In anticipation of the Central Bank of Nigeria’s (CBN) midnight deadline on February 1, 2024, instructing commercial banks to sell all surplus foreign exchange holdings, Deposit Money Banks (DMBs) engaged in extensive efforts on Thursday to offload their excess dollar stocks.
The treasury departments of DMBs reportedly spent the entire day working to sell their surplus foreign exchange holdings, processing numerous foreign exchange request forms for customers. This heightened activity in the official foreign exchange market contributed to the rebound of the naira at the parallel market on Thursday.
Top bank executives, speaking on the condition of anonymity, confirmed significant forex transactions within the banks. By 6 pm on Thursday, bank officials, particularly those in the treasury departments, were striving to meet the new prudential requirements set by the regulator.
The CBN, in its effort to stabilize the nation’s volatile exchange rate, had issued a circular on Wednesday, directing DMBs to sell their excess dollar stocks by February 1, 2024. The circular also warned against hoarding excess foreign currencies for profit.
Concerned about the growing trend of banks holding large foreign currency positions, the CBN introduced guidelines aimed at reducing the risks associated with such practices. Banks with current Net Open Positions (NOPs) exceeding the CBN’s limits were directed to adjust their positions and comply with the new regulations.
This latest directive came on the heels of the adjustment in the methodology used for calculating the nation’s official exchange rate by the FMDQ Exchange, resulting in a shift to around N1,500 from approximately N900/dollar.
Following the CBN directive to unify the official and parallel market rates, several banks sold forex to their customers on Thursday, leading to a sharp rebound of the naira in the official market. Bureau De Change operators in Lagos, Kano, and Abuja also rushed to sell their dollar holdings amid concerns that the local unit might sustain the gain in the coming days.
BDC operators reported selling the greenback for N1400/dollar to N1420/dollar, marking a significant rebound from over N1500/$ recorded on Wednesday. In Abuja, the naira traded at the parallel market between N1,300/$ and N1,350/$.
The CBN’s directive prompted a surge in online business transactions and cryptocurrency, impacting BDC operators. While some operators closed their shops on Thursday due to the unavailability of dollars, there are plans for another market closure next week on Monday to further reduce the price of the dollar.
However, an official at a first-generation bank claimed that the banks did not have enough physical foreign notes to dispose of, emphasizing that the surge observed in the CBN’s Net Open Positions was electronic notes and not physical, as implied by the circular.