CBN to suspend bank for illegal forex deals
The Central Bank of Nigeria queried one of the top players in the banking industry on Monday evening, over its foreign exchange dealings, suspected to be full of anomalies.
This is coming on the heels of allegations that the apex bank has not lived up to its responsibility as a regulator.
According to sources, CBN auditors will immediately go into the bank to look through the bank's foreign exchange activities.
If the bank is found guilty, it will be suspended from trading on the forex market, which is still one of money-spinners for banks in these turbulent times.
"The mood is hot now at the CBN in view of the global financial meltdown and its probable effect on the Nigerian economy. So, if anything to suggest round tripping is found in the bank's books, then the bank gets maximum punishment," a source, who asked not to be named, disclosed.
Investigation by our correspondents revealed that many banks were still involved in roundtripping, despite the Central Bank of Nigeria's directive that foreign currencies sourced through its Retail Dutch Auction System must be for end users only.
Round tripping is an arbitrage transaction where retail banks buy foreign currencies from the CBN and resell at the parallel (black) market far above the stipulated two per cent premium allowed by the apex bank.
Meanwhile, the naira remained at N147.70 to the United States dollar at the inter-bank foreign exchange market on Monday.
Traders attributed the stable exchange rate to the uncertain outcome of the Central Bank of Nigeria's Retail Dutch Auction System.
"Most banks were not aggressive in their demand for dollars because of the CBN's auction today (Monday)," one dealer said.
Traders said the outcome of the RDAS would determine the level of activity in the market on Tuesday.
The naira strengthened to N147.70 to the dollar on Friday from N149 on Monday last week after big dollar inflows from the Nigerian National Petroleum Corporation and local conglomerate, Dangote Group, improved liquidity in the system.
At last Wednesday RDAS, the CBN offered $200m at the rate of NI45.30. The apex bank has been consistent with this exchange rate in the last two trading sessions.
Meanwhile, analysts have predicted that the naira might fall further to between N165 and N200.
According to a report by Vetiva Capital Management Limited, the persistent fall in oil prices, diminishing oil production as well as consistent decline in foreign reserves are some of the factors that will lead to a further crash of the naira.
The report stated that the CBN would definitely meet the dollar demand by end-users at the early stage but that as soon as the reserves began to decline without adequate means of replenishment, the naira would suffer significant depreciation.
Vetiva noted that, "We expect that the depreciation of the naira against major economies as witnessed towards the end of 2008 will be sustained in 2009. The CBN seems to have abandoned any effort to support the value of the currency, probably recognising that it would be a prohibitively expensive long term policy to pursue."
Vetiva's position also coincided with that of Citigroup which predicted that the naira might weaken to as much as 15 per cent this year should the price of oil, which accounted for 90 per cent of the nation's export earnings, declined to an average $35 a barrel in 2009.
An economist with the group, David Cowan, said, "Nigeria is very reliant on oil revenue to meet demand for foreign exchange. If the oil price averages around $35 a barrel, then the naira will face significant further depreciation."
The currency lost almost a quarter of its value following a November 26 decision by the CBN to limit sales of dollars to commercial banks to protect its $52bn of reserves as oil revenue shrank and foreign investors sold the nation's assets. Oil has slumped almost 72 per cent since its July record of $147.27 a barrel, cutting Nigeria's export earnings.
"The central bank can't justify using its reserves to defend the naira in a country that is still very poor," said Cowan.
CBN to suspend bank for illegal forex deals
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