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Naira rises as banks shift cash into the FX market

Cardoso, CBN Governor

In order to stimulate the naira and alleviate some of the strain on the foreign exchange (FX) market, the Central Bank of Nigeria (CBN) allowed commercial banks a 24-hour window in which they could pump dollars into the official market.


This was demonstrated by the 85.36 percent increase in the volume of dollar transactions between willing sellers and willing buyers, which included banks, exporters, and investors.

From $72.33 million on Tuesday to $134.07 million on Wednesday, the official market registered a daily turnover in the foreign exchange market.

As a result, according to data from the FMDQ, the Naira increased by 1.85 percent on Wednesday when the dollar was quoted at N,1455.59, as opposed to N1,482.57 on Tuesday at the Nigerian Autonomous Foreign Exchange Market (NAFEM).

Additionally, the intraday high on Wednesday increased by 1.46 percent to N1,509 from the N1,531 quoted on the spot on Tuesday. N789 per dollar was the intraday low that held steady.
The CBN issued restrictions on banks’ foreign exchange holdings on Wednesday and voiced alarm over the rise in foreign exchange exposures on their balance sheets following a decline in the value of the local currency relative to the US dollar.

This was revealed in a circular to all banks, entitled “Harmonization of Reporting Requirements on Foreign Currency Exposures of Banks,” which was co-signed by Rita Ijeoma Sike, the head of the banking supervision department, and Hassan Mahmud, the director of the CBN’s trade and exchange department.

According to the circular, banks are required to maintain a Net Open Position (NOP) limit of no more than 20 percent short (having more foreign currency assets than liabilities) or 0% long (having no more foreign currency assets than the bank’s shareholder funds intact).

According to the statement, banks that are now above these specified NOP limitations must change their positions by February 1, 2024, to comply with the new rules.

By taking this action, the banking industry hopes to become more robust and reduce the risks related to excessive foreign exchange exposure.

The foreign exchange asset to liability ratio, or NOP, is the differential for a bank. Both balance sheet and off-balance sheet items are included in this.

Analysts believe that the new FX regulations from the central bank will support the flow of dollars from commercial banks and stabilize the value of the naira in the near future.

As a result, the market would get more foreign cash, which would reduce the disparity between supply and demand. Even while this policy’s impact on the Naira would be temporary and one-time, it should assist reduce market pressure and stabilize the Naira over the next days, particularly if the CBN implements it strictly to prevent violations or covert compliance. Abiola Rasaq, head of investor relations at United Bank Africa Plc and a former economist stated.

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