Banks’ earnings face more pressure on CBN’s new Forex policy

Currency analysts have said that the measures announced in the forex market by the Central Bank of Nigeria (CBN) last week put further pressure on banks’ earnings in 2015.  They also argued that the policies would negatively impact banks’ FX income The CBN in a continued attempt to maintain the stability of the exchange rate reviewed downwards the daily foreign exchange trading position of individual authorised dealers to zero percent of shareholders’ funds (unimpaired by losses) from one per cent.  The CBN however noted that this was a temporary measure.

Subsequently, another circular was released during the week that funds purchased from banks by their respective customers at the autonomous/interbank foreign exchange market must be utilised within 48hours from the date of purchase or be returned to the CBN for re- purchase at the bank’s buying rate.

The immediate effect of the first circular was to ground forex transactions at the interbank market as traders reported a lack of liquidity in the market.  Forex trading gains, which is between three and seven per cent of the gross earnings of most banks is also expected to be impacted negatively if the policy is not timely reversed as proprietary forex traders may be afraid to take positions, they stated.  To this end, analysts at CSL Stockbrokers Limited pointed out that both directives “will negatively impact banks’ forex income, trading gains and other ancillary income linked to forex transactions.”

They maintained that both directives will put further pressure on the interbank market and on the earnings and operations of commercial banks that are already facing strong headwinds.  “We expect a negative impact on banks’ forex transactions if the lull in the market continues, as they may have to rely on the CBN’s bi-weekly auctions for dollar supply or get dollars at exorbitant rates from the interbank market.  “We also expect a reduction in banks’ forex income and other ancillary income linked to forex transactions as banks will be not be able to buy and sell f

[ThisDay]

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