Following the directive by the Central Bank of Nigeria (CBN) lifting the restriction on the payment of foreign currencies into domiciliary accounts, bank customers on Tuesday besieged banking halls to lodge US dollars in cash, among other convertible currencies, into their accounts.

THISDAY gathered from bank officials in Lagos that a lot of bank customers who had kept foreign currencies outside the banking system as a result of the prohibition on the acceptance of foreign cash deposits by commercials banks since August 2015, thronged the banks to deposit the foreign currencies.

“We have seen a large number of domiciliary account holders who had held on to their foreign currencies, mostly the US dollars, come to make lodgements in their accounts today and the number is expected to increase as more customers become aware of the removal of the restriction by the central bank,” an official of Guaranty Trust Bank Plc who pleaded to remain anonymous explained.

But when told that some bank customers had expressed concern that the banks might not be able to meet demand when they want to make withdrawals from their domiciliary accounts in the foreseeable future, the bank official reminded THISDAY that what actually led to the ban on foreign currency deposits was because the foreign currency in bank vaults mid-last year had exceeded the optimum level that they could manage.

He said: “It’s actually because the banks have exhausted the cash in their vaults that the CBN was able to lift the restriction. This was the reason some banks were finding it difficult to meet demand when customers tried to withdraw cash from their domiciliary accounts last month.

“But with the restriction lifted, there is no way we won’t meet customers’ demands once they want to withdraw foreign currencies from their accounts.”
The CBN on Monday relaxed some of its foreign currency controls by lifting its ban on foreign currency cash deposits in commercial banks.

The CBN Governor, Mr. Godwin Ifeanyi Emefiele, who disclosed this, equally announced that the central bank would discontinue its sale of foreign exchange to Bureau de Change (BDC) operators.

According to Emefiele, BDC operators would now need to source their foreign exchange from autonomous sources. Emefiele stressed that the CBN would deploy more resources to monitoring these sources to ensure that no operator violates the country’s anti-money laundering laws.

Meanwhile, the naira depreciated marginally to N283 to a dollar based on the mean value derived from quotes from parallel market operators at Ikeja, Marina, Broad Street and Apapa areas of Lagos yesterday, from N282 to a dollar on Monday.

Owing to the CBN’s directive, some banks immediately notified their customers of the resumption of foreign currency cash deposits.
GTBank, in a notice to its customers, stated: “We are pleased to inform you that you can now make foreign currency cash deposits into your GTBank domiciliary account(s) at any of our branches from Tuesday, 12th of January, 2016.

“Our resumption of this service is in response to the CBN’s directive, issued on the 11th of January, 2016, authorising commercial banks in Nigeria to resume acceptance of foreign currency cash deposits.”

Speaking on the new directive on currency controls, Chief Economist for Africa at Standard Chartered Bank, Razia Khan, described the announcement ending CBN’s forex sales to BDCs as a precursor to a wider forex liberalisation, saying it was good news.

She opined that allowing banks to accept US dollar deposits would “move those notes back into the formal, better regulated banking sector. It is also a necessary move prior to any interbank forex liberalisation which is what the Nigerian economy needs in order for activities to resume”.

In the same vein, an economist at London-based investment bank, Exotix Partners, Alan Cameron, told THISDAY that CBN’s measures were expected to address some of the difficulties facing households and businesses, in that it would become easier to move hard currency around, and therefore to secure access to the much needed imports.

“However, by cutting forex sales to BDCs, there is also a risk that the parallel market will weaken even further than it already has, making those imports more expensive and increasing the incentive for rent-seeking behaviour.

“Without the CBN’s support, it is unclear who will fund BDCs and to what extent. Ultimately, we think these measure are precursor to a devaluation of the interbank FX rate – which we think is the only way to address the large and growing premium for USD on the black market,” Cameron added.

Also, the Chief Executive Officer of Cowry Asset Management Limited, Mr. Johnson Chukwu, said the central bank’s policy was in line with expectations that government would take out rent-seeking opportunities in foreign exchange management in the country.

He however held that the policy pronouncement was not holistic, saying it did not really address the challenges in the forex market.
“In the first place, it doesn’t improve the dollar liquidity available to businessmen to the extent that the CBN has not lifted the embargo placed on the transfer of domiciliary account balances for transaction purposes.

“So it then means that what the central bank has created is a window for custodianship of dollar cash with banks given that customers can only pay in and withdraw without transferring the dollars.

“If they cannot make transfers, it does not solve the problem of lack of access to foreign exchange which is a major challenge in the economy. So what the central bank actually needs is a further liberalisation of the forex market and they must also create a window for injecting additional liquidity into the system and that window could either be that the central bank sells dollar cash directly to the banks.

“But we need to adjust the exchange rate and eliminate completely rent-seeking opportunities in the economy,” Chukwu explained.
But CSL Stockbrokers Limited maintained that the central bank statement on Monday was indicative that the forex market would be liberalised so that banks could access forex for legitimate imports with ease.

To analysts at Ecobank Nigeria, by removing the restriction on foreign currency cash deposits, the CBN has provided a platform for banks to re-engage foreign currency customers with the aim of mopping up foreign currency cash outside the banking system for effective monetary policy operations.

They however pointed out that forex supply via a vibrant two-way quote interbank foreign exchange market remained a big issue that the CBN needs to address in order to consolidate its efforts on foreign exchange management.

“The CBN’s directive on forex sales to the BDCs is expected to impact the naira outlook from the supply side. The BDC market represents a small component of the forex market, but has high distribution networks that cannot be wished away by the regulator.

“Instead of an outright stoppage of forex sale, perhaps the CBN could have identified the erring BDCs for appropriate sanctions, while others are monitored real-time for compliance with the extant law.

“In the immediate future, as US dollar supply to BDCs is stopped, along with other recent forex demand management regulations, the naira is likely to weaken (although in the parallel market).

“However, the silence on telegraphic transfers, forex cash notes, and the two-way quote market, could further limit the positive impact introduced by the regulatory change on the market, requiring another regulatory change by the CBN to correct imbalances,” Ecobank analysts added.