Naira notes

By Obinna Chima

The naira, which has been under intense pressure in recent times was under the spotlight last week as the Central Bank of Nigeria (CBN) adopted various measures to save the local currency.

Apart from the emergency meeting that was held last week, the CBN rolled out other measures to save the local currency from sustaining further bruises.

In fact, the CBN’s Monetary Policy Committee (MPC), which was so disturbed about the naira,  further adopted stringent restrictive monetary policy measures.

The MPC had raised the Monetary Policy Rate (MPR) - benchmark interest rate - from 9.25 per cent to 12 per cent, representing an increase of 275 basis points. It had also increased cash reserve ratio (CRR), which is the proportion of cash banks are statutorily allowed to hold in their vaults, to 8 per cent from 4 per cent. The MPC also decided to reduce the net open position (NOP) to 1 per cent of shareholder funds from 5 per cent.

Consequently, the naira was upbeat against the dollar on two consecutive trading sessions after the policy. It however suffered some setback at the interbank segment of the forex market last Thursday and had led to the suspension of trading at the interbank market.

THISDAY gathered that the naira maintained its volatile behaviour at the interbank market on Friday as dealers were still sceptical on its direction. It closed at N164.85 on Friday, compared with the N157.10 it was last Wednesday. At the CBN’s bi-weekly auction, the naira closed at N150/$1 last Wednesday as the apex bank met the entire demand from dealers. Total demand stood at $591.666 million. Similarly, at the parallel market, the local currency stood at N162 to a dollar.

Dollar Sales to Foreign Firms
Another step taken by the CBN last week to support the naira, was to stop the purchase of forex by multinational firms operating in the country from its regulated Wholesale Dutch Auction System (WDAS). The banking sector regulator had directed that such foreign firms can only source for the greenback through the use of autonomous funds – that is through banks.

A circular from the CBN had said: “That all remittances in respect of dividends, capital and proceeds of investments, proceeds of sale of international air tickets and consultancy services shall be through the use of autonomous funds. For the avoidance of doubt, foreign investors are guaranteed repatriation of their earnings and/or proceeds of investments through the use of funds. All the remittances in respect of these transactions are expected to comply with relevant documentation requirements.”
Letters of Credit

The CBN, in another circular last week, also aimed at attaining exchange rate stability, said it had taken steps aimed at streamlining petroleum products importation. The banking sector regulator had also said the moves were to consolidate on the policy measures taken on forex utilisation. It advised petroleum products importers:

“Upon completion of the form ‘M’ process, authorised dealers are required to forward to the CBN, copies of the processed form ‘M’ and the relevant documents for consideration. Request for purchase of forex by authorised dealers for such transactions shall be made to the CBN, a minimum of 48 hours to the bidding/auction day, failing which the bid shall be considered for the next auction session.

“After negotiation of the transaction and within 30 days of arrival of the cargo, authorised dealers shall provide the final shipping documents including product certification report issued by the Department of Petroleum Resources (DPR) to the CBN. Authorised dealers are required to submit quarterly returns evidencing receipts of proceeds of sales or status report on products which are yet to be held.”

Inflation
Inflation figures for September released by the National Bureau of Statistics (NBS) at the weekend showed that the general prices of goods and services in the country disobeyed the stringent restrictive monetary policy measures that had been installed by the CBN, as it left the single-digit region it had maintained in the past two months to double-digits.

In fact, the composite Consumer Price Index (CPI)- the basket which is used to measure inflation rate in the country, had risen to 10.3 per cent year-on-year in September 2011, compared with the 9.3 per cent recorded in the previous month.

The NBS report had explained that the monthly change of the CPI was 1.41 percent increase, compared with August 2011.

It had added: “The year-on-year average consumer price level as at September 2011 for Urban and Rural dwellers rose by 8.4 and 11.9 per cent respectively. The urban All Items monthly index rose by 1.4 per cent while the corresponding rural index also rose by the same percentage margin when compared with their preceding month.”

CBN Governor’s Reaction
In his response, the Governor of the CBN Governor, Malam Sanusi Lamido Sanusi, had said that the current weakness suffered by the naira would be in the short term, saying the various measures adopted were expected to strengthen it.

“My feeling is that the naira is going to strengthen as measures kick-in. What you are seeing this week is not the long-term trend," Sanusi had told Reuters.

According to him, the measures were intended to reduce the quantity of naira in the system and free up dollar supply.

Sanusi had added: "We haven't yet seen the major impact of these measures yet. We will see these speculating oil marketers disappearing and then it will be genuine importers coming to the window. We believe banks are long on dollars and holding cash. We will see if they are sitting on cash.

"We have not introduced capital controls. We are simply saying if you are bringing in capital into the market then you can also take from the market. It should also be clear that the interbank market is larger than the WDAS, we are not pushing anyone into a narrow end. This is part of deepening reforms to the interbank market, so there is less dependence on the central bank and we can preserve (forex) reserves."

He had further argued that in a normal situation, there was no reason why the naira should not trade between the band of + or – three per cent of N150 to a dollar with all the measures that had been introduced.

Interbank Rates Movement
Nigerian interbank lending rates rose sharply to an average of 17.32 per cent as at Friday, compared with the 12.92 per cent it attained the preceding Friday, following the upward review of the MPR by the CBN.

Data made available by the FMDA showed that whereas the Overnight (Call) tenor climbed significantly by 425 basis points to 16 per cent on Friday, compared with the 11.75 per cent it attained the preceding Friday, the 7-day placement period also jumped remarkably by 443 basis points to 16.60 per cent on Friday, as against the 12.17 per cent it was the preceding Friday.

In the same vein, just as the 30-day tenor advanced by 443 basis points to 16.97 per cent on Friday, from 12.54 per cent the preceding Friday, the 60-day tenor also climbed by 459 basis points to 17.46 per cent on Friday, compared with the 12.87 per cent it recorded the preceding Friday.

CRR Computation
The Central Bank of Nigeria (CBN) said it had suspended  the cash reserve average policy for the computation of  banks’ cash reserve ratio (CRR) following Monday’s upward review of the proportion of depositors' balances banks must have in their vaults.

The apex bank had disclosed this in a circular.
Part of the circular had stated: “Sequel to the decisions reached at the extraordinary meeting of the Monetary Policy Committee (MPC) held on October 10, 2011, all DMBs are hereby notified that the reserve averaging scheme has been suspended with effect from October 12, 2011. Also, the computation is now on monthly basis while maintenance is on daily basis.”

Banks’ NPLs
The total value of Non-performing Loans (NPLs) in the Nigerian banking industry stood at N692 billion as at the end August this year, compared with the N1.11 trillion it was in December 2010, the CBN said last week.

Deputy Governor, Financial System Stability, CBN, Dr. Chiedu K. Moghalu, had disclosed that the significant reduction in the NPL recorded in the industry was as a result of improvement recorded in corporate governance, risk management as well as the impact of the Asset Management Corporation of Nigeria’s (AMCON) role in the entire exercise.

According to Moghalu, the average industry NPL as a percentage of total credit currently stands at 9.37 per cent, which is below the maximum prudential threshold of 12.5 per cent.

He had stressed that a new banking culture was taking root in the industry whose emphasis was on sound corporate governance, effective risk management, transparency and disclosure, as well as sound business ethics.

He had charged bank directors, as the umbrella body of non-executive directors of banks in Nigeria, to play through the continuous improvement of the knowledge and competence of Bank Directors in the country.

He had reiterated that the new banking model introduced by the CBN would bring about a banking system where banks are involved in core or narrow banking activities, devoid of the unbridled risky behaviour that greatly contributed to the recent banking crisis.

Cheque Transactions
The total value of cheques cleared in Nigeria dropped by N493 billion to N9.919 trillion in the first of the year, from the N10.412 trillion recorded in the second half of 2010, the CBN said last week.

The banking sector regulator disclosed this in its “Economic Report for the First Half of 2011.”It had also revealed that the total volume of cheques cleared during the period fell to 16.189 trillion, compared with 18.459 trillion recorded in the second half of 2010.

The CBN had attributed the decline to the increased usage of other modes of payment such as the Real Time Gross Settlement (RTGS) system, Nigeria Inter-Bank Settlement System (NIBSS), Interbank Funds Transfer (IFT), Automated Teller Machines (ATMs), mobile banking, internet payments, among others.

Savannah, SGBN
As part of efforts to ensure the return of Savannah Bank of Nigeria (SBN) and Societe Generale Bank of Nigeria (SGBN) into business, the Central Bank of Nigeria (CBN), last week said it was currently reviewing the business plans of both institutions.

Moghalu had said that the apex bank had been meeting with representatives of both institutions. He had however insisted that both institutions must meet all the standards of the current banking system. He had specifically disclosed that the apex bank had been in active discussion with Savannah Bank.

Moghalu had explained: “For Savannah Bank and SGBN, you know that there were court ruling on their licences, which had been earlier revoked, ordering the CBN to restore their license.  That is a process, which is on-going right now, because it involves some work by those banks for them to come back to business.”