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Monday, February 10, 2025

CBN Stops Bank Treasurers Speculating Against The Naira

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The recent Central Bank of Nigeria (CBN) measure reducing the FX trading position of banks to zero percent of shareholders’ funds was done to eliminate FX trading abuses by bank treasurers which had come to the notice of the regulator.

“Corporate Treasurers were buying dollars with surplus naira, in effect creating artificial demand for the greenback, and once the dollar– naira exchange rates goes higher,they sell the dollars,” said a CBN source.

“These guys were basically shorting our currency to benefit from the plunge. One Treasurer had bet as much $200 million on the naira going down,” the CBN source said.

The Treasurers were making a killing on such trades until the CBN put an end to it last week.

A bank corporate Treasurer that bought $200 million at N180 per dollar for a total of N36 billion, would theoretically have made a
profit of N4 billion if the negative positioning against the naira had succeeded in pushing the naira – dollar value to N200 per dollar.

FX turnover on the interbank market averaged around $500 million a day before the new CBN rules came into force, trading sources tell
BusinessDay.

Sources say the CBN Governor who used to be the MD of one of Nigeria’s Tier –one banks (Zenith Bank) was aware of
some of the shenanigans being undertaken by some bank treasurers, as a former insider.

“These are extra – ordinary times that needed a forceful response from the CBN to signal to Treasurers that negative speculation on our currency would no longer be tolerated,” said the CBN source.

“If any legitimate foreign investor needs to buy dollars and sends such a buy mandate to the banks, the CBN will sell to any corporate Treasurer trying to fill such a mandate from their customers.”

The CBN said last week that lenders must clear positions daily after previously being allowed a net-open position of 1 percent of shareholder funds.

It also ordered dollars bought from banks be used within 48 hours or sold back to the regulator.

The CBN has been battling to defend the naira currency as the 45 percent sell-off in crude oil prices this year leaves the Nigerian economy which gets 70 of its income and 95 percent of foreign exchange from oil sales, struggling to adjust.

Gross FX reserves fell to $34.92 billion on December 22, down 19.9 percent from $43.61 billion on December 31, 2013, according to data from the bank’s website.

The Monetary Policy Committee of the CBN chaired by Governor Godwin Emefiele, hiked the benchmark interest rate to 13 percent on Nov. 25 and also moved the naira’s official peg for twice-weekly auctions to a midpoint of N168 per dollar from N155 and widened its trading band to 5 percent either side from 3 percent.

The naira strengthened 0.9 percent to N184.05 per dollar by 2:30 p.m. in Lagos, paring losses this quarter to 13 percent, the most in Africa after Malawi’s kwacha, according to Bloomberg data.
The CBN announcements do not amount to capital controls, Charles Robertson, global chief economist at Renaissance Capital Ltd. in London, said.
Nigeria has had to take different measures to Russia because it is “more fragile,” more dependent on oil and faces elections in February, which makes it harder to enact monetary policy, he said.

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