The need for the Central Bank of Nigeria (CBN) to continuously monitor Deposit Money Banks in the country to ensure that they comply with the regulations of the foreign exchange market cannot be over emphasized. The move is to ensure an end to round tripping, an unwholesome practice where banks are reported to divert foreign exchange obtained from the apex bank at official rate to the parallel or black market.
The practice, which seems entrenched in the banking industry, has created artificial scarcity and denied end-users of foreign exchange to meet their basic transactions. Some banks still allegedly placed some hurdles on sourcing of foreign exchange, thereby sabotaging the CBN’s policy on overcoming foreign exchange challenges. The CBN policy allows both customers and non-customers of banks to access foreign exchange.
Indeed, meeting the increasing demand for foreign exchange and making sure it gets to the end-users at the official rate remains one of the challenges currently facing the CBN. It is, therefore, disheartening that in spite of CBN’s frequent liquidity interventions in the foreign exchange market to ease the problems being experienced by users, scarcity of foreign exchange is reported at different branches of banks nationwide.
Foreign exchange can be accessed at official rate for Personal Travel Allowance (PTA), Business Travel Allowance (BTA), payment of school fees abroad, medicals and other invisibles. It is to meet these needs that the National Economic Council (NEC), last year, directed the CBN to initiate a policy that would bridge the gap between the official rate and that of the ‘black market’. The idea is to improve dollar liquidity to end-users.
So far, the CBN has spent billions of dollars in its intervention efforts in the foreign exchange market. Under the arrangement, each bank receives one million US dollars weekly for sale to users. However, not many users get the foreign exchange with ease because of round tripping by banks. This has often led to intense pressure on the market and depreciation in the value of the naira.
Although the CBN threatened to sanction any bank Chief Executive whose bank was caught in this underhand dealing, none has been penalized. This is the time the regulator should wield the big stick on erring banks and their CEOs to serve as a deterrent to others that manipulate the foreign exchange market.
It is commendable that the CBN is visiting the banks to enforce compliance with the foreign exchange policy. Bank officials found to have violated the policy guidelines should be sanctioned. This is the only way to overcome the foreign exchange challenges.
However, it is regrettable that some commercial banks that ought to cooperate with the apex bank to check the activities of forex speculators are allegedly involved in round tripping for profit reasons.
Last year, the CBN gave a month’s ultimatum to banks and authorised foreign exchange dealers to open forex teller points in urban centres across the country. The deadline has expired. The order also required the banks to install electronic display boards in all their branches to show forex rates in order to avoid exploitation of customers.
It also mandated the banks to set up windows or outlets at major airports to ease the problem of travellers seeking to buy forex. Almost all the banks complied with the guideline. But, there are still indications that some banks are frustrating the forex policy, and such is not good for the economy.
While the regular monitoring of the banks is necessary, the apex bank must put its house in order by ensuring that some of its officials are not complicit in what the banks are accused of doing. Both the CBN and the commercial banks must work in concert to sanitize the forex market. A well regulated forex market will be healthy for the economy. It will ease pressure on foreign exchange market and lessen the cost of production of goods and services.
