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Home Business News

Banks Are Borrowing Money From CBN To Buy FX

Onome Ohwovoriole by Onome Ohwovoriole
February 27, 2017
in Business News
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Nairametrics|Since the introduction of the new foreign exchange policy, there has been a marked drop in the exchange rate at the parallel market. From a high of 520 naira, the naira currently trades between the 450-470 naira band. Demand has clearly shifted from the parallel market to the banks. The banks apparently were caught off guard by the policy, or are clearly overwhelmed by orders from customers.

Strangely, bank borrowings from the Central Bank Of Nigeria through the Standard lending Facility (SLF) have spiked heavily since last week. A clear indication that banks are borrowing from the CBN to fund foreign exchange needs of their customers. We find this very strange. Why should the CBN lend banks money for such a venture, since banks are buying foreign exchange on behalf of their customers? If the banks are buying for their own use, is that not a step away from speculation?

Are the banks borrowing money from the CBN not at an advantage over other banks? Selling of foreign exchange by the banks is a mundane function. That banks have to borrow from the CBN to fund foreign exchange purchases shows, that several of them may have underlying liquidity issues. If the banks did not have enough naira to meet the CBN sales, those who belong to the school of thought that the demand for FX is largely panic buying, may have a point.

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Tags: banksCBN NigeriaFinancial Services

Comments 1

  1. anodebenze says:
    February 27, 2017 at 7:30 pm

    Every time I read that the cbn give forex to bdc and commericial bank.I ALWAYS WONDER IF IT’S PHYSICAL CURRENCY.I.E DOLLAR OR POUND.IF ITS CASH FOREX CAN BE CUMBERSOME FOR THE CBN i assume it this waas,we are reading millions forex captured by other govt agencies another reason for this because over 30 yrs cash have slowly replaced paper equivalent of as a means of foreigner usuage in tourism or oversea school fee.
    now let us look at cbn monetary guidelines recently,which,will always conflicts with the movement of forex and it’s usuage.now it looks the cbn released about 1 billion in the few weeks,which maybe the reason for the clashing of the dollar,but have we not been there before,that the main reason is the increases in the supply of dollar,but the cbn is only using oil as the main source of forex in Nigeria,and as onome noted this policies is open for abuses and also more demand for forex more.
    Now it’s possible for the cbn to devise a short-term and long-term strategy to address the issue of the scarcity of forex in Nigeria,we have seen the long-term plan of the cbn,and we have seen the short-term strategy,which have not work anyway.however I am confident if the economy grows by 10 % in the financial or money market and system.it over-reaches all cbn forex policies or render all cbn forex policies null

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