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.