… Analysts say backlog undermines credit worthiness
The Central Bank of Nigeria (CBN) has resolved to intervene in the Inter-bank FX market through forward settlement, a one-off exercise dedicated to the clearance of the backlog of matured FX obligations for raw materials and machineries for manufacturing companies; Agricultural chemicals; and Airlines.
The move is to further engender market confidence, ensure access to FX by end users and sustain the integrity of the Nigerian Inter-bank FX market.
But analysts are worried over the Apex bank’s decision to allow for accumulation of foreign exchange obligation over a period of time.
Bismarck Rewane, managing director/CEO, Financial Derivatives Company Limited said it is very destructive to allow a backlog of matured forex obligation.
“I have nothing against that. There are two ways for this. You either wait for it to accumulate or pay everyday. It undermines credit worthiness. It is very destructive to allow a backlog”, he told BusinessDay by phone.
The import of this peculiar exercise is that the CBN will not apply the relevant provisions under clause 2.4.3 (i) of its Revised Guidelines for the Operation of the Nigerian Inter-Bank Foreign Exchange Market which provides that “all SMIS bids shall be submitted to the CBN through the FXPDs”. Consequently, CBN shall receive bids from all the authorized dealers.
The CBN will also not apply the relevant provisions under clause 2.4.3 (i) of the Guidelines which provide that “Spot Forex sold to any particular end-user shall not exceed 1% of the overall available funds on offer at each SMIS session”.
According to the CBN, whereas the bids are on Spot Forex basis as the Authorized Dealers’ accounts with the CBN will be debited in full for the Naira equivalent of the USD bid amount, the CBN will settle the bids through forward settlements of 2 months. Customers that are not willing to accept the settlement terms have been advised not to participate in this Special SMIS – Retail.
Reacting to the development, Hadi Sirika, Minister of State for Aviation described the special intervention by the CBN as a great relief for airline operators in the country who have complained bitterly over their inability to access the required Foreign Exchange to settle their backlog of obligations and which has adversely affected their operations.
According to the Minister, the Aviation Sector is so critical to the nation’s security and global image that it cannot be overlooked or toyed with, saying that the apex bank has taken the right decision that would not only strengthen existing airlines, but also inspire confidence in aspiring operators in Nigeria’s aviation industry.
According to Hadi Sirika, “This is after much intervention on behalf of the airlines both foreign and domestic. The Central Bank has yielded and we are happy because this means a lot to us and the airlines. They have been going through a lot and we are so happy that this is will be a huge succour to their operations”.
Kola Olayinka, the Regional Commercial Manager British Airways said “Things have improved. The Central Bank of Nigeria has come out with quite a smart and forward looking proposal that you can do quite a lot of things and approach them.
“Things are better and forward looking but we are not at a point where we should really be,” Olayinka added.
“There are significant forex earnings in aviation generated yearly internally to support foreign airlines repatriation of their sales to their countries; unfortunately, they are poorly managed by the relevant Nigerian operators and are also not efficiently oversight by the responsible authority, John Ojikutu, Secretary General, Aviation Round Table said.
“Unless the Nigerian civil aviation forex earnings are harnessed domiciled at the CBN and the spendings are regulated by the regulations authority, the airlines forex travails will not abated,” Ojikutu added.
Such forex earnings are from: $50 passengers service charge; foreign airlines landing and parking changes; Air traffic and navigational charges; royalties on BASAs and Commercial Agreements with foreign airlines, $20 per passenger changes by NCAA for security; 5% sales charges on tickets and cargo; fuel sales by markers to foreign airlines; amongst others
Tayo Ojuri, said airlines will survive if they are able to re-access and mitigate their financial risk, adding that with good management, great ethics and great operational prudency, they will be able to survive.