Business

Sell excess dollars in 24 hours, CBN orders banks

Published

9 months ago

February 1, 2024

Sell excess dollars in 24 hours, CBN orders banks

The Central Bank of Nigeria, CBN, has ordered Deposit Money Banks to sell their surplus dollar stock by February 1, 2024, as part of new measures to stabilize the country’s fluctuating currency rate.

The CBN, which made the announcement in a fresh circular issued on Wednesday, also urged lenders not to hold extra foreign currency for profit.

According to officials, the central bank believes that some commercial banks have long-term foreign exchange positions to profit from the erratic swings of exchange prices.

The new circular introduces a set of guidelines aimed at reducing the risks associated with these practices.

In the circular titled, “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks”, the CBN raised concerns over the growing trend of banks holding large foreign currency positions.

The latest circular came barely 48 hours after the CBN released a circular, warning banks and FX dealers against reporting false exchange rates, among others.

The new development also came on the heels of the adjustment of the methodology used for the calculation of the nation’s official exchange rate by the FMDQ Exchange.

The review has pushed the Nigerian Autonomous Foreign Exchange Market rate (official exchange rate) from approximately N900/dollar to N1,480/dollar. The naira closed at 1,450/dollar at the parallel market on Tuesday.

The move which is aimed at unifying the official and parallel market exchange rates has been hailed by economists and other stakeholders.

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They however challenged the CBN to clear FX backlogs estimated at over $5bn and also fund FX demands at the official market. This, they said, would forestall a situation whereby the parallel market rate would move away from the official rate again.

Apparently as part of the moves to fund FX request at the official window, the CBN in its latest circular released on Wednesday accused banks of holding excess foreign exchange positions.

As a result, the central bank gave lenders until February 1, 2024 (today) to sell off excess dollar positions.

The circulated, dated January 31, 2024, was signed by the Director, Trade and Exchange, CBN, Dr. Hassan Mahmud, and representative of the Director, Banking Supervision, CBN, Mrs. Rita Sike.

The circular read in part, “The Central Bank of Nigeria has noted with concern the growth in foreign currency exposures of banks through their Net Open Position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks.”

To address these issues, the CBN in the circular issued prudential requirements that banks must follow. A key focus of these requirements is the management of the Net Open Position (NOP).

The NOP measures the difference between a bank’s foreign currency assets (what it owns in foreign currencies) and its foreign currency liabilities (what it owes in foreign currencies).

The circular mandates that the NOP must not exceed 20 per cent short or 0 per cent long of the bank’s shareholders’ funds.

This calculation, the apex bank said, must be done using the Gross Aggregate Method, which provides a comprehensive view of the bank’s foreign currency exposure.

Furthermore, banks with current NOPs exceeding these limits are required to adjust their positions to comply with the new regulations latest by February 1, 2024.

Additionally, banks must calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT) using specific templates provided by the CBN.

The CBN also directed banks to maintain adequate stocks of high-quality liquid foreign assets, such as cash and government securities, in each significant currency.

According to the circular, all banks are required to adopt adequate treasury and risk management systems to provide oversight of all foreign exchange exposures and ensure accurate reporting on a timely basis.

Banks are expected to bring all their exposures within the set limits immediately and ensure that all returns submitted to the CBN to provide an accurate reflection of their balance sheets.”

Finally, the CBN warned banks that non-compliance with the NOP limit would result in immediate sanction and suspension from the foreign exchange market.

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In the half of 2023, First Bank, UBA, Zenith, Access, and GTB reported a combined N1.38tn in forex revaluation gains.

The apex bank at the time issued a directive instructing commercial banks to resist using their foreign exchange revaluation gains for dividends and operational expenditures. It noted that “Banks that exceed the NOP prudential limits due to the FX revaluation shall be granted forbearance for the breach upon application.’’

A top bank executive, who spoke on condition of anonymity, said the new circular would force banks to sell off excess dollar liquidity exceeding $5bn.

The top banker said, “Just as some Nigerians prefer to keep their money in dollars because naira is not a good store of value, banks also hold excess dollar liquidity to make gains. They do their own at institutional level. What the CBN is saying with this new circular is that, you cannot hold excess dollar liquidity again. Any foreign exchange you are holding must be committed to something, a transaction or obligation you can proof. Banks have made a lot of revaluation gains. Some banks, I believe, got approval under the last administration to hold more dollar than the requirement. The idea is that if banks sell all these excess dollars, there will liquidity and the exchange rate will stabilise. Foreign investors will come in.”

Naira trades

Meanwhile, the naira closed at N1,455.59/$ at the official window on Wednesday, according to the FMDQ Securities Exchange. This is a 1.82 per cent appreciation from the N1482.57/$ it closed trading on Tuesday.

At the parallel market, it lost N61 to trade at N1,511/$. A Bureau De Change operator, Malam Ibrahim, told The PUNCH, “For now, we are selling between N1,511/$ and N1,512/$. Earlier today, the dollar was sold between N1,535/$ and N1,540/$.”

Another operator said he could only sell at N1,510/dollar. However, a source at the market informed our correspondent of a ‘no sales policy’ to be implemented by the BDC union tomorrow.

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The source said the decision was taken today after serious deliberations on how to reduce the fall of the naira.

“Nobody is coming to market tomorrow. We want to close the market because honestly, the naira is just crashing anyhow. This was caused by some media reports this week that the dollar was now selling for N1,500 even though we were still selling at N1,400. Now everybody is blaming black market operators and that’s why we decided that the market will remain closed tomorrow,” the source said.

“We will resume next tomorrow, and the rate should be less than N1,400/$,” the source added.

On the cryptocurrency peer-to-peer market, the naira was trading for N1,495.1/$ on Binance’s P2P platform as of the time of filing this report.

The naira is recording its worst week on the official market following the move by FMDQ Securities Exchange to revise the methodology used to set the exchange rate. According to a market notice, this new calculation will attempt to narrow the gap between the official and parallel rates of the naira.

It said, “This revision aims to address recent fluctuations and challenges encountered in the Nigerian Foreign Exchange (‘FX’) Market.”

It added, “These revisions are focused on enhancing the accuracy and reliability of the NAFEX and NAFEM rates determination process, with a focus on data availability and integrity involving a rigorous data validation process, including tolerance checks which shall be applied by FMDQ Exchange, subject to internal policies and procedures.”

Sell excess dollars in 24 hours, CBN orders banks

Business

Stopping fuel importation will create monopoly, sustain fuel crisis – Marketers

Published

4 hours ago

November 7, 2024

Trends Admin

Stopping fuel importation will create monopoly, sustain fuel crisis – Marketers

Three major oil marketers in the country, yesterday, asked the Federal High Court in Abuja to stop what they described as plot by Dangote Petroleum Refinery and Petrochemicals FZE, to monopolise the energy sector of the economy.

The marketers, including AYM Shafa Limited, A. A. Rano Limited and Matrix Petroleum Services Limited, maintained that allowing Dangote Refinery to takeover the oil sector would spell doom for the country.

However, efforts made to reach the Group Head, Communications, Dangote Group, Mr. Anthony Chiejina, last night, were unsucces-sful as several calls made to his known mobile phone were unanswered, while text and WhatsApp messages were not also responded to at press time.
The companies took the position in a reply they filed to challenge the competence of the suit Dangote’s firm filed to nullify licenses they secured to import refined petroleum products into the country.

The marketers were cited as defendants in the suit marked: FHC/ABJ/CS/1324/2024, which also has the Nigeria Midstream and Downstream Petroleum Regulatory Authority, NMDPRA, and the Nigeria National Petroleum Corporation Limited, NNPC, as defendants.

It will be recalled that Dangote Refinery had, in its suit, queried the propriety of licences issued to other key oil marketers to bring refined petroleum products into the country when it has not recorded any shortfall in its own operations.

According to the plaintiff, NMDPRA acted in breach of Sections 317(8) and (9) of the Petroleum Industry Act, PIA, by issuing licenses for the importation of petroleum products to the defendants.

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The plaintiff told the court that the licences were issued to the defendants, “despite the production of AGO and Jet-A1 that exceeds the current daily consumption of petroleum products in Nigeria by Dangote Refinery.”

It, therefore, prayed the court to award N100billion in damages against the NMDPRA for allegedly continuing to issue import licenses to NNPCL and the other defendants for the import of petroleum products, such as Automotive Gas Oil, AGO, and jet fuel (aviation turbine fuel) into Nigeria.

Specifically, Dangote Refinery, among other things, applied for an order of injunction, restraining the 1st defendant (NMDPRA) from further issuing and/or renewing import licenses to the 2nd to 7th defendants or other companies for the purpose of importing petroleum products.

It further sought an order of court directing the 1st defendant to seal off all tank farms, storage facilities, warehouses, and stations used by the defendants for the storage of all refined petroleum products imported into Nigeria.

“An order of mandatory injunction directing the 1st defendant to withdraw immediately all import licenses issued to the 2nd-7th defendants and other companies other than the plaintiff and other local refineries for the purpose of importing refined petroleum products into Nigeria.

“An order of injunction restraining the 1st defendant from imposing and demanding a 0.5% levy meant for off-takers of petroleum products directly and an additional 0.5% wholesale levy in favour of MDGIF or any other levy or sum against the plaintiff.”

However, in their reply to the suit, dated November 5, 2024, the three marketers told the court that the plaintiff does not produce adequate petroleum products for the daily consumption of Nigerians, saying there was nothing before the court to prove the contrary.

The defendants told the court that they were well qualified and entitled to be issued a licence by the 1st defendant to import petroleum products into the country within the provisions of Section 317(9) of the PIA.

They argued that vesting the plaintiff with the power of monopoly in Nigeria’s petroleum industry, as it was seeking through the legal action, would kill competitive pricing of petroleum products in the country, further deteriorate Nigeria’s critically ailing economy “and unleash untold hardship on Nigerians, all of which constitute a recipe for disaster in the polity.

“That if Nigeria puts all her energy eggs in one basket by stopping importation of petroleum products and allowing the Plaintiff to be the sole producer and supplier of petroleum products in Nigeria, with liberty to determine the prices at which it supplies the products, the prices of petroleum products in Nigeria will continue to rise and energy security will elude Nigeria.

“That in the event of any breakdown in or obstruction to the production chain of the plaintiff which stops it from producing, Nigeria will be thrown into energy crises as Nigeria does not have the reserves that would last it for the at least 30 days that it would need to order, pay for, freight and import refined products into tanks in Nigeria.

“That amid the glaring absence of any credible and demonstrable proof that the Plaintiff refines and supplies adequate petroleum products for the daily use/consumption of Nigerians, giving the plaintiff judicial imprimatur to be the sole supplier of refined petroleum products to Nigerians, thereby encouraging monopoly in a major aspect of Nigeria’s oil industry, is a recipe for disaster in Nigeria’s energy sector,” the defendants added.

They insisted that granting the reliefs sought by the plaintiff, which is aimed at making it a monopolist in Nigeria’s petroleum sector, would leave Nigeria and Nigerians at the mercy of the olaintiff, with respect to availability and cost of purchasing petroleum products in the country.
More so, the defendants told the court that they were fully qualified for the import licences issued to them by the 1st Defendant, as they duly met all the legal requirements.

“The import licences lawfully and validly issued to the defendants did not in any way whatsoever, cripple the Plaintiff’s business or its refinery.

“The import licences issued to the defendants by the 1st defendant are in line with the provisions of Petroleum Industry Act, 2021, the Federal Competition and Consumer Protection Act, 2018 and other relevant laws,” the defendants averred.

Justice Inyang Ekwo had earlier adjourned the matter till January 20, 2025, to enable the parties explore an out-of-court settlement of the dispute, even as the plaintiff expressed its readiness to withdraw the suit.

Stopping fuel importation will create monopoly, sustain fuel crisis – Marketers

Business

Electricity: DisCos increase prices of prepaid meters by 28.03%

Published

4 hours ago

November 7, 2024

Trends Admin

Electricity: DisCos increase prices of prepaid meters by 28.03%

Electricity Distribution Companies, DisCos, have announced a rise in the price of various electricity meter models, making it the second price hike in four months.

According to the DisCos, the cost of a single-phase meter has risen from approximately N117,000 to as much as N149,800. This amount indicates an increase of 28.03 per cent or N32,800, depending on the distribution company and meter vendor.

The new prices posted on the official X handle of the Discos yesterday were scheduled to take effect on Tuesday, November 5, 2024. It also reflected the deregulation of meter asset providers as directed by the Nigerian Electricity Regulatory Commission, NERC.

It was learned that the upward revision followed an earlier increase in August 2024, further amplifying concerns among electricity consumers about affordability and accessibility.

An analysis of the documents revealed that meter prices vary across DisCos, influenced by vendors and meter models (single-phase and three-phase).

Eko DisCo pegged the price of its Single Phase Metre between N135,987.5 and N161,035, while a Three Phase Metre was pegged between N226,600 and N266,600.

Ibadan DisCo said customers will pay between a range of N130,998 and N142,548 for a single-phase meter and N226,556.25–NN232,008 for a three-phase meter.

Customers under Abuja DisCo will pay N123,130.53–NN147,812.5 for single-phase meters and N206,345.65–NN236,500 for three-phase meters.

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Kano Electricity Distribution said its customers will pay N127,925–N129,999 for a single-phase metre and N223,793–NN235,425 for a three-phase meter.

Kaduna DisCo said N131,150—N142,548.94 would be paid for single-phase meters and N220,375—N232,008.04 three-phase meters.

In April, the Nigerian Electricity Regulatory Commission introduced a significant policy shift by announcing the deregulation of meter prices under the Metre Asset Provider, MAP, scheme for end-user customers.

The move was targeted at addressing lingering issues surrounding meter supply and pricing transparency within the electricity sector.

According to NERC’s latest order, meter prices under the MAP scheme will now be determined through competitive bidding, rather than being centralised.

This shift is expected to foster greater competition among meter providers, ultimately improving cost efficiency and service delivery for end users.

The deregulation removes earlier operational restrictions, allowing MAP permit holders to provide metering services across all electricity distribution companies in Nigeria.

However, MAPs must meet specific regulatory requirements to ensure compliance and maintain quality standards in service delivery.

Recall that NERC regulated meter prices, which were often subsidised across all DisCos to reduce costs for customers. While this model aimed to make metering affordable, it inadvertently stifled competition and limited transparency in the supply chain.

As a result, DisCos and customers were unable to negotiate or explore better deals from meter vendors, contributing to inefficiencies in the system.

With deregulation now in place, NERC anticipates a more dynamic metering ecosystem where customers and DisCos can benefit from competitive pricing, improved service quality, and greater accountability among meter providers.

Electricity: DisCos increase prices of prepaid meters by 28.03%

Business

Naira exchanges for N1,720/$ in parallel market

Published

4 hours ago

November 7, 2024

Trends Admin

Naira exchanges for N1,720/$ in parallel market

The Naira yesterday appreciated to N1,720 per dollar in the parallel market from N1,725 per dollar on Monday

Similarly , the Naira appreciated to N1,671.32 per dollar in the Nigerian Autonomous Foreign Exchange Market, NAFEM.

Data from FMDQ showed that the indicative exchange rate for NAFEM fell to N1,671.32 per dollar from N1,676.9 per dollar on Monday indicating N5.58 appreciation for the naira.

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The volume of dollars traded (turnover) in the official market increased by 124.4 percent to $218.77 million from $79.47 million traded on Monday .

Consequently, the margin between the parallel market and NAFEM rate widened to N48.68 per dollar from N48.1 per dollar on Monday .