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Bank-to-bank Forex Deals Resume

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Forex Weekly Outlook November 7-11
  • Bank-to-bank Forex Deals Resume

Banks can now directly sell foreign exchange (forex) to one another, without prior Central Bank of Nigeria (CBN) approval.

The policy shift became exigent following the improvement in forex supply to key segments of the market, a development that has shored up market confidence.

A top manager in one of the Tier-1 lenders, who disclosed this at the weekend, said the CBN had in the heat of the forex scarcity stopped commercial banks from selling foreign exchange to one another, unless they had its approval.

But the regulator has in the last few weeks reversed the policy. It now allows lenders to sell foreign exchange to one another. But there is a condition: ”In bank-to-bank forex deals, the buying bank must not resell to another lender, except to end-users”.

The source, who spoke anonymously because she was not supposed to disclose such development to the public, said: “The CBN has lifted restrictions on banks not to sell forex to one another except it is approved by the regulator. Today, banks can sell forex to one another, but the buying bank cannot resell to another lender, except to an end-user”.

According to the source, the CBN has since January, spent over $7.7 billion to stablise the forex market. The Investors’ & Exporters’ FX Window currently records about $80 million daily turnover, with the CBN contributing about 15 per cent of the transactions.

The Investors & Exporters Forex Window was introduced by the CBN on April 24. About $3.83 billion has been traded through the window since inception. The window has impacted positively on the naira. The window, where buyers and sellers are free to agree an exchange rate, was introduced to attract foreign investors and boost the supply of dollars.

Traders said $407 million was traded last week as against $354.8 million in the previous week, indicating a gradual return in investors’ confidence in the forex market.

There has been continuous improvement in dollar inflow into the market from offshore investors, a trend that has also reflected in the volume of transactions at the equity market. Before the window came on board, the CBN was the main supplier of hard currency on the interbank forex market, after foreign investors fled naira assets in the wake of an oil price slump in 2014.

Aside establishing the Investors’ & Exporters’ FX Window, the CBN also opened a special forex window for SMEs. The window, which allocates $20,000 per business per quarter, helps the SMEs import “eligible finished and semi-finished items” needed for their businesses. The CBN said the bank’s special intervention was necessitated by its findings that many SMEs were being crowded out of the forex space by large firms.

“The sum of $20,000 per SME customer per quarter can be done through telegraphic transfer, subject to completion of Form ‘M’ supported with a pro forma invoice and the importer’s Bank Verification Number (BVN),” it said.

All the processing banks are to ensure that the importers submit shipping documents not later than 60 days from the date of the transfer.

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.

Finance

ARISE IIP and Africa Finance Corporation Launch US$ 100M Capital Pool for African Entrepreneurs

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ARISE IIP, the pan-African developer and operator of world-class industrial parks, and Africa Finance Corporation (AFC), the leading infrastructure solutions provider in Africa, today announced the signing of a Memorandum of Understanding to establish a dedicated US $100 million capital pool for African entrepreneurs who are establishing operations within any of the Arise IIP Special Economic Zones (SEZ) in Africa. 

At the heart of this partnership is a shared vision to uplift African entrepreneurs by providing them with much needed financing and advisory services to catalyse growth.

AFC will also actively seek financing from Export Credit Agencies (ECAs), local and regional financial institutions to mobilise funding to support these companies.

This concerted effort underscores ARISE IIP and AFC’s commitment to fostering industrialisation, job creation and economic prosperity in Africa.

Under this partnership, AFC’s comprehensive suite of financial services will extend beyond financing to include financial advisory support for corporate finance, equipment financing and market entry including assisting with joint ventures and technical partnerships for sponsors that may require it, to ensure they are well-equipped to seize opportunities and thrive within the SEZs.

By tapping into AFC’s extensive network and expertise, ARISE IIP aims to cultivate a vibrant ecosystem that nurtures entrepreneurship and drives sustainable economic development across the continent.

Gagan Gupta, CEO of ARISE IIP said about this partnership: “ARISE IIP is about empowerment. By empowering our customers, and ensuring they have the robust financial support needed to meet their operational objectives, this collaboration with Africa Finance Corporation, our long-lasting partner, takes us one step closer to realising our vision of an industrialised and prosperous Africa.

Samaila Zubairu, President & CEO of AFC said: This partnership marks a significant milestone in our commitment to offer strategic financial advisory and corporate finance services to firms focused on value capture and import substitution projects in Africa. By collaborating with our investee company Arise IIP and African entrepreneurs in our Special Economic Zones, we aim to foster an ecosystem that will increase trade, create jobs, and drive economic advancement on the continent.

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Finance

United Capital Plc Reports Stellar Growth with 65% Profit Increase, Announces Dividends

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United Capital - Investors King

United Capital Plc (NGX: UCAP) has unveiled its unaudited financial results for the period ending June 30, 2024.

The company reported a 38% increase in gross earnings year-on-year to N15.15 billion. Profit before tax soared by 63% to N9.06 billion while profit after tax surged by 65% to N7.74 billion.

Total assets rose by 27% in the first half to N1.19 trillion, and shareholders’ funds increased by 33% to N120.34 billion.

These robust results have prompted United Capital to declare an interim dividend of N0.90 per 50 kobo ordinary share, alongside a generous bonus share offering of “2 for 1.”

Peter Ashade, Group CEO, expressed satisfaction with the strong financial outcomes, highlighting the company’s commitment to creating wealth and delivering superior value to shareholders.

“This marks a historic moment with our first-ever interim dividend and bonus share announcement, demonstrating our dedication to stakeholder value,” Ashade stated.

The company remains confident about sustaining its growth trajectory throughout 2024, bolstered by nearly N1.3 trillion in funds under management.

United Capital continues to prioritize activities that enhance and preserve value for stakeholders, maintaining its competitive edge and profitability.

With a focus on trusts, mutual funds, and professionally managed investments, the group is strategically positioned to achieve its growth objectives, ensuring sustainable returns for all involved.

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Banking Sector

Nigeria Plans 50% Windfall Tax on Banks’ Currency Profits

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Central Bank of Nigeria (CBN)

Nigerian President Bola Tinubu has announced a one-time 50% tax on windfall profits that banks reaped from currency gains following last year’s naira devaluation.

This decision was part of the government’s strategy to navigate the ongoing cost-of-living crisis.

The naira, which has depreciated by about 70% against the dollar since foreign exchange rules were relaxed in June 2023, allowed banks holding dollar assets to significantly boost their income.

However, the Central Bank of Nigeria had advised lenders to retain these profits as a buffer against potential future losses.

The proposed tax will apply to the 2023 financial year, with non-compliance resulting in hefty fines.

The move has already impacted the NGX Banking Index, which fell by 1.3% as of midday trading in Lagos. Notable declines were seen in FBN Holdings Plc and Zenith Bank Plc, dropping 3.2% and 2.5% respectively.

This initiative mirrors similar actions in Europe, where countries like Italy and Hungary have imposed taxes on banks to address what they view as excessive profits during periods of high inflation and interest rates.

European banks have criticized these measures, warning of potential impacts on economic growth due to constrained lending capabilities.

President Tinubu’s administration believes this tax will help manage Nigeria’s fiscal challenges while addressing social needs.

Lawmakers are expected to support the measure, alongside a proposal to increase government spending by 6.2 trillion naira ($3.8 billion).

While banks have benefited from currency revaluations, many customers, particularly manufacturers with dollar-denominated loans, faced significant losses as they struggled with the weaker naira.

The new tax policy highlights the government’s broader efforts to stabilize the economy and attract foreign investment, aiming to ensure a more equitable distribution of financial gains.

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