Excess Liquidity Weakens Naira Further at Parallel Market to N950/$1

The naira depreciated further in the parallel market on Thursday, as it traded at N950/$1 in Lagos, compared with the N930 to a dollar it went for the previous day.

However, on the Investors and Exporters’ (I&E) window, the naira closed at N781/$1 compared with its opening rate of N782/$1.

This was just as the International Monetary Fund (IMF), on Thursday, said Nigeria’s loose fiscal and monetary policies were creating excess liquidity, making it difficult for the naira to stabilise against the dollar two months after authorities allowed the currency to trade freely.

In the same vein, analysts attributed the depreciation of the naira to excess cash in the system, which some specifically accused the state governors of using to mop up dollars, thereby putting pressure on the foreign exchange (FX) market.

“What we are seeing in the market is partly as a result of the state governors who have lots of cash and because most of them have not activated the payment of palliatives in their states, they are indulging in reckless spending and those monies they are spending are being used to chase dollars, therefore putting pressure on the FX market,” the top market analyst who pleaded to remain anonymous explained.

Also, on Thursday, the CBN declared a consolidated Group and Bank’s profit of N103.85 billion and N65.62 billion respectively for its 2022 financial year.

Furthermore, THISDAY checks from development in the FX market showed that since the unification of forex rates, the commercial banks have not been selling dollars for Personal Travel Allowance (PTA), Business Travel Allowance (BTA), Education and medical fees, amongst others, as customers continue to lament the scarcity of the greenback.

Speaking in an interview with THISDAY on the developments in the forex market, the President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the suspension of FX sales to members of his association should be revisited. This, he said would help ease the pressure on the official market.

Gwadabe, argued that the current parallel market rate was being driven by speculation and urged members of the public not to panic.

Speaking in a telephone interview, Gwadabe said: “Naira is becoming a fast-depreciating currency and is highly unpredictable. We have been seeing illegal economic behaviours because the rate at the market is not even at transaction rate.

People are speculating and trying to test the capability of the monetary authorities in terms of defending the naira. The hike and volatility are not realistic.

“People are taking advantage because there is a loss of confidence in the market and working on peoples psychology.”

Commenting further on banks not meeting invisible demands, he stressed the need for the suspension on BDCs to be lifted.
He explained, “There should be a revisit of the suspension of BDCs so that the market would have liquidity which would also go a long way in dousing the tension. They need to integrate the BDCs into the I&E window.”

Meanwhile, the Central Bank of Nigeria (CBN) on Thursday, resumed the Open Market Operation (OMO) auction offering N150 billion to investors in the secondary market.
The 96-day, 187-day and 362-day tenured instruments were auctioned as part of efforts to suck up excess liquidity in the system.

A breakdown of the instrument showed that for the 96-day instrument with November 14, 2023 maturity date, N30 billion was offered by the central bank and subscription was N48.5 billion. For the 187-day instrument that matures on February, 13, 2024, the apex bank offered N40 billion, but subscription was N67.90 billion. Also, N80 billion was offered for the 362-day monetary policy instrument, while total subscription on the bill was N191.53 billion.

The International Monetary Fund (IMF), on thursday, said Nigeria’s loose fiscal and monetary policies were creating excess liquidity, making it difficult for the naira to stabilise against the dollar two months after authorities allowed the currency to trade freely.

Aisen, disclosed this in Lagos, at a Stakeholders’ Dialogue with theme: ‘The Naira: Paths to Institutional Reforms and Accelerated Growth’ Central bank transfers to the government are increasing the naira in circulation, depressing interest rates, discouraging savings and deterring the dollar inflows that could boost naira stability, Aisen said.

“There are too many naira running after insufficient foreign exchange. The supply of foreign exchange may take some time to build up,” he said

Nigeria’s central bank eased foreign exchange controls in mid-June as it sought to simplify its exchange-rate regime and kick-start dollar flows. That led to a 40 per cent plunge in the official rate and persistent volatility.

The volatility seen in the naira was likely to continue for a longer period, Aisen said.

Even though the CBN has implemented the longest cycle of monetary tightening in years, raising the benchmark monetary policy rate by more than 700 basis points since May, interest rates still needed to go higher, Aisen said.

“Take the treasury bill rates, take all the other rates, it’s very difficult to give the naira a fighting chance,” Bloomberg quoted him as having said.

While it’s important to seek growth, the government needs to check money supply for the stability of the exchange rate and the economy, which can take 18 months to achieve, Aisen said.

“You need additional macroeconomic tightening of fiscal and monetary policies to be able to give a chance to the naira and stabilize the economy,” he said.

“Meanwhile, you have an abundant number of naira running out, still not sufficient foreign exchange and this is going to be a recipe for depreciation simply because the demand for foreign exchange outstrips the supply of foreign exchange.

“Now you need to give a chance for the naira to fight and the interest rates can be much higher than they are. The inflation rate in the economy is running at almost 23 per cent,” he added.

On his part, the Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, said mechanisms ought to have been put in place to ensure competition in the FX market before unifying the rates.

He said if the federal government wants to see the outcome of its FX reforms, it must save the BDCs from being hounded by the CBN.

According to him, “Energy and transportation costs, make our inflation very hard to reduce. The solution to both is that unless you stabilise the exchange rate, you can never stabilise inflation rate, and unless you have to deal with the supply bottlenecks around transportation and energy costs.
“The BDCs were created by government and licenced by the Central Bank of Nigeria.

 And I think that this arbitrary exclusion from the official market is autocratic and an infringement on their rights. The list of 43 items they are illegal items, I do not think it is lawful to prevent anybody who wants to import its legitimate item from the market.”

On his part, the Chief Executive Officer, Financial Derivatives, Mr. Bismarck Rewane, said policy change without institutional reform was meaningless, adding that the country’s export earnings have dropped because of oil.

The CBN on Thursday, declared a consolidated Group and Bank’s profit of N103.85 billion and N65.62 billion respectively for its 2022 financial year.

Profit Before tax stood at N105.05 billion and N65.62 billion for the Group and Bank respectively while operating profit stood at N57.61 billion and N65.62 billion.

The report, prepared in line with the provisions of the Fiscal Responsibility Act 2011, has 20 percent of the net income of the bank credited to retained earnings while the balance paid to the federal government.

According to the CBN 2022 accounts released for the first time in five years, profits however declined from N124 billion in 2016, to about N40 billion.

Total comprehensive income for the Group stood at N430.08 billion compared to N157.34 billion in 2021.

The report indicated loan advances valued at N31.4 trillion and credit losses for the Group at N875.20 billion and N868.67 billion for the Bank for 2022.

The report also stated that currency issue expenses stood at N29.64 billion for the Group and N96.45 billion for the bank in the review period.

However, interest and similar income calculated using the effective interest method amounted to N2.87 billion and N2.85 billion respectively for the Group and Bank for the period.

Revenues from fees and commission income amounted to N120.58 billion and N120.25 billion respectively.

However, Net fair value (loss)/ gains on financial instruments stood at N37.26 billion and N37.26 billion.

According to the report, total operating income amounted to N2.15 trillion and N2.14 trillion respectively for the Group and Bank for 2022.

The total operating expenses stood at N1.218 trillion and N1.20 trillion.

Net Operating income amounted to N1.27 trillion and N1.27 trillion respectively for both Group and Bank. The report also stated that the Group’s share of profit of equity accounted investee’s net tax stood at N47.43 billion for the Group.

The report further indicated that total items that may be reclassified to profit or loss stood at N34.50 billion and N18 billion respectively for the Group and bank.

Foreign currency translation reserves on equity accounted investees stood at N34.50 billion.

Net Cash flow from operating activities stood at N732.22 billion and N408.15 billion
Net cash flows from operating activities stood at N732.22 billion and N 408.15 billion for both Group and the bank respectively.

Net operating income totaled N1.82 trillion for the Group and N1.81 trillion for the bank under the review period.

Net interest income stood at N2.15 trillion and N2.14 trillion respectively. 

James Emejo, Nume Ekeghe and Ugo Aliogo

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