Cash shortage fears mount as CBN intensifies forex intervention

Although they may be helping to stabilise the naira, the Central Bank of Nigeria (CBN)’s foreign exchange interventions have sparked fears within the financial circles, of worsening cash shortages in the banking system.
Industry sources said that the apex bank’s frequent interventions in the interbank foreign exchange market, coupled with its aggressive liquidity mop-ups (Treasury bill auctions) in recent weeks, have resulted in naira scarcity, which looks set to worsen in the weeks ahead

New Telegraph gathered that banks these days are under great pressure to mobilise funds to pay for forex and Treasury Bill purchases, a situation that has now made it difficult for some of them to fully honour their obligations to depositors.

Head of operations at a Tier II bank in Lagos, who did not want to be named, explained that the purchase of forex and Treasury bills were a priority for lenders.

The bank official said: “Banks usually want to avoid giving CBN the impression that they don’t need forex, so they always make efforts to take up what CBN offers.

Also, banks invest heavily in Treasury bills because they offer attractive yields at this time.”

After announcing new forex measures on February 20, which led to its introducing a multi-tiered exchange rate system, the banking watchdog has been intervening since then to bolster the naira.

It has sold over $4 billion on the spot and forward currency markets and has in recent months been offering high yields to attract investors to its one-year debt.

Last Friday, the regulator sold N18.88 billion in one-year treasury notes at 18.6 per cent, a premium to annual inflation, which stood at 17.26 per cent in March. It issued N200 billion in bills the previous day and N230.60 billion last Wednesday, also at high yields.

News agencies quoted a trader as saying: “The central bank embarked on aggressive liquidity mop-up this week … leaving banks scrambling for available cash in the system.”

The trader revealed that the CBN’s actions drove lenders to borrow from its discount window to cover their position after overnight rates hit 53 per cent at last Friday’s open before falling back to 19 per cent.

Indeed, commenting on the banking watchdog’s forex interventions at a seminar last week, Group Head, Global Markets at Access Bank, Mr Dapo Olagunju, said that with the apex bank flooding the market with dollars, “the availability of naira will be a defining factor going forward.”

Sources told this newspaper that the impact of the cash shortage is already being felt in the system as it is responsible for the long queues now frequently seen at bank Automated Teller Machines (ATMs), especially at festive seasons.

According to findings, in a bid to conserve cash, banks only load one or two ATMs out of about four machines that they have at a branch.

It will be recalled that in his latest presentation to the Lagos Business School (LBS), the Chief Executive Officer, Financial Derivatives Company (FDC) Limited, Mr. Bismarck Rewane, stated that the CBN’s intervention in the forex market increased in April with an intervention frequency of “two to three times per week (and) total supply in April (of) $1.2 billion.”

The trend has continued this month because, last Friday, the CBN intervened with a total of $388.66 million sold to authorised dealers in the retail segment of the interbank forex market.

Confirming the figure, the Acting Director, Corporate Communications Department at CBN, Mr. Isaac Okorafor, disclosed that $87.885 million was for spot sales, while $300.8 million was sold as forwards. He also explained that the forwards were sold into three tenors of 30, 45 and 60 days.

According to him, the apex bank sold $100.95 million as 30- day forwards; $110.48 million as 45-day forwards and $99.37 million as 60-day forwards. Interestingly, analysts believe that there is currently a forex glut in the market as banks have in the last few weeks been unable to fully subscribe to the amounts offered by CBN.

Specifically, data obtained from the banking watchdog shows that lenders were able to pick up only the sum of $43.5 million, which represents 29 per cent of the $150 million that the CBN offered for subscription in the wholesale segment of the foreign exchange market last Thursday.

The previous day, the authorised dealers had been able to subscribe to $65.94 million out of the $100 million offered by the apex bank at the inter-bank wholesale transactions.

However, commenting on the development, Okorafor said that there was no cause for anxiety over the dwindling subscription by authorised dealers, noting that the development merely goes to confirm the extent of liquidity in the foreign exchange market and the determination of CBN to sustain the intervention aimed at ensuring stability in the market




New Telegraph