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The Central Bank of Nigeria (CBN) has said that henceforth, commercial banks in the country will pool cash on behalf of International Oil Companies (IOCs) operating in the country. This development is aimed at reducing reliance on external funding and associated funding costs.
Cash pooling is a centralised cash management technique used by companies made of multiple subsidiaries to optimise the cash balances of all legal entities as efficiently as possible.
In a circular issued to all authorised dealer banks tagged; “Requirements for Foreign Currency Cash Pooling On Behalf of IOCs in Nigeria”, signed by the Director, Trade and Exchange Department, CBN, Dr. Hassan Mahmud, the apex bank stated that it has observed that proceeds of crude oil exports are transferred offshore to fund parent accounts of IOCs, which has led to the impact in the liquidity in the domestic foreign exchange market.
The CBN added that while it strongly supports the need for IOCs to have easy access to their export proceeds to meet their offshore obligations, this must be done with minimal negative impact on liquidity in the domestic foreign exchange market.
“In line with the ongoing reforms in the forex market, it has become necessary to take measures to address the negative trend. The CBN hereby directs that banks are allowed to pool cash on behalf of IOCs, subject to a maximum of 50 per cent of the repatriated export proceeds and the balance of 50 per cent may be repatriated after 90 days from the date of inflow of the export proceeds,” the circular read.
It further added that this is subject to the fulfillment of the following documentation requirements; Prior approval of the CBN for repatriation of funds under the cash pooling agreement with the parent entity of the IOCs operating in Nigeria and statement of expenditure incurred by the IOC in the immediate past period relating to the cash pooling. Others include, evidence of the source of forex inflows and completion of relevant forex forms as required under extant regulations.
The apex bank further noted that it remains committed to promoting transparency in the Nigerian forex market and will continue to develop policies that will stabilise it. “All banks are required to comply with this circular and inform their customers accordingly,” the CBN said.
The CBN governor, Yemi Cardoso, argued that several strategies such as unifying forex segments, clearing outstanding forex obligations, enforcing banks’ Net Open Position (NOP) limit amongst others, are in place to enhance liquidity and price discovery in the forex market.
He also stated that out of the $7 billion forex backlog inherited, the CBN has cleared $2.5 billion in verifiable claims, with $2.2 billion outstanding and $2.4 billion having irregularities.
