A recent analysis of data from the Central Bank of Nigeria (CBN) indicates that the total balance in domiciliary accounts within the nation’s commercial and merchant banks surged by more than a fifth in June.
The foreign currency deposits in these accounts, primarily in US dollars, grew from N10.72 trillion in May to N17.65 trillion in June, a 21% increase when converted to the dollar, amounting to $28.92 billion.
This increase was attributed to a combination of more deposits being made and the devaluation of the naira, which inflated the naira value of foreign currencies held in domiciliary accounts.
The devaluation allowed the naira to weaken by as much as 40% against the dollar in June.
Adeola Adenikinju, a prominent economist, and president of the Nigerian Economic Society, pointed out that a substantial portion of the funds in domiciliary accounts remains idle, constituting more than a third of all deposits in the country’s banking sector.
He suggested that creating dollar-denominated assets could encourage account holders to invest these funds, potentially benefiting the economy.
In June, the Central Bank of Nigeria lifted restrictions on domiciliary accounts to improve transparency, liquidity, and price discovery in the foreign exchange market, while also allowing greater access to account funds.
While some have suggested converting the domiciliary account funds to naira, Adenikinju disagreed, asserting that such a move could hinder the free flow of dollars.
Nigeria’s largest banks have witnessed rapid growth in customer deposits in the first nine months of this year, reflecting a variety of factors, including the government’s borrowing from the Central Bank, increased financial inclusion efforts, and the boost in the naira value of dollar balances in domiciliary accounts.
