CBN’s FX Market More Transparent, Difficult To Manipulate— Expert

A financial expert and the co-founder of Dairy Hills, Kelvin Emmanuel, has said that bankers made an attempt to lobby against Central Bank of Nigeria’s (CBN) circular on the harmonization of reporting requirement on foreign exchange currency exposure of banks.

Kelvin said the circular was the game changer that led to the rebound of the naira which is trading around N1,500 per dollar.

Also, the gap between the parallel market and official market has reduced to less than 1 per cent.

In January 2024, the Trade and Exchange Department of the CBN issued a circular dated January 31, 2024 limiting the Net Open Position (NOP) of overall foreign currency assets and liabilities of banks to not more than 20 per cent short or zero per cent long of shareholders’ funds unimpaired.

The Circular also directed banks whose current NOP exceeded 20 per cent short and zero per cent long of shareholders’ funds unimpaired by losses to bring them to the prudential limit in February of the same year.

Emmanuel said the policy was one of the CBN’s most important decisions, saving Nigeria’s foreign exchange position.

Kelbvin said, “One important decision CBN took to stabilize the FX markets last year was to harmonize reporting requirements for foreign currency positions of (especially) tier 1 banks — these are open positions net of maturing foreign currency obligations.”

In December 2023, the financial statements of most banks showed that major commercial banks in Nigeria recorded N3.37tn in foreign exchange revaluation gains in FY 2023 and Q1, 2024.

The expert said, “As of the time this circular was released January last year, about five tier 1 banks had $5bn onshore that had been used to speculate on the currency against the zero per cent long and 20 per cent short that the new circular required,

“I heard reliably that same weekend some bankers flew into Abuja to lobby against this circular.

“The master stroke that has compelled and checkmated the banks is the transition from managed float to NFEM matching system (that’s completely electronic).”

He said the “B-matching system completely liquidated and prevents banks from onshore speculation with net positions.

“Reforms have unlocked liquidity from FPIs who see a transparent system that prevents domestic market makers like primary dealers from rigging the rates in their favor.

“This is one strong reason you’re seeing inflow of short-term liquidity with 1-Year forwards to hedge the risk.”

CBN’s FX Market More Transparent, Difficult To Manipulate— Expert is first published on The Whistler Newspaper