FX Reforms Drive 72% Surge in Portfolio Inflows in H1 2024, Says CBN Governor Cardoso

The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has announced that reforms in the foreign exchange (FX) market are yielding substantial results as foreign portfolio inflows (FPIs) have risen by 72 percent in the first half of 2024 compared with the same period in 2023.

Also, as part of efforts to address the lingering naira scarcity and difficulty in withdrawing cash being experienced by customers of banks, Cardoso expressed the CBN’s preparedness to heavily sanction banks involved in the act. 

Cardoso, who said these on Friday, while delivering the keynote address at the Chartered Institute of Bankers of Nigeria (CIBN) annual dinner in Lagos, pointed out that the average daily turnover in the Nigerian Autonomous Foreign Exchange Market rose by 226 percent year-on-year, while forex reserves grew from $32 billion in May 2023 to over $40 billion, equivalent to eight months’ import cover and the highest level in three years.

Also highlighting upcoming measures to bolster the market, Cardoso confirmed that FX matching would commence on December 2, 2024, introducing an electronic system to enhance transparency and attract investments.

The move he reiterated, was expected to further bolster confidence in Nigeria’s FX market while driving diaspora and foreign investments in the coming year.

On the forex market, he noted that the previous fragmented regime not only stifled foreign investments, but also significantly drained the country’s external reserves and public revenue. 

He added that the forex subsidy regime far exceeded that of fuel subsidies in 2022 alone and that Nigeria lost an estimated N6.2 trillion in potential revenue due to the less flexible FX regime a striking comparison to the N4.5 trillion lost to fuel subsidies.

On the increase in portfolio inflows, he said: “Our efforts to improve the functioning of our FX market are having the desired impact. Average daily turnover in the Nigerian Autonomous Foreign Exchange Market increased by 226 percent in the first half of the year when compared to the same period in 2023.

“Foreign portfolio inflows have increased by over 72 percent during this period, while foreign exchange reserves have risen from $32 billion in May 2023 to over $40 billion today. This represents the equivalent of eight months’ import cover and marks the highest reserve level in nearly three years.

“In the foreign exchange market, we faced a backlog of over $7 billion in unfulfilled commitments and a fragmented FX regime characterised by multiple forex rates, which had encouraged arbitrage opportunities. This regime stifled much-needed foreign investment and led to the depletion of our external reserves, which fell to $33.22bn in December 2023. It must also be understood that the cost of the FX subsidy regime is estimated to exceed that of fuel subsidies.

“In 2022 alone, the potential revenue lost due to a less flexible FX regime was approximately N6.2 trillion, compared to N4.5 trillion from fuel subsidies. These funds could have significantly contributed to critical investments in education, healthcare, and infrastructure development.”

On the lingering naira scarcity, Cardoso urged customers who experience any form of challenge in cash withdrawals from bank branches and ATMs, effective December 1, 2024, to report such issues directly to the CBN through designated phone numbers and email addresses to enable it to sanction the financial institutions.

Cardoso explained: “Effective December 1, 2024, customers are encouraged to report any difficulties withdrawing cash from bank branches or ATMs directly to the CBN through designated phone numbers and email addresses for their respective states. Guidelines will be distributed widely to raise public awareness. “We also urge full regulatory compliance by all stakeholders, including Mobile Money Operators and PoS Agents, to promote digital transaction channels and improve service delivery. I repeat, financial institutions found engaging in malpractices or deliberate sabotage will face stringent penalties.

“The CBN will continue to maintain a robust cash buffer to meet the country’s needs, particularly during high-demand periods such as the festive season and year-end.

“Our focus is on ensuring a seamless cash flow for Nigerians while fostering trust and stability in the financial system.

“I must express my concern over recent delays in some payment gateways in settling financial transactions. Trust is fundamental to fostering digital transactions, and we must take every necessary step to preserve that trust in our payment systems.

“These delays often disproportionately affect vulnerable segments of our population. To address this, we will impose strict penalties on non-compliant institutions to safeguard consumer trust and ensure swift redress mechanisms are in place.”

Speaking further, the CBN Governor said: “We also recognise the ongoing challenges with cash availability at ATMs, which disproportionately affect ordinary Nigerians. To address this, we are conducting spot checks across Deposit Money Banks (DMBs) and will impose penalties on underperforming institutions.”

Also, he noted that in a push to improve governance within the financial sector, the CBN imposed N15 billion in penalties on 29 banks for breaches, including violations of Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) regulations. According to Cardoso, these penalties were aimed at addressing root causes of compliance lapses while strengthening regulatory accountability. Financial institutions would also be required to refine compliance frameworks starting in 2025 to align with evolving risks.

He said: “Starting in 2025, financial institutions will be required to refine their compliance and governance frameworks to address evolving risks. We are enhancing regulatory effectiveness and accountability, as demonstrated by recent changes to our supervisory and enforcement approach. Recently, penalties totaling N15 billion were imposed on 29 banks for breaches, including AML/CFT violations.

“In addition to these penalties, the banks are required to address the root causes of the lapses, which is crucial for improving regulatory effectiveness. Historically, the industry has struggled with recurring issues, but we are confident that this approach will help change that narrative.”

He also added that the CBN’s return to orthodox monetary policy has shifted the focus away from direct intervention in development finance and reported a recovery of nearly N1 trillion from earlier development finance programs, driven by enhanced monitoring and enforcement. He added that moving forward, the apex bank plans to prioritise indirect funding through Development Finance Institutions, emphasising transparency, governance, and oversight to ensure sustainable economic development.

He said: “As previously noted, the central bank’s return to orthodox monetary policy means that we will refrain from direct intervention in development finance initiatives. That said, I am pleased to report that, as of October 2024, nearly N1 trillion has been recovered or repaid under previous development finance programs, thanks to the enhanced monitoring and enforcement of the guidelines we put in place.

“Our focus remains on ensuring the effective utilization and recovery of outstanding loans within the framework of established guidelines. While development finance has a role in an economy like Nigeria’s, it must be approached with proper governance to achieve meaningful impact. Looking ahead, we are exploring indirect funding strategies through Development Finance Institutions, focusing on accountability, transparency and oversight to drive sustainable development.”

On its path to price discovery he said: “The unification of the exchange rate is a pivotal reform, but it marks just the beginning. On the 2nd of December 2024, the foreign exchange market will begin trading on the electronic FX matching system to further enhance transparency, restore confidence, and attract new investments.

“Coupled with an improved framework for deploying products targeting the Nigerian diaspora and efforts to establish a well-functioning forex market, we anticipate increased diaspora and foreign investments over the next 12 months, building a more resilient and liquid forex market.”

 Nume Ekeghe

Follow us on: