The Central Bank of Nigeria (CBN) has started clearing backlogs of foreign exchange (FX) forward contracts through some banks as part of efforts to rebuild confidence in the Nigerian economy.
Owing to the development, the naira strengthened on the parallel market to N1,125/$ on Thursday, stronger than the N1,175/$ it closed the previous day.
However, on the official I&E window, the nation’s currency closed at N793.28/$, slightly lower than the N786.02/$ it closed on Wednesday.
The official I&E window reported a daily volume turnover of $136.11 million, which was a 28.45 per cent increase compared to the $105.98 million, recorded on Tuesday.
Also on Thursday, the CBN allayed fears of scarcity of cash at banks, automated teller machines (ATMs), points of sale and among Bureaux de Change (BDCs) in some major cities, saying it has sufficient stock of currency notes for economic activities in the country.
A top official of the CBN who confirmed the settlement of the FX forward in a telephone chat with THISDAY on Thursday revealed that the first batch of FX backlogs was settled through 14 banks on Wednesday, just as he assured investors that the outstanding FX forward contracts would be settled next week.
“Yes, I can confirm to you that we have started clearing the FX backlogs through 14 banks on Wednesday. Whatever is left unsettled will be cleared next week. We thank everyone for their patience.
“We are hopeful that in the coming days the pressure you have seen in the FX market would ease,” the source who pleaded to remain anonymous and also declined to disclose the amount of FX forward settled said.
Citibank got $72 million, which was 100 per cent of its outstanding FX backlog, Standard Chartered got about $63 million, Stanbic IBTC got $25 million, among other payments.
Some other banks that got part of their FX backlogs settled were Heritage SunTrust, Parallex, Rand Merchant Bank, Signature Bank, Keystone and Unity Bank.
Additionally, the FX backlogs of some of the international correspondent banks responsible for providing credit lines to Nigeria, such as Barclays, HSBC, were cleared.
An FX forward contract is a bilateral agreement where one party (the seller) agrees to sell FX to another party (the buyer) at a predetermined settlement date in the future and at a strike price, which is fixed at the time of entering into the contract.
It is also a binding contract in the FX market that locks in the exchange rate for the purchase or sale of a currency on a future date.
The move by the federal government to boost foreign currency liquidity in the economy and settle FX backlogs by securitising about $7 billion of the country’s dividends from the Nigerian Liquefied Natural Gas (NLNG).
While the government expected to get $7 billion from a consortium led by Standard Chartered Bank, the federal government also expected inflows from the $3 billion emergency loan from the African Export-Import Bank (Afreximbank), which the Nigerian National Petroleum Company Limited (NNPCL) had secured two months ago, bringing the total inflows expected in the short-term to $10 billion.
The Finance Minister and Coordinating Minister of the Economy, Olawale Edun, recently disclosed that up to $6.8 billion of overdue forward payments in FX needed to be addressed before the naira could stabilise.
Edun had noted that resolving the overdue contracts would allow the naira to strengthen and “pave the way for additional foreign exchange flows. “The issue we have now is that the market is not liquid enough,” Edun had said.
He added: “We are committed to encouraging liquidity based on reforms that have been made at the moment, on the fiscal side and the monetary side. And together with the restoration of trust and confidence, we think the FX flows will return.”
Also, CBN Governor, Mr. Olayemi Cardoso, had said: “We are aware that there are unsettled obligations by the CBN. Whether it is $4 billion, $5 billion, or $7 billion, I don’t know, but the immediate priority is to ascertain the extent.
“We need to find a way to take care of that. It will be naive for us to be expecting to succeed if we are not able to handle that side of the foreign exchange market,” he added.
Meanwhile, the CBN in a statement signed by its Director of Corporate Communications, Dr. Isa AbdulMumin, stated that the attention of the apex bank was drawn to reports of the alleged scarcity of cash at banks, ATMs, PoS and among BDCs in some major cities across the country.
It added: “Our findings reveal that the seeming cash scarcity in some locations is due largely to high volume withdrawals from the CBN branches by Deposit Money Banks (DMBs) and panic withdrawals by customers from the ATMs.
“While we note the concerns of Nigerians on the availability of cash for financial transactions, we wish to assure the public that there is sufficient stock of currency notes for economic activities in the country.
“The branches of the CBN across the country are also working to ensure the seamless circulation of cash in their respective states of operation. Members of the public are, therefore, advised to guard against panic withdrawals as there is sufficient stock to facilitate economic activities.
“Nigerians are also advised to embrace alternative modes of payment, which would reduce pressure on using physical cash,” it added.
