organisations not to assist unscrupulous individuals and institutions to destroy thriving institutions, adding that no economy survives without a robust banking industry.

ACAMB said that Nigerian banks remain one of the financial services sector operators that have continued to discharge their obligations creditably to their stakeholders despite the global economic meltdown that have incapacitated even bigger banks in more developed economies.

“So far, no Nigerian bank has failed to honour its obligations to its customers or exhibited any sign of distress or poor liquidity position. The risk management structure deployed by Nigerian banks is adjudged to rank among the best in the world while innovations and business expansion beyond Nigerian shores embarked upon by Nigerian banks post-consolidation have positioned them to face the dynamics of the world economy without adverse effects. The recapitalization of the industry has simply strengthened the capacity of Nigerian banks to weather the storm of the global economic crises.

“The Central Bank of Nigeria, the only authoritative institution that is well placed to assess the state of banks in Nigeria, has on several occasions assured the banking public that Nigerian banks are solid by every parameter and their capacity to honour their obligations have not been affected by the wave of low economic activities locally and abroad,” ACAMB said.

ACAMB noted that CBN has always risen to the challenges facing the nation’s banking industry before they become manifest.

The Association therefore called on individuals operating under any disguise to stop spreading false rumours and baseless accusations against Nigerian banks.