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CBN Orders Banks to Stop Dollar Loans

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  • CBN Orders Banks to Stop Dollar Loans

Bank customers who do not earn foreign exchange (forex) will henceforth not be able to secure dollar-denominated loans, the Central Bank of Nigeria (CBN) has said.

CBN Director, Banking Supervision, Mrs. Tokunbo Martins, broke the news yesterday at the CBN-Financial Institutions Training Centre (FITC) continuous education programme for Directors of Banks and Other Financial Institutions, held in Lagos.

She said the policy shift followed the continuous depreciation of the naira and subsequent rise in foreign currency exposures of banks in naira terms.

She said the currency depreciation, which intensified following the introduction of the flexible exchange regime, had increased the loan repayment obligation of borrowers and threatened their capacities to meet contracted loan repayments.

“Banks may, therefore, need to restrict extending foreign currency denominated loans to customers that do not earn foreign exchange,” she said.

Speaking on the theme: Current Regulatory Requirements and their Implications, Mrs Martins said the CBN introduced the flexible forex policy to address the challenges experienced in the forex market.

“The objective of the new regime is to enhance efficiency and facilitate a liquid and transparent Foreign Exchange Market. It is pertinent to note that, although the regime is flexible, CBN intervention in the inter-bank market is allowed, and can be direct or through dynamic secondary market mechanisms,” she said.

“One of the fallouts of the flexible exchange rate regime is increase in volatility in forex market, resulting in heightened exposure of banks to foreign exchange risk. Consequently, banks may need to tighten their controls and monitor their foreign currency positions more closely,” she stated.

Speaking on Treasury Single Account (TSA) implementation, Mrs Martins said the TSA regime precipitated some unintended consequences, affecting the operations of banks, especially regarding deposit depletion, asset quality, decrease in revenues and liquidity stress.

According to her, the aggregate deposit transferred to the CBN from the inception of the TSA regime to March 2016 was N2.67 trillion. This sum, which represents 15.14 per cent of the total deposits of commercial banks of N17.63 trillion as at April 30, constitutes the volume of deposits “lost” by banks as a fallout of the implementation of the TSA regime.

“This loss impacted banks differently in line with the proportion of their balance sheet that was sustained with Federal Government of Nigeria (FGN) deposits. Due to its large size and low cost, Federal Government of Nigeria deposits were a huge source of revenue for banks. Although specific data on revenue attributable to FGN deposits is not available, a good proxy is the yield on Treasury Bills, which is currently around 14 per cent,” she said.

Mrs Martins said assuming the entire government deposits were invested by the banks in Treasury Bills, at the current yield of 14 per cent, it would generate interest income of about N374 billion for the banks. This figure, she said, provides an indication of revenue that is no longer available to commercial banks due to introduction of TSA.

Mrs Martins said that based on the large quantum of revenue earned from government deposits, majority of commercial banks had created teams with responsibility for mobilising public sector funds.

“These teams, which were large and significant, were in some cases directly supervised by top management staff. The introduction of the TSA regime and resultant depletion in government deposits and related revenue has made these teams unprofitable and their existence untenable. Therefore, most banks had scaled back or disbanded the teams and, in extreme cases, released staff deployed to the teams,” she said.

The CBN director said the TSA regime impacted the liquidity level in the banking system due to the attendant remittance of cash, which constitutes a major portion of banks’ liquid assets to the apex bank.

“Furthermore, as part of risk management, banks with large government deposits mitigated their positions by investing the liability in T-bills and FGN bonds. These banks had to liquidate these investments in order to comply with the TSA regime, thereby further reducing their stock of liquid assets,” she said.

Mrs Martins explained that with the introduction of the TSA regime, easy and risk free revenue that was hitherto available to banks via investment of FGN deposits in Treasury Bills and Government Bonds had been restricted.

“Therefore, banks must become innovative in generating revenue to support their operations and provide returns to their shareholders. This development also presents an opportunity for banks to return to their traditional role of savings aggregation and financial inter-mediation. Banks should thus strive to increase the size of their loan books in order to increase their interest and fees income,” Mrs Martins said.

 

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Finance

Federal Government Clears $120m Debt to Gas Companies Amid Nigeria’s Power Crisis

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Gas-Pipeline

Amidst Nigeria’s persistent power crisis, the Federal Government has taken a pivotal step forward by clearing a significant portion of its debt to gas companies.

A sum of $120 million has been paid out of the country’s $1.3 billion indebtedness to gas suppliers, offering a glimmer of hope for improved energy stability across the nation.

The Minister of Power, Chief Adebayo Adelabu, underscored the critical role of gas in power generation and highlighted how the mounting debts had severely hampered gas supply to electricity-generating companies, exacerbating the country’s electricity shortfall.

Nigeria heavily relies on thermal power plants fueled by gas for over 70% of its electricity needs, making the timely settlement of gas debts paramount for enhancing power generation capacity and addressing the nation’s energy deficit.

Addressing delegates at the 7th Nigeria International Energy Summit in Abuja, the Director of the Decade of Gas Secretariat, Ed Ubong, expressed optimism about the government’s progress in offsetting its financial obligations to gas producers.

He emphasized the importance of aligning gas and power sectors to foster sustainable energy solutions.

As Nigeria grapples with the multifaceted challenges plaguing its energy landscape, the government’s commitment to settling outstanding gas debts marks a pivotal stride towards revitalizing the country’s power infrastructure and ensuring reliable electricity access for its citizens.

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Finance

Nigeria Insurance Corporation Reimburses Depositors of 179 Closed Microfinance and Four Mortgage Banks

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Retail banking

The Nigeria Insurance Corporation (NDIC) has announced the successful reimbursement of depositors affected by the closure of 179 microfinance banks and four mortgage banks across the country.

The reassuring news came during the 45th Kaduna International Trade Fair, where NDIC’s Managing Director, Dr. Bello Hassan, explained the corporation’s unwavering commitment to safeguarding depositors’ funds amidst financial uncertainties.

Dr. Hassan, represented by Hauwa Gambo, the NDIC’s Deputy Director of Communication, highlighted the corporation’s proactive measures in protecting the interests of depositors.

The introduction of the Single Customer View framework has expedited the process of reimbursing depositors of liquidated banks, ensuring swift and transparent transactions.

The corporation’s collaboration with the judiciary has yielded positive results, facilitating the speedy prosecution of failed insured banks and resolving long-standing cases of bank liquidations like Fortune and Triumph Banks.

This concerted effort has significantly enhanced the debt recovery rate, enabling NDIC to declare full liquidation dividends to uninsured depositors of over 20 deposit money banks.

Furthermore, NDIC has embraced digital remote payment strategies, streamlining electronic funds transfers to verified depositors’ alternate bank accounts.

The introduction of the ‘Deposit Tracer’ initiative in partnership with mobile operators aims to address apathy among depositors with small balances, providing accessible avenues for claiming funds trapped in closed banks.

The initiatives underscore NDIC’s proactive stance in safeguarding depositors’ interests and ensuring financial stability in Nigeria’s banking sector.

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Banking Sector

85.51 Million Nigerian Bank Customers Face Withdrawal Freeze Over NIN, BVN Deadline

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First Bank

As the March 1 deadline looms, an estimated 85.51 million Nigerian bank customers are facing the possibility of frozen accounts due to their failure to link their National Identification Numbers (NINs) and/or Bank Verification Numbers (BVNs) to their accounts.

Recent findings reveal the potential scale of the impending banking crisis.

Data from the Nigeria Inter-Bank Settlement System (NIBSS) indicates that Nigeria had approximately 146 million active individual bank customers as of December 2022.

However, by January 26, 2024, only 60.49 million BVNs were recorded on the NIBSS portal, leaving a significant portion unlinked.

Meanwhile, about 104 million NINs had been issued by December 2023, highlighting the disparity between NIN issuance and BVN linkage.

The Central Bank of Nigeria (CBN) had earlier issued directives to banks, mandating them to restrict transactions on accounts lacking linked NINs and BVNs, with effect from March 1, 2024.

Any accounts found non-compliant risk being designated as ‘Post no Debit,’ rendering them unable to process further transactions.

Responding to the impending crisis, the Director-General of the National Identification Management Commission (NIMC), Abisoye Coker-Odusote, emphasized the need for the revalidation of Front-End Partners (FEPs) to ensure the integrity of the identity database.

She underscored the importance of NIN registration and urged collaboration with various stakeholders to expedite the process.

The Executive Vice Chairman/CEO of the Nigerian Communications Commission (NCC), Dr. Aminu Maida, reiterated the significance of linking NINs to SIM cards to enhance national security.

Telecom subscribers were urged to comply with the NIN-SIM linkage directive to avoid service disruptions.

Meanwhile, financial service providers like Opay have issued reminders of the impending restrictions, urging customers to comply with the linkage requirements.

Amidst concerns, some customers contemplate transferring funds to compliant accounts to avoid potential financial setbacks.

As the deadline approaches, stakeholders are intensifying efforts to mitigate the impact of the impending banking crisis on millions of Nigerians.

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