The Central Bank of Nigeria (CBN) on Wednesday fined four banks a total of N5.86 billion for allegedly breaching Nigeria’s extant laws and forex rules when they facilitated illegal repatriation of funds to South Africa on behalf of MTN.
The Apex bank also requested that they refund the sum of $8,134,312,397.63 which “was illegally repatriated on behalf of your company (MTN) by the aforementioned banks between 2007 and 2015.”
What could this cost the banks and MTN
Asides the potential need to pay penalties of about N5.8 billion, the 4 banks and MTN are also on the hook to refund a whopping $8 billion to the coffers of the CBN. While $8 billion is expected to be refunded to the CBN the true cost to the CBN might be about 66% of this amount in terms of differentials.
To refund the amount, the banks and MTN will refund the $8.1 billion while the CBN credits them with the naira equivalent. The CBN did not state what the exchange rate for the refund will be but the worst case scenario is that it could cost the banks and MTN as much as N1.9 trillion.
How did we arrive at this
The average official exchange rate at the time was about N124/$1 compared to N365/$1 today. Thus, while the banks and MTN might have to source the $8.1 billion at an exchange rate cost of N365, the CBN might refund the naira equivalent at N124/$1.
|Banks/MTN||FX in USD||ROE||Naira equivalent|
|Receives from CBN||8,134,312,397.63||124||1,008,654,737,306.12|
What this means
- This in effect is costing the banks about $5.3 billion or 66% of the $8.1 billion in FX loss.
- This is an astronomically high cost to incur by any of the companies accused individually or combined.
- The attendant cost is as depicted above is enough to render these companies bankrupt regardless of how long the CBN spaces the refund.
- This basically opens a huge window for the CBN and the government to negotiate this refund.
- It could also pave the way for a legal redress if they do not reach a mutually agreed solution to this matter.