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Banks under attack over worsening fate of naira

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Naira maintains positive outlook amid concerns over decline in reserves

– Nigerians call for tighter control of their operations

Deposit Money Banks (DMBs) are under attack in the face of the economic hardship ravaging the country, with many people, and even government, attributing the persistent free-fall of the naira to their alleged unethical practices in the foreign exchange market.

Some economically exposed persons have accused bank officials, especially managers of hoarding naira and opening domiciliary accounts for themselves, where they hoard dollars, thereby compounding the woes of the struggling economy.

They believe unless drastic steps are taken by managers of the economy to right the wrongs, stability may elude the nation’s foreign exchange market longer than envisaged, despite intensified push in recent times by the Central Bank of Nigeria (CBN) to reverse the ugly trend.

The CBN had initiated a comprehensive strategy to enhance liquidity in the forex market, including unifying the market segments, clearing outstanding FX obligations, introducing new operational mechanisms for Bureau de Change operators, enforcing the Net Open Position Limit for commercial banks, and adjusting the remunerable Standing Deposit Facility Cap among other measures. Yet, these have not proved to have the solution to the disturbing FX volatility.

The naira on Thursday made a U-turn as it marginally declined at the parallel market to N1,605/$1 from N1,600/$1 it exchanged on Wednesday. However, the official Nigerian Autonomous Foreign Exchange (NAFEM) recorded gain, closing at N1,608.98 signifying a N6.96 gain compared to N1, 615.94 it closed on Wednesday.
Notably, the daily turnover recorded Thursday was $243.65 million indicating a 2.05 percent decline from $248.75 million, quoted on Wednesday.
Recall that between June last year and March 15 2024, CBN had floated the naira twice, which saw the country’s currency trading at N1,602.75 per USD from N460 in May 2023.

Startling contradictions

As the life wire of an economy, the banking sector is expected to be a reflection of the state of an economy, growing profits when the vital economic indicators are pointing to the right direction and struggling when the reverse is the case.

But that does not seem to be the case in Nigeria. Despite domestic and global economic headwinds, nine DMBs in the country declared N346 billion profit after tax in the first quarter (Q1) of 2023, an increase of 29.3 per cent over N267.69billion reported in the first quarter of 2022.

Also, a review of H1 2023 financial disclosures of companies listed on the Nigeria Exchange Ltd shows that seven of the top 10 most profitable companies were banks, which collectively accounted for 75 percent of the total declared pre-tax profits, summing up to a whopping N1.7 trillion.

Worried by the startling contradictions, some analysts had recommended implementing stringent measures to stem the tide of foreign exchange manipulations and the activities of speculative traders – practices that many believe are widespread within the banking sector.

They believed that curbing forex manipulations and speculative trading will see the financial sector operate transparently and fairly, contributing positively to the economy, without exploiting systemic loopholes for disproportionate gain.

Incidentally, in a move lending credence to the experts’ concerns, the CBN, as part of efforts to stop the naira from further plunging into record lows, recently issued a new set of directives that would discourage banks from tampering with the naira’s value through hoarding and speculation of the foreign currency.

In order to guarantee that foreign currency is available to citizens, who require it, the CBN wants all banks to hold only a maximum of 20 percent of foreign exchange in short-term investments and zero per cent in long-term investments.

“The Net Open Position (NOP) limit of the overall foreign currency assets and liabilities taking into cognizance both those on and off-balance sheets should not exceed 20% short or 0% long-forgotten shareholders funds unimpaired by losses using the Gross Aggregate method,” read the recent circular signed by Hassan Mahmud, CBN Trade and Exchange Director.

The real culprits

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While lauding the CBN for its actions aimed at restoring sanity in the FX market, financial experts, in their separate views, observed that the efforts, though in order, were yet to yield any significant results.

They asked the CBN to checkmate the alleged hoarding of dollars by bankers and beam its searchlight on the corrupt activities of some bank officials and Nigeria elites, who sell dollars to BDCs operators.

On how naira can be strengthened, an economist, Yinka Anjous, urged the CBN to work with the National Assembly to ban the use of dollar as means of transactions in Nigeria, adding that Bureau de Change operators should be prohibited from buying and selling dollars.

“CBN has started taking some steps towards realizing the position of naira to the expected position of Nigerians. However, most of these steps being taken have not had the desirable effects. That is the most painful thing about that”, Anjous worried.

“For example, they target floating. Floating means allow the variance of demand and supply to come to bear. But, when the supply is not forthcoming and demands keep coming, it shows that some people are hoarding.

’So, it is seriously hurting the naira and CBN gave a matching order to banks to release the dollars they are holding. But, have they done that? And if they have, we have not heard of any serious punishment to any erring bank. So, I will advise that CBN should fight and not only bark.”

The claims were corroborated by a former governor of Bauchi State, Isa Yuguda, who accused financial institutions of contributing to the destruction of the Nigerian economy in the interest of profiteering.

Yuguda, a former banker, while featuring on Channels Television’s Sunrise Daily, said: “From my own experience, the banking industry in the year 2000 to before I joined the cabinet of Chief Obasanjo’s govt., banks have really contributed in no small way in destroying the economy of Nigeria, because, for some of our colleagues, it is not about Nigeria.”

“How can they use their institution to make money and live outside Nigeria with their families and then continue milking Nigeria through the banks?

Yuguda alleged that the banks engage in illegal transactions that even the regulators find difficult to unravel.

“There are so many ways to make illegal transactions that even the regulators will hardly notice it but financing of the real sector. If you look at the balance sheet of banks, the real sector financing, maybe it is just paper intrigues, if you do a forensic audit, you will discover that they just want to satisfy the regulators.

“They are basically trading in money, trading in FX, almost all the banks and that is why I am happy that the central bank governor has taken a position to review those open positions, where bank CEOs amass dollars in their balance sheets to the extent that they deny the markets dollars. I must say that banks must be professional,” the former minister said.

In February, the House of Representatives resolved to investigate the alleged hoarding of dollars by some commercial banks. This resolution was sequel to a motion moved by Babajimi Benson (APC, Lagos) on during plenary.

Mr. Benson, in his motion, said some banks were sabotaging the efforts of the CBN to halt the slide of the naira against major currencies. He alleged that the banks had not been complying with the new FX risk management circular released by the apex bank.

“Commercial banks and certain financial institutions in Nigeria usually hold back a large part of forex they obtain either through purchase, borrowing or allocation from the CBN rather than lending to their customers with a view to selling it when the exchange rate is high,” he alleged.

Many are, however, not unmindful that the banks are currently grappling with higher operating expenses on account of rising inflationary pressure, naira devaluation and upward salary reviews.

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