By Omodele Adigun
As the curtain gradually falls on 2016, Nigerians would, probably, not forget in a hurry the unprecedented foreign exchange (forex) troubles that shook the banking sector to its roots during the outgoing year.
The enormity of the problem might have been shielded from the public for some time before it boiled over in August, when the Central Bank of Nigeria (CBN) barred nine banks from forex market for their failure to remit $2.334billion belonging to the Nigerian National Petroleum Corporation (NNPC). The banks were accused of not remiting the dollar funds to the Federal Government’s Treasury Single Account(TSA) domiciled in the CBN as directed by the presidency last year.
The banks and the unremmited amount are as follows: UBA, $530 million; First Bank of Nigeria (FBN), $469million; Diamond Bank, $287million; Sterling Bank, $269 million; Skye Bank, $221million; Fidelity Bank, $209 million; Keystone Bank, $139 million; First City Monument Bank (FCMB), $125million and Heritage Bank, $85million.
The acute shortage of hard currency, particularly the United States Dollar, also forced many global rating agencies to downgrade most Nigerian banks’credit ratings. The agencies include Standard & Poor’s, Moody’s Investors Service, Fitch Ratings and Arqaam Capital.
For instance, Standard & Poor’s Global Ratings, citing increased economic risks in the country, scaled down the ratings of seven banks. “These rating actions on Nigerian banks reflect the sovereign downgrade and weakened economic environment,” it explained.
The agency noted that the Nigerian economy had “weakened more than expected, owing to a marked contraction in oil production, a restrictive foreign exchange regime, and delayed fiscal stimulus. We believe that economic risks have increased for the Nigerian banking industry and that the government’s propensity to support the banking system is now uncertain.”
Moody’s , on its part, said the nation’s top five banks were facing liquidity challenge.
In a report, Moody’s stated that, while Nigeria’s five biggest banks share common credit challenges related to the slowdown in Nigeria’s oil and gas dependent economy, their ability to withstand weak economic growth and volatile monetary conditions varies.
Fitch Ratings revised down the Support Rating Floors (SRFs) of 10 Nigerian banks to ‘No Floor’ and downgraded nine banks’ Support Ratings (SRs) to ‘5’ following a reassessment of potential sovereign support for the banking sector.
Arqaam Capital, the Dubai-based investment bank and brokerage, said Nigeria’s banking industry is experiencing a full-blown financial crisis as failed fiscal and monetary policies led to a credit crunch.
“Our acid test reveals seven under-capitalized banks’ with a deficit of as much as N1 trillion ($3.2 billion) in the financial system”, it said.
However, Mrs Tokunbo Martins, the Director of Banking Supervision of CBN in reacting to this, said: “That report is false. That certain banks are undercapitalized is absolutely not true.That is not saying that the banking sector is not feeling the economic headwinds. So it is in any other jurisdictions. it is not strange.
“That the non-performing loans is at 11 per cent. That is not what we need to focus on. What we need to focus on is that we have the 11 per cent non-performing loans. Does the bank have the capacity to absorb any losses that may arise from these loans? Yes, they do. They have very strong capital buffers. Another thing that is very important is that banks have huge capacity to generate income.So apart from the capital buffers that they already have, they also have capacity to generate income to also absorb all those losses if they do arise. And the loans that are not performing, can they be performing? Yes, they will. Because the underlying assets are still there and they are good.
“The fact that the country has non-performing loans at a period like this is to be expected. And I don’t think that any jurisdiction should be demonized because of it. And if you look at other jurisdictions that are going through the same circumstances that we are going through , they are experiencing the same thing. These jurisdictions have non-performing loans as high as 15 per cent to 25 per cent. So countries in Europe have NPL as high as 18 per cent.”
Offshore ATM suspended
On October 14, several banks announced the suspension of Naira debit cards’ cash withdrawal from Automatic Teller Machines and PoS terminal transactions abroad. It was gathered that CBN had earlier directed the banks to add only N5 profit margin to the official inter-bank rate on all forex-related transactions carried out with naira debit and credit cards.
This was said to have forced the banks to stop all foreign transactions on their payment cards. As they said they had been sourcing dollars at rates above N400 per dollar to run their card services.
Even before the embargo on the foreign ATM, it was gathered that most banks had reduced their daily ATM withdrawal limit abroad from $300, stipulated by Bankers Committee, to $100 due to their inability to source dollars to fund the business.
And as if to deal with round tripping, CBN had earlier said bank customers who spent above the $50,000 annual forex peg would be barred from the forex market.
Mrs. Martins, who stated this after the 329th Bankers’ Committee meeting in Lagos, said in the CBN’s move to manage the demand for forex, there was a rule that people were not allowed to withdraw more than $50,000 annually on their naira debit cards. For a while, the policy has been abused by bank customers, and the CBN has not taken any step to that effect. We have decided to take the step now to enforce the rule. So, we want members of the public to remember that that rule is in place.
“All your accounts are linked to a particular Bank Verification Number. Now, that the BVN allows you to withdraw only $50,000 per annum, if people continue to breach that rule, they will lose access to the forex market.”
Flexible Exchange rate
The CBN Governor, Godwin Emefiele, unveiled the flexible exchange rate policy on June 20. This was barely two weeks after he announced at the Monetary Policy Committee (MPC)meeting that he was going to allow the Naira to float freely at the interbank market. Here is what the CBN governor said during the announcement:
“CBN will launch a foreign exchange interbank trading window to boost the supply of hard currency in Nigeria. The new window will have eight to 10 primary traders handling minimum volume of $10million. The new system will help with economic growth and restore investor confidence,”. According to Emefiele, the window’s exchange rate will be purely market-driven.
“Nigeria will introduce fx primary dealers to operate with others in the interbank market. Under the new structure, the 41 items previously banned from getting access to forex in Nigeria will remain unchanged. The time is right to reintroduce a flexible interbank forex market. Forex market will operate as a single market structure.”
Recall that the year began with the official exchange rate put at N197 to the dollar. But this was sold with 147.1 percent premium at the parallel market at N289.79 per dollar.The official rate continued till June 20 when CBNdiscontinued with the pegging and allowed market forces to determine the Naira rate. However, at the Bureax de Change (BDC ), the Naira still remained unstable. For instance, it rose from 167.43 per cent in February, selling at N329.83 per dollar over the official rate, to 177.02 per cent in May at N336.93 to the Dollar. In between, it was N320.93 and N320.71 per dollar in March and April respectively.
However, during the launch of the new forex policy, the local currency took a plunge and went down to as low as N231.76 per dollar at the official rate and N351.82 at the parallel market.
CBN takes over Skye Bank
On July 4, CBN took over the Board and management of Skye Bank Plc after the bank failed to meet the regulatorís minimum key liquidity and capital adequacy ratios.
Emefiele said the apex bank had appointed a new board and management for the bank following the resignation of the Chairman, Chief Tunde Ayeni, and the Managing Director/Chief Executive Officer, Mr. Timothy Oguntayo.
He said the bank’s outgoing board and management had consistently failed to turn the fortunes of the bank around despite consistent warnings.
In place of the outgoing board and management, Emefiele said the CBN had appointed Alhaji MK Ahmad as the new chairman, while Mr. Tokunbo Abiru is the new MD/CEO.
The governor also said the CBN had removed and replaced all the non-executive directors and two longest-serving directors of Skye Bank. The CBN boss urged shareholders and customers of the bank to remain calm, stressing that the bank was not in distress.
“I maintain that Skye Bank is not in distress. We have only taken this unavoidable decision to ensure that depositors’ funds are not eroded,” he said.
CBN on Tuesday January 19, 2016, directed commercial banks as well as other financial institutions under its regulation, to, with immediate effect, commence charging N50 per eligible transaction in accordance with the provisions of the Stamp Duties Act and the Federal Government Financial Regulations 2009. The fee is charged on all receipts given by any bank or other financial institutions in acknowledgement of services rendered in respect of electronic transfer and other teller deposits from N1,000 and above.
The apex bank stated this in a circular titled: “Collection and Remittance of Statutory Charges on Receipt to Nigeria Postal Service (NIPOST) Under the Stamp Duties Act,”
The CBN stated, “As part of efforts to boost its revenue base, the federal government of Nigeria is exploring revenue opportunities in the non-oil sectors especially taxes and rates. It is in recognition of this fact that banks and other financial institutions are enjoined to support government’s revenue drive through compliance with the provisions of the Stamp Duties Act, LFN 2004 as reinforced by the court judgement in Suit No FHC/L/CS/1710/2013. In this regard, the CBN pursuant to the provisions of its enabling laws, hereby issues this circular to all DMBs other financial institutions.
“With immediate effect, all DMBs and other financial institutions shall commence the charging of N50 per eligible transaction in accordance with the provisions of the Stamp Duties Act and Federal Government Financial Regulations 2009, that is, all receipts given by any bank or other financial institution in acknowledgment of services rendered in respect of electronic transfer and teller deposits from N1, 000 and above; “For all avoidance of doubt, the following receipts are however exempted from imposition of stamp duties: payments of deposits or transfer by self to self whether inter or intra bank etc.”
Officials of the Department of State Services (DSS) on November10 raided the offices of some bureaux de change (BDC) in Lagos, and arrested operators selling above the stipulated exchange rate of N385 per dollar.
Defending the action, the CBN governor, Godwin Emefiele, “accused them of transacting businesses illegally, stating: “First, the foreign exchange regulation in Nigeria today forbids trafficking in currency ñ we should just underscore that point. You cannot stand on the street and traffic in currency. So we know that the security agencies have a right to enforce the laws”. And as long as the law says you cannot traffic currency on the streets, you are supposed to be in your office conducting your business, then you will have to adhere to that.
“And if you don’t adhere to that, the security agencies will arrest you. Black marketers are illegal foreign exchange dealers and so we donít consider, in our own assessment, people who want to go underground and conduct illegitimate business.”