Published On: Thu, Nov 10th, 2016

Banks revolt against Emefiele, as naira test new low 

…as Naira tests  N376 to US$ before pullback

Nigerian banks are increasingly doing dollar deals outside the official interbank trading platform at much lower naira (NGN) to the dollar (US$) exchange rates as they increasingly defy attempts by the Central Bank of Nigeria (CBN) to keep hold of a non-market based determined exchange rate regime.

  This is as liquidity collapses in the interbank market due to the CBN’s tight control of that segment of the market.
Sources tell BusinessDay that CBN governor; Godwin Emefiele is still selling its scarce dollars arbitrarily at a rate much higher than the market rate.
The naira traded at a record low of N376.63 to the dollar on Tuesday(November 8) at the open of trade on the interbank market, before reversing losses to trade at N328.90 to the dollar, as at 3:20 p.m., Nigerian time on CBN interventions, with total volumes traded at $73.08 million.
A confidential document earlier seen by BusinessDay showed the CBN directed banks not to bid for dollars at a rate exceeding N315 for amounts less than $1.5 m, and for amount larger than $1.5m, he requested that banks call him (CBN Governor Godwin Emefiele) to agree on an appropriate exchange rate.
  
Treasury sources tell BusinessDay that banks are beginning to flout these informal rules as they fill orders for their clients wishing to bring dollars into the country at more realistic exchange rates.
 
“Banks have closed some $85 million of deals in the last two weeks for foreign investors bringing in dollars at a rate closer to N400 per dollar,” one Treasury source told BusinessDay.
However, some traders say Emefiele gave his nod to the deals. They disclosed that usually when there is a huge inflow, the bank attracting the inflow would request for a more realistic rate to enable it bring it in.
It is understood an investor who brought in an inflow of about US$60 million on November 7 was able to get the nod of the CBN to bring it in at N380 to the US$. Also on November 8, an inflow of US$81million was executed at N380, traders tell BusinessDay.
 The arbitrary nature of determining the exchange rate has created confusion among banks in the interbank market.
Sources say some banks apply and do not get the permission, while other banks apply and get permission to do deals at even higher rates, a situation that has resulted in some banks not even bothering to get the nod of the CBN before accepting new inflows at a more market friendly rate, closer to N400 to the US$.
But sources in the manufacturing sector also tell BusinessDay that the current tight control of the foreign exchange market has created merchants who go about offering to help manufacturers access dollars from the CBN for a commission.
“They come to you and tell you that they know people at the CBN and ask you to apply through your bank and that they can guarantee that you will get your dollars as far as you give them their requested commission”
The wide spread between the official and unofficial rate of the naira has given room for sharp practices, analysts say.
The last official trade of the naira on November 8 at N328.90 per dollar represents a spread of N136.1 between the official and unofficial rate, which traded at an average of N465 per dollar on Tuesday.
Analysts say policy uncertainty is the major driver of the widening gap between the official and black market rates, as investors wait to see the next move of the CBN after peer, the Central Bank of Egypt floated its local currency on Friday, November 04, 2016 to trigger independent dollar inflows.
“Our examination of Emerging Markets (EM) devaluations suggests that portfolio investors in EM can hold back from markets facing devaluation until the adjustment is complete,” a market source who craved anonymity said by email.
 
“It appears only a matter of weeks before the CBN is left with no options than to have a true float that is not subject to manipulations,” the source added.
 
Portfolio investors are probably anticipating a further depreciation and are simply waiting for a favourable time to get good value for their money before they deploy much higher amounts of capital to Nigeria, a trader told Business Day.
 
Portfolio investment in bonds and money market instruments attracted the highest capital inflow into Nigeria in the third quarter of 2016, according to a report released by the national bureau of statistics (NBS) on Monday.
 
Each type of investment (FDI, Portfolio and Other) recorded quarterly increases, of 84.84 percent, 172.84 percent and 7.80 percent respectively.
 
However, investment inflows for the asset classes fell by 52.54 percent, 8.8 percent and 45.5 percent respectively on a year on year basis, the NBS data showed.
 
“It is expected that before more inflows come in, we need a realistic market driven foreign exchange pricing mechanism, as opposed to the current market that is rigged. Egypt did it, why can’t we do it?” Bismarck Rewane, Managing Director/CEO of economics consulting firm, Financial Derivative Company (FDC) said by phone.