CBN in fresh probe of seven banks

The Central Bank of Nigeria (CBN) has started the second round of examination into the foreign exchange deals of seven commercial banks.

The apex bank, as exclusively reported by The Nation a month ago, named the first batch  banks to be probed to include Stanbic IBTCBank, Standard Chartered Bank, Guaranty Bank, Zenith Bank, United Bank for Africa (UBA), Citibank and Access Bank. They are the top foreign exchange players.

The seven banks that are being examined are First City Monument Bank (FCMB),  Skye Bank, Equatorial Trust Bank (ETB), Diamond Bank, Fidelity Bank, Ecobank and Sterling Bank.

CBN’s Head of Corporate  Affairs, Mr Abdulahi Mohammed, who confirmed the special examination, however, said it had not been established that any of  these banks was round-tripping.

Round tripping means selling foreign exchange sourced from the CBN at the black market to make gains.

The examination, which commenced last Tuesday,  would  be completed within three weeks after, which the final phase involving the last seven banks (FirstBank,  Wema Bank, Unity Bank, Oceanic Bank, Intercontinental Bank, Equitorial Trust Bank and Union Bank)  is expected to take off.

The three nationalised banks (Keystone, Mainstream and Enterprise) are excluded because they are new in the system.

In banking parlance, special or target examinations are meant for a specific purpose.

Other types include routine examination, which is conducted once a year by the CBN in collaboration with the Nigeria Deposit Insurance Corporation (NDIC) and maiden examination, which is conducted six months after a new bank has been established.

The examination, it was learnt, is to enable the banking watchdog to authenticate the huge demands by banks at the foreign exchange market where the apex bank has continued to defend the naira with the country’s foreign exchange, which  stood at $31.7 billion by end-September, the lowest in 13 weeks.

The naira, which is exchanged at N154.60  per dollar at the official market as against N148.18 at the beginning of this year, has lost N6.42 or 4.33 per cent of its value. It has also depreciated by N11.80 or 7.65 per cent at the black market, where it trades at N166 per dollar as against N154.20 to a dollar in January.

The consistent rise in forex demand, and increased spread between the official and parallel markets, according to experts, raise the risk of “round-tripping”, sourcing official funds for onward sales at the parallel market.

Between January and now, the CBN has funded the forex market with about $22billion, which analysts say cannot be sustained if the huge demands persist at the official forex market.

Confirming the examination, a top official of the CBN said although no specific bank has been identified as engaging in arbitrage, “the outrageous demands at the forex market” suggests that there is a problem.

“We cannot continue to defend the naira with the country’s foreign reserves. This cannot be sustained.  We really need to investigate where these spurious demands are coming from to save the economy,” he said.

The CBN broke its target of keeping the naira within three per cent above or below 150 to the US dollar again on yesterday, after breaching the band for the first time last week, further deepening the naira’s decline.

CBN sold $400 million at 155.40 at the bi-weekly auction yesterday, short of the $685.37 million demand. The local currency was trading at N162.25 to the dollar in the interbank market, it weakest ever, following Sanusi’s comments.

By pumping dollars into the system the CBN is dipping into Nigeria’s foreign reserves, which are built up through the sale of its crude oil. Any dip in oil prices due to a slowdown in global economic growth could put pressure on the CBN to stop using oil savings to support the naira.

At $31.7 billion as at the end of September, economists said the prospect of a strong recovery for Nigeria’s foreign reserves this year looks bleak.

THE NATION