Unsettled foreign exchange demand put at $4 billion is increasing default risk as deposit money banks delay in repayment of hard currency sourced from their correspondent banks to pay for their clients’ letters of credit.
The implication is that as shortage of dollar persists, customers of banks including importers, manufacturers and other end users who could not get dollar from the banks are forced to source at a higher rate at the parallel market.
Naira yesterday was lower in value at N503 per dollar lower than N500/$ traded since Monday at the parallel market. At the interbank spot market, the local currency appreciated further to close at N305, which is N0.25k stronger than N305.25k since the week.
Kabir Okunlola, partner, audit services, KPMG Professional Services, said foreign exchange sourcing issues pose a major challenge to stability, adding that unmet demand stood at about $4 billion.
However, Razia Khan, managing director, chief economist, Africa Global Research, Standard Chartered Bank, London, said it was very difficult to measure precisely how far the backlog of FX demand extends, as some demand may be duplicated across multiple institutions.
“What is known is that there is backlog of FX demand, even if the aggregate size is not easily quantified. The non-availability of FX means that activity in the Nigerian economy is constrained. I am hearing anywhere from USD 3-6bn. Not sure anyone has tried to gauge this in a robust way,” Khan said in an emailed response to BusinessDay.
“I hear the same figure ($4bn) but I hear this is a rolling number … as the CBN provides dollars to banks, the banks issue letters of credit for importers to use those dollars”, Charlie Robertson, global chief economist and head of macro strategy at Renaissance Capital said.
Robertson added that the underlying issue is that the CBN collects most of the oil revenue dollars, and banks distribute the dollars to those who import items to Nigeria, so the CBN will always be filling that demand and that demand will always be there (while Nigeria imports items).
Speaking on “The Foreign Currency Crisis in Nigeria: Implications for Audit Committees/Shareholders”, at the annual KPMG’s Thought Leadership Seminar, Okunlola noted that forex market is highly fragmented as analysts indicated that six sub-market rates exist.
He said it is imperative that the Central Bank of Nigeria (CBN) streamlines the foreign exchange market to a single platform to enhance transparency and price stability.
Okunlola outlined the strategies adopted by companies to managing the forex crisis to include the forward contracts, OTC forex futures, import substitutions, increasing revenue from export sales, and sourcing dollar from parallel market among others.
He acknowledged that the CBN has met all feature obligations, adding that the forex features is helping to address the foreign exchange demand issues.
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