Nigerian banks play cautious in promoting dollar investments

There are indications of heightened interest in dollar investments by Nigerians following the continuous depreciation of the naira.

Naira in the last 10 years been devalued by 173 percent from N150 per dollar in 2011 to the current rate of N410 per dollar at the official market.

The Central Bank of Nigeria (CBN) on September 2020 reduced the interest rate on savings deposit from 3.9 percent to 1.25 percent.

Consequently, most Nigerians resorted to saving in dollar denominated products. The CBN on July 27, 2021, stopped dollar sales to the Bureau De Change (BDC) operators and asked banks to take over sales of the greenback for Personal Travel Allowance (PTA), Business Travel Allowance (BTA), school fees, medical and other legitimate needs of the end users.

Read Also: Naira closes week with 6.86% gain against dollar, helped by CBN’s policy interventions

Nigeria’s deposit money banks (DMBs) see this as an opportunity to promote dollar investments but are being cautious about it for the fear of being caught by the CBN.

Providus Bank Limited has since May 2021 introduced a product called ‘Providus Dallar note’, which offers 5 percent per annum earnings on investment.

The minimum amount for investment is $5,000, for a minimum tenor of 180 days. The bank says you can get similar returns as a Eurobond investment.

“For most Nigerians, even the roadside mechanic knows that the value of the naira is going down and it is like a boomerang effect. Now, most Nigerians are looking for dollar investment,” a Lagos-based analyst in charge of financial institutions who chose to be anonymous, says.

For the banks, the analyst says it is like cash twenty-two situation. “The banks know they need to be careful with this. If the CBN sees that you are promoting dollar investments, it would come after you and say you are trying to make them devalue the naira, the analyst says.

According to the analyst, any bank that tries to attract dollar investment is going to be stylish about it. Banks see it as an opportunity but they do not want the CBN to come after them.

Look at what happened during the week, the CBN froze the account of some companies. Banks need to be careful so that it will not look as if they are actively encouraging people to move to dollar investments.

“It won’t be a surprise if the banks see that the foreign currency deposits are too high, they might try to indirectly tell them to reduce it because if it is too high the CBN might come after them, the analyst states.

Read Also: Naira depreciates further at black market on strong demand

Almost all the banks run domiciliary account, which is an account where customers can deposit and withdraw dollars.

However, there are other dollar investment products offered by banks to their customers. For instance, Stanbic IBTC launched its dollar fund in January 2017. Stanbic IBTC Dollar Fund aims to provide currency diversification, income generation, and stable growth in USD. It seeks to achieve this by investing a minimum of 70 percent of the portfolio in high-quality Eurobonds, a maximum of 25% percent in short term USD deposits, and a maximum of 10 percent in USD equities approved and registered by the Securities and Exchange Commission of Nigeria.

Reacting to the development, another Lagos-based investment analyst notes that everybody is concerned about how to preserve the value of their investments.

There are a lot of issues on how people can source dollars to fund their investments. “See what happened this week when the CBN had to ban account of some companies, FinTechs that were using it to get dollars in the market to fund foreign Securities. What that does is to put pressure on the available dollars here,” the analyst points out.

“People are saying if I have dollar receivables, maybe they will need to structure their assets in dollar terms to preserve the value of their funds. So, in terms of people migrating to domiciliary accounts I don’t observe that. Nigeria as a sovereign nation goes abroad to raise money, eurobond may possibly be devoted towards Nigerians in the diaspora and some corporate who they thought have dollar inflow. But a lot of people are beginning to think how do I continue to leave my investments in naira and then exchange rate, inflation and things like that,” according to the analysts.

The CBN was reported to have obtained a court order to temporarily freeze the accounts of at least four investment technology startups over investigations on foreign exchange infraction. The affected fintechs are Trove Finance, Bamboo Systems Technologies, Risevest Technologies and Chaka.