Bowing to pressure, CBN relaxes FX rules

…Manufacturing, School fees, medical bills to get priority

The Central Bank of Nigeria (CBN) on Monday relaxed its foreign exchange rules to ease stifling FX supply and tame wide speculations and immense pressure on the naira.

In a set new Policy rules, the CBN said it will no longer impose FX allocation/utilization rules on commercial banks, a shift the regulator has finally taken to ensure all unfilled orders are met
while ensuring provision of FX to the manufacturing sector.

The CBN said it will immediately begin to provide direct additional funding to banks for Personal and Business Travel, Medical needs, and School fees, effective immediately contrary to the bank’s earlier position which allowed end users to source FX themselves and brought a lot of pressure particularly at the black market.

The CBN however, expects such retail transactions to be settled at a rate not exceeding 20 percent above the interbank market rate.

The new directive came just two days after the apex bank pegged the Naira exchange rate for payment of school fees abroad at N375 to the dollar as well as that for Personal Travel Allowance (PTA).

“Having cleared the historic backlog of matured letters of credit at the inception of the current flexible exchange rate system, the CBN would immediately begin to provide foreign exchange to all commercial banks to meet the needs of both personal travel allowances (PTA) and business travel allowances (BTA) for onward sale to customers,” Isaac Okorafor, CBN Acting Director of Corporate Communications said in a statement announcing the new amendment.

“All banks would receive amounts commensurate with their demand per week, which would be sold to customers who meet usual basic documentary requirements.”

FX demand for school fees and medical bills abroad have skyrocketed as schools and the health system deteriorate, putting immense pressure on the local currency and reserves.

Nigeria’s FX reserves peaked at slightly over $28 billion last Friday, though higher than the $25 billion recorded as at December 29, 2016 according to CBN figures.

The Minister of State for Health, Osagie Ehanire, said recently that Nigeria spend well over $1bn annually on medical treatment abroad.

CBN sources told BusinessDAY that the new rule is to drastically cut down soaring arbitrage in the FX market and close up the huge gap between the interbank FX market and the parallel market.

For school fees and medical bills, the CBN assured on meeting those needs but said such payments must be made by commercial banks directly to the institution, including schools and hospitals specified by the customer.

The CBN further pledged to ensure that this process is as smooth as possible and that as many customers as possible get the foreign exchange they genuinely demand.

The supply of FX to retail end-users (PTA, BTA, School fees, medical bills, etc) would be sustained by the CBN.

In order to further increase the availability of foreign exchange to all end-users, the CBN has decided to significantly reduce the tenor of its forward sales from the current maximum cycle of 180 days, to no more than 60 days from the date of transaction.

Meanwhile the CBN has directed all banks to open FX retail outlets at major airports as soon as logistics permit in order to further ease the burden of travellers and ensure that transactions are settled at much more competitive exchange rates.

In order to maintain confidence in the FX market, the CBN said it will immediately begin implementing its articulated program to clear all the unfilled orders in the interbank FX market;

The apex bank said it will implement an effective intervention programme to support the inter-bank market to ensure adequate liquidity necessary to deliver an efficient FX market; and advise FMDQ
to activate its FX Order-Book systems as soon as possible and also accelerate the on-boarding of FX clients on the FX Relationship Systems to ensure total transparency of the FX market.
Given the CBN’s objective to continuously and vigorously pursue a transparent, liquid, and efficient FX Market, the CBN reiterated will neither tolerate unscrupulous actions nor hesitate to bring serious sanctions on offenders, be they banks or their staff.

The Bank encouraged “market participants to assist in ensuring that these new measures engender the preservation of our external reserves, stability of our financial system, and growth of our economy to the benefit of all Nigerians.”