The race by customers of Nigerian banks to buy foreign currency, especially dollars, and pile into their domiciliary account is on the increase as the country’s biggest banks recorded upticks in foreign currency deposits.
Dollar deposits in the five biggest banks that have released full year 2018 results grew by 19.6 percent from 2017 levels to N3.08 trillion or $8.5 billion ($1/N360).
The banks are Zenith Bank, Access Bank, UBA, Guaranty Trust Bank (GTB) and Fidelity Bank.
Nigeria’s first economic recession in 25 years caught many unprepared, forcing customers to resort to the greenback as a hedge against inflation or currency devaluation. The naira lost some 70 percent of its value between 2015 and 2018 as the currency fell to N360 per dollar from about N199/$.
An analysis of audited financial results from major banks in the country shows that the volume of savings in foreign currency has grown since the 2016 economic contraction.
Leading the pack is Nigeria’s biggest bank by assets, tier-one lender, Zenith Bank, with N1.2 trillion worth of deposits in US dollars in full-year 2018 compared to N1.19 trillion in the same period in 2017, N917 billion and N637 billion in 2016 and 2015, respectively. This shows a steady increase in the volume of foreign currency deposits from customers of the bank.
Guaranty Trust Bank also recorded a surge in the volume of foreign currency deposits from its customers. A breakdown of the company’s results shows that foreign currency deposits hit the highest level in four years in full-year 2018. US dollar deposits were N608.59 billion; pounds deposits, N57.8 billion; Euro deposits, N17.44 billion; while other foreign currency rose to N229.9 billion in 2018.
Access Bank, a tier-one lender, also hit the highest foreign currency deposit in the last four years, with the US dollars recording the highest volume of deposit at N442 billion in full-year 2018. Pounds deposit climbed N7.54 billion, while Euro deposits grew to N7.39 billion.
United Bank for Africa also benefitted from this new rush by customers to cushion their deposits in foreign currency as its US dollar deposits also increased to N491 billion; pounds deposit, N7.48 billion; while Euro climbed to N137.7 billion in full-year 2018.
Interestingly, it is not only the tier-one banks that have benefitted from this new trend as other smaller banks in the mid-tier segment of the market also recorded an increase in the volume of foreign currency deposits hitting the highest in 2018 financial year.
Fidelity Bank, a major player in the tier-two segment, recorded N205.7 billion in US dollar deposits, N3.19 billion in pounds deposits, and N4.56 billion in Euro deposits, the highest in four years.
In recent times, use of foreign currencies, especially the US dollar, has increasingly been usurping the legal role of the naira as the medium of exchange within the Nigerian markets for foreign exchange, savings and commodities.
The loss of the domestic currency’s external value and appeal as a store of value is prompting dollarisation of the national currency for the three classic uses as a medium of exchange, a unit of account, and a store of value.
The Central Bank of Nigeria (CBN) in 2018 introduced the special intervention for foreign exchange cash sales to Bureau de Change operators to cater to the resultant increase in demand for foreign exchange for Personal/Business Travel Allowance.
Anthony Obi, an economist, noted that it is not uncommon to see some goods and services being priced in US dollars in the lobby of luxury hotels, even as some multinational firms, especially oil and gas companies, pay some of their workers in dollars.
“The country seems to encourage this act as the practice is seen to confer high social class and in every corner of the country, people even hail personalities that spend dollars at parties,” Obi said. “The implication of these acts is a high inflationary rate for the country.”
The economy is recovering from the 2014 crash in crude prices and the International Monetary Fund (IMF) forecasts that growth will accelerate to 2.1 percent this year from 1.9 percent in 2018.
Consumer prices rose 11.3 percent in February. The CBN unexpectedly reduced its key interest rate for the first time in more than three years last month to 13.5 percent to help boost the economy.
The avoidable recession period of 2016 turned several Nigerians into part-time forex traders just as many were already accustomed to using their debit cards while on holidays abroad or shopping online.
Bola Adeyemo, a Lagos-based foreign exchange trader, noted that since the years of economic contraction, financial savvy customers are now wiser, leading to a rise in deposits to domiciliary accounts by customers in the country and, according to her, customers do this as a hedge against inflation or currency devaluation.
OWOEYE OLUFIKAYO & OLUWASEGUN OLAKOYENIKAN
