• Thursday, March 28, 2024
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Banks’ FX charges hit 1yr high of $37.76m in December

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Foreign exchange charges by Nigeria’s Deposit Money Banks (DMBs) hit a year high of $37.76 million in December 2020 compared with $1.65 million in December 2019, latest data from the Central Bank of Nigeria (CBN) show.

The increase in the bank charges seemed surprising as the net foreign exchange flow through the Nigerian economy fell by 32.47 percent to $8.13 billion in December 2020, from $12.04 billion in the corresponding period of December 2019.

“A lot of High Net-worth Individuals (HNI) increased their exposure to foreign exchange through investment, deposit and other transactions, as a result banks offered more value or more services to these HNI, resulting to high non-interest charges,” says Jimi Ogbobine, head of consulting at Agusto Consulting, a pan-African credit rating agency, while reacting to the development.

Read Also: FX market ends week with naira losing 0.63% to dollar

This implies that a lot of people diversified their currency exposure from naira to dollar, and for the bank, it implies they can earn more.

Drawings on letters of credit (L/C) rose by 35.82 percent to $43.18 million in December 2020, from $67.28 million in December 2019.

The CBN’s Guide to Charges by banks and other financial institutions (OFIs) states that there is no charge on inward Telegraphic/SWIFT and other transfers expressed in foreign currency. It states that foreign exchange charges on FX purchases from CBN are to be advised by the CBN.

Also, charges on Travellers Cheques are to be advised by the CBN. On outward Telegraphic/SWIFT and other transfers, the Guide says charges are to be based on Swift cost recovery, 0.5 percent commission on transfer plus associated offshore bank charges (where applicable).

Charges on foreign currency sales to customers are to be advised by the CBN. Under commission on withdrawals from domiciliary accounts (whether savings or current account), the Guide states that banks are to charge 0.05 percent of transaction value or $10, whichever is lower.

According to the guide, 0.1% of the value of the cheque plus offshore charges is to be carried on Foreign Draft Purchase, while Collection Charge on Cheques is expected to be charged 1 percent of cheque value or naira equivalent of $10, whichever is lower.

According to the CBN’s latest quarterly statistical bulletin for the fourth quarter 2020, total FX inflows into the Nigerian economy declined by -6.4 percent q/q (-42% y/y) to $24.8 billion.

Although aggregate inflows have increased since they bottomed out to a three-year low at the height of the pandemic, they have not recovered to pre-pandemic levels, analysts at FBNQuest say in a report.

FX inflows through the CBN increased 17.1 percent q/q to $8.2 billion (or 33% of total inflows), thanks to a 48 percent q/q rise in non-oil receipts to $6.8 billion. A $2 billion category titled “others including FGN loans” underpinned the increase in non-oil receipts. On a net basis, the CBN Swap arrangements grew 117 percent q/q to $792 million.

In contrast, oil receipts fell 43.7 percent q/q to $1.3 billion due to Nigeria’s adherence to its OPEC oil production quota, which resulted in a decline of 0.1 million barrels per day and a decrease in NNPC’s share of oil and gas exports.

Autonomous sources (other than the CBN) contributed c.$16.6 billion in forex inflows, or 67 percent of overall inflows. It was supported by a 10 percent increase in OTC purchases (invisible transactions), which included capital imports, home remittances, and other OTC purchases, which we reckon are mostly linked to bonds.

Notably within invisible transactions, capital imports and home remittances shrunk by 25 percent and 52 percent, respectively, the drop in capital imports can be attributed to FPI’s waning appetite after a worsening of FX liquidity, induced by a sell-off in oil prices as the pandemic worsened.

Remittances also suffered a blow from the weak economic growth and employment levels in migrant-hosting countries, and the depreciation of the currencies of remittance-source countries against the US dollar, among other factors.

FX outflows through the economy increased by 24.1 percent q/q to $9.2 billion. About 94 percent of the net outflows were routed through the CBN. The strong increase in forex outflows reflects a rise in CBN FX interventions at multiple intervention windows, notably the restart of FX sales to bureaux de change operators and at the investors and exporters (I&E) window in August ’20 after a five-month break.

Despite the increase in outflows during the quarter, FX outflows remain below pre-pandemic levels, due largely to the CBN’s import compression strategies.

“Our conversations with FPIs and domestic investors indicate that greater FX liberalisation (including further adjustments to the FX rate) and the loosening of FX controls such as the CBN’s 42-item FX restriction list are prerequisites to open the tap of portfolio flows,” the analysts say.

Nigeria’s currency on Tuesday depreciated marginally by 0.08 percent as the dollar was quoted at N411.45 as against the last close of N411.13k on Monday at the Investors and Exporters (I&E) forex window, data from the FMDQ indicated.

At the Bureau De Change (BDC) segment and the parallel market, steadied at N500/$ and N503/$, respectively on Tuesday.

The FX daily turnover declined by 54.67 percent to $110.67 million on Tuesday from $71.55 million recorded on Monday.