CBN Accuses Banks of Hoarding $5 Billion in Foreign Currencies

The Central Bank of Nigeria (CBN) has intensified its efforts to stabilize the nation’s foreign exchange market and directed banks to release over $5 billion in foreign currencies they are hoarding.

The accusation came following the apex bank’s expressed concerns about banks’ excessive forex exposure, attributing the scarcity and naira depreciation to the actions of Deposit Money Banks (DMBs).

At the close of the market, the naira experienced a substantial gain against the dollar, reaching N1,450/$ at the parallel market, up from N1,520/$ the previous day.

In response to the crisis, the CBN mandated banks to release any excess foreign currency they hold to individuals and businesses in need of forex by today’s deadline. Failure to comply will result in sanctions, according to existing rules and regulations.

To ensure compliance, teams of examiners have been deployed to commercial banks heavily engaged in FX transactions.

While some banks swiftly adhered to the directive, others are cautious, hesitant to reveal their exact dollar reserves and are treading carefully before fully complying.

The CBN’s directive challenges the traditional banking practice of holding excess dollar liquidity for gains.

Dr. Wahab Balogun of Ambosit Capital Managers highlighted the potential benefits of the directive, including increased FX liquidity, stability in the naira’s exchange rate, and improved access to funds for critical sectors like manufacturing and agriculture.

However, challenges such as temporary operational disruptions, profitability impacts on banks, and inflation risks loom large.

Despite the hurdles, the CBN remains resolute in its efforts to stabilize the naira and address the foreign currency shortage, aiming to boost investor confidence and economic activity.