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By Omodele Adigun
Since the present administration assumed power, it has not been business as usual for the financial sector in the last two years as the industry took the hit of the slump in the global oil prices.
A review of activities in the sector also shows that the crash in the crude oil prices also affected many things, including the the value of Naira, foreign reserves as well as the forex market.
Naira depreciation
Recall that during the South-East presidential rally on March 23, 2015, General Muhammadu Buhari, the then candidate of APC, lamented that “the value of the Naira has dropped to more than N230 to one Dollar. But after assuming power, the Naira was exchanged for N350 per dollar. And despite analysts’ call for devaluation, the president remained firm on his stand that ordinary Nigerians would derive no benefit from it.
Buhari said that he won’t “kill the naira” by allowing it to be devalued and that a weaker currency will only result in higher inflation and hardship for the poor. His comments to Nigerians in Kenya came only a day after CBN Governor, Godwin Emefiele, resisted pressure to devalue the currency despite a plunge in oil prices that slashed government’s revenue.
Emefiele, rather, stuck to foreign-exchange restriction, blamed for capital flight, output curb and drop in the local currency to a record low at the black market. The central bank had pegged the exchange rate at N197-N199 per dollar since March 2016 to stem its slide.
Foreign reserves
The dwindling oil revenue shot down the nation’s foreign reserves to an all time low of $25.4billion as at December 23, 2016, from the $29.61 billion (representing April 27, 2015 accruals) on May 29, 2015 when President Muhammadu Buhari was sworn in.
This made it impossible for the Central Bank of Nigeria (CBN) to leverage on the reserves to defend the value of the Naira as usual. The aftermath of that was the continuous drop in the value of the local currency to N520 by February 2017.
The International Monetary Fund (IMF) in its economic outlook for low-income developing countries(LIDC), the chief of which is Nigeria, summed up the scenario like this:
“There were sharp movements in currencies across many LIDCs during 2015. Further sizeable depreciations were recorded in 2016 in commodity exporters under stress.” These include “Nigeria, where efforts to support the naira through foreign exchange rationing have gradually crumbled. Inflation has risen to troubling levels in a handful of cases”.
But, as if to explain Nigeria’s frustration, the Finance Minister, Mrs Kemi Adeosun, lamented:
“The factors responsible for the declining fate of the local currency are irrational and emotional,” Adeosun said, explaining that “the difference between the official and the parallel market rates could not be justified. In reality, the Naira should not be affected more than the N305” per dollar, she argued, adding that this was so because the CBN had put in place measures to stimulate more supply of dollars to deal with its shortage in the market.
This situation made experts to call on the Federal Government to find a way of shoring up the reserves to serve as a buffer at a time of recession like this.
As of today, the reserves , which peaked at $30.985 billion on May 3, 2017, now stands at $30.495 billion.
The reserves have been inching up following the gradual increase in oil price and production output. On January 4, it rose to $26.2billion from $25.84billion recorded by December 30, 2016, the figure at which it ended the year. Before that time, it rose to over four-month high of $25.7billion on December 28, up from $25.4billion on December 23.
In less than one week, the reserves rose by almost $300million, from $25.084billion on December 16, 2016 to $25.361billion on December 22.
Treasury Single Account
On August 7, 2015, President Buhari issued a directive that all Federal Government revenue be paid into a Treasury Single Account (TSA). A TSA is a unified structure of bank accounts enabling consolidation and optimal utilization of government’s cash resources. It is a bank account or a set of linked bank accounts through which government transacts all its receipts and payments and gets consolidated view of its cash position at any given time.
The administration believes that the TSA has helped block revenue leakages and save over N3 trillion. The initiative has also enforced the Bank Verification Number. This is said to have so far helped to weed out about 65,000 “ghost workers” and saved the Federal Government of N185 billion.On the other side, the withdrawal of public sector fund has also impacted negatively on bank earnings. For instance, a CBN document showed that the sector recorded a decline in earnings, as unaudited pretax profit for the industry decreased by 10.8 per cent or N24 billion, from N222 billion in April 2015 to N198billion at the end of April 2016. During the period, the total deposits of bank customers dropped by 5.6 per cent or N1.03trillion, from N18.54trillion to N17.51trillion.
Commenting on this, a former Managing Director of Unity Bank Plc, Mr. Rislanudeeen Muhammed, attributed the decline in banks’ profit partly to TSA. In a chat with a national newspapers, he said: “There has been a mismatch between cost and incomes. Most of the costs of operations of the sector have gone up because there are two major income lines that have actually dropped. The first one is the TSA, which had adversely affected their income line and capacity to create risk assets and the withdrawal of Commission on Turnover charges.”
Banks barred from forex market
The unprecedented forex troubles bedevilling banking sector boiled over in August 2016, when CBN barred nine banks from forex market for their failure to remit $2.334billion belonging to the Nigerian National Petroleum Corporation (NNPC). The banks were accused of not remiting the dollar funds to the Federal Government’s Treasury Single Account(TSA) domiciled in the CBN as directed by the presidency last year.
Credit ratings
Also, the acute forex shortage forced many global rating agencies to downgrade most Nigerian banks’. The agencies include Standard & Poor’s, Moody’s Investors Service, Fitch Ratings and Arqaam Capital. For instance, Standard & Poor’s Global Ratings, citing increased economic risks in the country, scaled down the ratings of seven banks.
“These rating actions on the Nigerian banks reflect the sovereign downgrade and weakened economic environment,” it explained. The agency noted that the Nigerian economy had “weakened more than expected, owing to a marked contraction in oil production, a restrictive foreign exchange regime, and delayed fiscal stimulus. We believe that economic risks have increased for the Nigerian banking industry and that the government’s propensity to support the banking system is now uncertain.”
Moody’s , on its part, said the nation’s top five banks were facing liquidity challenge.
In a report, Moody’s stated that, while Nigeria’s five biggest banks share common credit challenges related to the slowdown in Nigeria’s oil and gas sector, their ability to withstand weak economic growth and volatile monetary conditions varies.
Fitch Ratings revised down the Support Rating Floors (SRFs) of 10 Nigerian banks to ‘No Floor’ and downgraded nine banks’ Support Ratings (SRs) to ‘5’ following a reassessment of potential sovereign support for the banking sector.
Arqaam Capital, the Dubai-based investment bank and brokerage, said Nigeria’s banking industry is experiencing a full-blown financial crisis as failed fiscal and monetary policies led to a credit crunch. “Our acid test reveals seven under-capitalized banks’ with a deficit of as much as N1 trillion ($3.2 billion) in the financial system”, it said.
Offshore ATM suspended
On October 14, several banks announced the suspension of Naira debit cards’ cash withdrawal from Automatic Teller Machines and PoS terminal transactions abroad. It was gathered that CBN had earlier directed the banks to add only N5 profit margin to the official inter-bank rate on all forex-related transactions carried out with naira debit and credit cards. This was said to have forced the banks to stop all foreign transactions on their payment cards. As they said they had been sourcing dollars at rates above N400 per dollar to run their card services.
Even before the embargo on the foreign ATM, it was gathered that most banks had reduced their daily ATM withdrawal limit abroad from $300, stipulated by Bankers Committee, to $100 due to their inability to source dollars to fund the business. And as if to deal with round tripping, CBN had earlier said bank customers who spent above the $50,000 annual forex peg would be barred from the forex market. Mrs. Martins, who stated this after the 329th Bankers’ Committee meeting in Lagos, said in the CBN’s move to manage the demand for forex, there was a rule that people were not allowed to withdraw more than $50,000 annually on their naira debit cards. For a while, the policy has been abused by bank customers, and the CBN has not taken any step to that effect. We have decided to take the step now to enforce the rule. So, we want members of the public to remember that that rule is in place.
Flexible Exchange rate
The CBN Governor, Godwin Emefiele, unveiled the flexible exchange rate policy on June 20, 2016. This was barely two weeks after he announced at the Monetary Policy Committee (MPC)meeting that he was going to allow the Naira to float freely at the interbank market. Here is what the CBN governor said during the announcement:
Recall that 2016 began with the official exchange rate put at N197 to the dollar. But this was sold with 147.1 percent premium at the parallel market at N289.79 per dollar.The official rate continued till June 20 when CBN discontinued with the pegging and allowed market forces to determine the rate. However, at the Bureax de Change (BDC ), the Naira still remained unstable. For instance, it rose from 167.43 per cent in February, selling at N329.83 per dollar over the official rate, to 177.02 per cent in May at N336.93 to the Dollar. In between, it was N320.93 and N320.71 per dollar in March and April respectively.
However, during the launch of the new forex policy, the local currency took a plunge and went down to as low as N231.76 per dollar at the official rate and N351.82 at the parallel market.
Stamp duty
CBN on Tuesday January 19, 2016, directed commercial banks as well as other financial institutions under its regulation, to, with immediate effect, commence charging N50 per eligible transaction in accordance with the provisions of the Stamp Duties Act and the Federal Government Financial Regulations 2009. The fee is charged on all receipts given by any bank or other financial institutions in acknowledgement of services rendered in respect of electronic transfer and other teller deposits from N1,000 and above.
DSS crackdown
Officials of the Department of State Services (DSS) on November 10, 2016, raided the offices of some bureaux de change (BDC) in Lagos, and arrested operators selling above the stipulated exchange rate of N385 per dollar.
Defending the action, the CBN governor, Godwin Emefiele, “accused them of transacting businesses illegally, stating: “First, the forex regulation in Nigeria today forbids trafficking in currency.
You cannot stand on the street and traffic in currency. So we know that the security agencies have a right to enforce the laws”. And as long as the law says you cannot traffic currency on the streets, you are supposed to be in your office conducting your business, then you will have to adhere to that.
“And if you don’t adhere to that, the security agencies will arrest you.
Black marketers are illegal foreign exchange dealers and so we don’t consider, in our own assessment, people who want to go
underground and conduct illegitimate business.
