Why Nigerian banks are slashing cash dollar deposit by 50%
Some Nigerian Deposit Money Banks (DMBs) have reduced the amount of cash dollar deposit in domiciliary accounts by 50 percent from $10,000 to $5,000 monthly.
Analysts say the move is in order to limit speculative dollar demand by restricting individuals from depositing cash in domiciliary accounts. Speculative demand is thriving on the back of a near N80 spread between the official and black market rate.
While some of the banks have reviewed their procedure for foreign exchange transfer from domiciliary accounts, others have sent notification to their customers informing them that they can only deposit $5,000 in cash into their accounts monthly.
One of the systemic important banks, on Tuesday, May 12, 2021, sent a letter to all staff on ‘review of procedure for FX transfer from domiciliary accounts’, which stated that customer’s transfer request for amounts up to $5,000 can be initiated and fully consummated in the branch upon the presentation of relevant support documents.
It said transactions in excess of $5,000 can be initiated in the branch but must be reviewed at the head office, before final processing. Such transactions the bank said must be supported with relevant documents and necessary approval.
Jimi Ogbobine, head of Consulting at Agusto Consulting, a pan-African credit rating agency, said the development was meant to reduce speculation.
Ogbobine said people were looking for different ways to trade on the arbitrage on the naira between the parallel and official market. “The gap of about N80 today between the two markets would be able to drive speculator behaviour.”
However, the best way to truly reduce speculative demand, according to Ogbobine, “is to return to the fundamentals, which is to harmonise the two markets and improve uniformity between the two markets. We need to see rate convergence between the two markets,” he said.
On his part, Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said if there is a directive from the CBN to that effect, “I see it as an attempt to channel more US dollars to the forex market and stabilize the Exchange rate which is positive for the economy”.
Another bank also indicated that cash deposits are no longer allowed for some account holders in a letter to clients.
“There is a $5,000 monthly cash deposit limit. We encourage you to make more deposits via electronic transfers. Cash-funded transfers to beneficiaries with accounts in other banks in Nigeria are no longer allowed. There will be no restriction to the frequency or value of transactions for accounts funded through inflows but supporting documents are required before payments are processed. Cash deposits are no longer allowed for Wealth Management Investments.”
The rules are not new as they contain forex transaction guidelines issued by the central bank last year as part of its efforts to curtail demand for forex and reduce the utilization of the banking system to facilitate black market dealing in forex.