Nigeria’s External Reserves Hit $37bn with $3.5bn New Special Drawing Rights from IMF

Nigeria’s foreign reserves will get a timely boost on Monday when the country’s share of $3.5billion from the $650 billion Special Drawing Rights (SDRs) approved by the International Monetary Fund (IMF) to boost global liquidity, matures for collection.

Consequently, the nation’s foreign reserves currently put at $34billion will hit the $37billion threshold, which will boost the capacity of the Central Bank of Nigeria (CBN) to fund higher volumes of external transactions and achieve a further convergence of the exchange rate around the I & E window.

This is coming as the CBN has threatened to revoke the operating licence of any microfinance bank found engaging in foreign exchange transactions.

The apex bank has also urged the organised labour to collaborate with it to grow the country’s economy.

The approval for the SDRs credit was announced by the board of IMF on August 4.

SDRs are supplementary foreign exchange reserve assets defined and maintained by the IMF.

They are units of account for the IMF and not a currency.

Also, they represent a claim to currency held by IMF member countries for which they may be exchanged. SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and United States dollars.

Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, who confirmed the maturity of the IMF’s credit to THISDAY yesterday, said: “Upon receipt of the IMF’s SDR credit of $3.35billion expected on August 23, we expect gross external reserves to increase to about $37billion. This will provide more support for the CBN to support the currency and lead to a further convergence of the exchange rate around the I & E window.”

Rewane also said in the August edition of the FDC Monthly Update, released during the weekend, that “an increase in the gross external reserves will support the CBN’s intervention at the foreign exchange markets and help in the convergence of the parallel market rate towards the rate at the I&E window.

“In the first fortnight of August, Nigeria’s gross external reserves maintained a steady accretion. The reserves gained 0.30 per cent to $33.58billion (August 13). The cumulative gain as of August 13 is $180million. At $33.58billion, the reserves level is sufficient to cover 8.24 months.

“We expect the CBN’s increase in forex supply to commercial banks to support the exchange rate for invisibles in the near term and ultimately, close the gap between the parallel and official rates (N104/$ as of August 13). Similarly, we expect the $3.35billion IMF SDR allocation to increase the external reserves level to about $37billion and support the CBN’s intervention in the forex market,” Rewane explained.

About $275 billion (193 billion SDRs ) of the new allocation would go to emerging markets and developing countries, including low-income countries.

The economic research firm projected additional foreign exchange accretion through the anticipated rise in higher oil revenue in the coming months.

“We expect the increase in Nigeria’s domestic oil production to be sustained in the coming months barring any disruptions,” the FDC report stated.

It added that: “An increase in oil production will offset the fall in oil prices and this will lead to higher oil revenue. This will impact positively on the fiscal and external balances of the country.”

FDC quoted the Organisation of Petroleum Exporting Countries (OPEC) monthly oil report as stating that Nigeria’s domestic oil production increased by 3.60 per cent (45,000 barrels per day) to 1.44mbpd in July from 1.39mbpd in June. This, according to the report, is 22.58 per cent below the benchmark of 1.86mbpd.

Nigeria’s oil rig count had increased by 40 per cent from five to seven in June.

Consequently, the company expects oil prices to remain soft in the near term due to the surge in Covid-19 cases globally.

FDC stated, “China, a major importer of oil, recently imposed lockdown measures. This will dampen its oil demand prospects and weigh on the oil price. We expect oil prices to stay within the $70 per barrel- $74pb range.”

It explained that although lower oil prices and the attendant reduction in oil earnings cannot be ruled out, the government’s acquisition of a 20 per cent stake in Dangote Refinery will be the saving grace.

“Oil accounts for 86 per cent of Nigeria’s export earnings and contributes approximately 10 per cent to GDP. Lower oil prices coupled with Nigeria’s low oil production would lead to reduced oil earnings and government revenue.

“The government’s acquisition of a 20 per cent stake in the Dangote Refinery, which is projected to be the largest single-plant in the world, guarantees a steady supply of crude to the refinery and will boost the NNPC’s revenue. In addition, the Kaduna and Warri refineries will undergo rehabilitation and complement the Dangote refinery. Nigeria could be on its way to being becoming a regional oil hub,” the report added.

Meanwhile, the CBN has threatened to revoke the operating licence of any microfinance bank (MFB) found engaging in foreign exchange transactions.

According to the apex bank, some of the MFBs had been engaging in activities beyond the remit of their licences as they dealt in foreign exchange transactions and practised wholesale banking, considered as non-permissible activities for micro banking institutions.

The CBN, which read this riot act in a ‘Circular to All Microfinance Banks’ with reference: FPRD/DIR/PUB/CIR/01/020, dated August 19, 2021, cautioned that acting outside beyond their mandates with comparatively low capitalisation, posed a significant risk with dire consequences for financial system stability.

“The Central Bank of Nigeria (CBN) has observed the activities of some Microfinance Banks (MFBs) that have gone beyond the remit of their operating licences by engaging in non-permissible activities, especially wholesale banking, foreign exchange transactions, and others.

“Given the comparatively low capitalisation of MFBs, dealing in wholesale and /or foreign exchange transaction is a significant risk with dire consequences for financial system stability,” the circular stated.

The CBN, in the circular, titled, ‘Cessation of Non-Permissible Activities by Microfinance Banks’, signed by Deputy Director, Financial Policy and Regulation Department, CBN, Mr. Ibrahim S. Tukur, reminded all MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012.

Stating that it would continue to monitor developments in the MFB sector, it stressed that it would apply severe regulatory sanctions for breaches of extant regulations including revoking the licence of non-compliant MFBs (in line with Section 19 of the Guidelines).

According to Section 19 of the Guidelines: “The grounds for revoking a licence granted to an MFB may be any or all of the following: (a) Submission of false information/data during and/or after the processing of the application for licence; (b) The use of proxies or disguised names to obtain a licence to operate as an MFB; (C) Engaging in functions/activities outside the permissible scope of its licence as specified in Section 2.2 of these guidelines; (d) Persistent failure to comply with request for information/data in the form required/specified by the CBN; (e) Engaging in activities prejudicial to the Nigerian economy; (f) Failure to redeem matured obligations to customers; (g) Failure to render statutory monthly returns for a continuous period of six months or for a cumulative period of six months in a financial year; (h) Unauthorised shop closure; (i), Failure to comply with any directive issued by the CBN; (j) Engaging in prohibited activities as listed in these Guidelines; (k) Technical insolvency, that is, where an MFB’s assets are insufficient to cover its liabilities; (i) Such other conditions applicable to banks and other financial institutions which constitute a ground for revocation of licence under the Banks and other Financial Institutions Act (BOFIA) 1991(as amended); and (m) any other act(s) which in the opinion of the CBN constitute(s) a violation or a serious default.”

The apex bank, however, stated for the record, the permissible activities of specialised micro-institutions. “MFBs are strictly prohibited from foreign exchange transactions; MFBs are to primarily focus on providing financial services to retail and/or micro-clients; Microcredit and retail transactions carried out by MFBs are limited to N500,000 per transaction for Tier 2 Unit MFBs and N1,000,000 per transaction for other categories; Micro-credit facilities shall constitute a minimum of 80 per cent of total loans portfolio for MFBs,” it pointed out.

The latest CBN circular came on the heels of measures it had taken in recent times to save the value of the naira and maintain its integrity.

About a month ago, it suspended forex allocations to bureau de change (BDC) operators.

As soon it cut off direct supply to the BDCs, it released $200 million to the commercial banks and has continued to serve them forex liquidity, weekly.

This was part of efforts to meet dollar demand for legitimate end-users in the country.

But not too long after, some of the banks (though names undisclosed), were indicted for round-tripping.

They were accused of flouting the forex rules by actively conniving with unscrupulous customers to defraud the system.

This set of customers and banks were, however, threatened with stiff sanctions by the banking regulator. The threat came after the 357th Bankers Committee meeting, which was held virtually, recently.

The bank CEOs, who reported the unwholesome practices by the banks and customers, noted they would adopt digital means to detect fraud in the forex system. Managing Director of First City Monument Bank (FCMB), Yemisi Edun, and Group Managing Director of Guaranty Trust Holding Company (GTCO), Segun Agbaje, spoke on behalf of the banks. The Bankers Committee membership, which comprises banks’ CEOs and CBN directors, has the CBN governor as its chairman.

Meanwhile, speaking yesterday in Lagos on the sidelines of the one-day interactive enlightenment session with organised labour and civil society on the CBN’s five-year policy thrust, the apex bank’s acting Director, Corporate Communications, Mr. Osita Nwanisobi, called on the labour to collaborate with it for inclusive growth across the economy.

While giving clarity on the circular issued on MFBs, he emphasised that the practices by some MFBs pose significant risks to the banking system.

He also called on the labour to collaborate with the CBN to grow the economy.

Nwanisobi said: “The CBN alone cannot bear with all of the issues in the Nigerian economy and we believe that it is important that every Nigerian key into the reality that we need to grow our economy. It is not just about the CBN or the Nigerian government; it is about the Nigerian people and we believe that the labour, being a significant stakeholder group, would be able to take this message to their people.

“We are calling on labour and everyone to support the interventions by the CBN as these policies of the CBN are to grow the economy sustainably so we can see how to get inflation to single digits.

“Our interventions are very well thought-out; it is not something that comes out of the curve; we sit down to think through these interventions before we get it out to the public and the whole essence is to grow the real economy sustainably,” he explained.

Festus Akanbi, Kunle Aderinokun, Nume Ekeghe in Lagos, and James Emejo in Abuja

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