Market News

BY BAMIDELE OGUNWUSI 

In compliance with the directive of the Central Bank of Nigeria (CBN), commercial banks in the country on February 13, 2024, announced that dollar transactions through international money transfer operators (IMTOs) will now be paid to customers in naira. 

The decision, according to a notice to customers, follows the recently announced regulations by the Central Bank of Nigeria (CBN) on IMTOs operations. 

The CBN, on January 31, 2024, revised guidelines for the operations of IMTOs. According to the new directive, the apex bank said operators will no longer facilitate money transfers from Nigeria to other countries. 

The financial regulator also asked IMTOs to quote exchange rates for naira payout to beneficiaries based on the prevailing market rates at the nation’s official foreign exchange market (FX) market. 

In compliance, on February 9, 2024, IMTOs commenced the implementation of the directive, halting dollar transfers to Nigerians. 

In a similar vein, commercial banks in Nigeria also announced implementation.

Access Bank told customers in a notice that all inbound money transfers will now be paid in naira. 

The bank also said transfers above the naira equivalent of $200 would be sent to the beneficiary’s account, while amounts lower would require a means of identification. 

“This is to inform you that on January 31st, 2024, the Central Bank of Nigeria (CBN) issued a Circular which states that all in-bound money transfers will now be paid in the following ways,” the notice reads. 

“All transfers will be received only in Naira, either directly into the beneficiary’s bank account or received in cash. 

“Transfers above the Naira equivalent of $200 will be credited to the beneficiary’s bank account, while cash payment equivalent for amounts below $200 will require the following means of Identification: a. International Passport; b. Driver’s License; c. National Identity Card; d. INEC Permanent Voters Card (PVC).” 

EcoBank, in a similar notice, said the regulatory changes would affect international money transfers into Nigeria. 

The bank said: “We would like to bring to your attention recent regulatory changes affecting international money transfers into Nigeria through Western Union, MoneyGram, Rapidtransfer, Ria, and other CBN-approved IMTOS. 

“The Circular issued by the Central Bank of Nigeria (CBN) dated January 31, 2024, stipulates that ALL inbound money transfers to Nigeria (via the above-mentioned IMTOS) will be paid ONLY in Naira through a bank account or in cash at the prevailing rate in the Nigerian Foreign Exchange Market.” 

Significantly, IMTOs had removed the options of sending dollars or other foreign currency to Nigeria on their websites and mobile applications in compliance with the CBN directive. 

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Consequently, Nigerians abroad are only allowed to transfer the naira equivalent amount of the foreign currency. 

Findings show that IMTOs are removing the option of sending dollars to bank accounts in the country and are exchanging at the rate of N1,450 to a dollar. 

WorldRemit, in a notice to customers said: “we can no longer support transfers in USD – only in Naira. If you’re about to send money to Nigeria – this is important. The Central Bank of Nigeria (CBN) has directed that it’s no longer possible for any money transfer to be paid out in USD in Nigeria.” 

Similarly, Sendwave in a notice to customers said: “In compliance with a recent directive from the Central Bank of Nigeria (CBN), we regret to inform you that Sendwave, along with all money transfer operators, is no longer able to support USD transfers to Nigeria. We’d encourage you to switch to sending Naira transfers instead.” 

The CBN had earlier instructed banks to begin paying Dollars and other foreign currency payouts from abroad in Naira to boost forex supply. 

“All inbound money transfers to Nigeria shall be paid to beneficiaries in Naira through a bank account, or cash. Proceeds of IMTO more than the equivalent of $200 shall be paid through an account. 

“Cash payments shall be made upon the provision of a satisfactory/acceptable means of identification. Where the beneficiary does not have an account with the IMTO agent bank, the agent bank shall credit the beneficiary account to another bank. 

“The exchange rate for the Naira payment shall be at the prevailing rate in the Nigerian Foreign Exchange Market,” the CBN guideline reads in part. 

The new measures also restrict inbound transfers to the naira equivalent of every dollar transfer and compel the IMTOs to quote exchange rates for naira payout to beneficiaries based on the prevailing market rates at the nation’s official foreign exchange market (FX) market. 

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Ayokunle Olubunmi, head of financial institutions ratings at Agusto & Co., while commenting on the implications of CBN’s directive, said customers who do not have an immediate need for the cash would be impacted most. 

“Remittances into Nigeria are the second largest source of FX to the country by Nigerians living abroad,” Olubunmi said. 

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“Most of the funds coming in are for individuals and some for small, medium entities (SMEs). Those who have immediate need for it might not really mind, but those who do not really need the cash might not be happy about it. 

“However, this would be a bit challenging given the high inflation rate that we have. If the naira keeps devaluing, people would definitely want their inflows in foreign currencies. 

“People would want to go outside the financial system to try to see how to get funds across. So, that can result in having ‘Shadow IMTOs’ that people would use to transfer funds.” 

Olubunmi also said the fundamental issue is for CBN to fix the supply side of the FX market to address demand. 

He said customers who have futuristic use of the dollar would be frustrated and might go through the ‘black market’. 

Also speaking, Charles Abuede, a research analyst at Cowry Asset Management Limited, said efforts by Olayemi Cardoso, governor of CBN, are being felt in the FX market, describing it as “a good move”. 

He said the regulator’s policies “are a step further to creating stability in the exchange rate and help the naira gain value”. 

“This would bring about confidence in the FX market and instil a high level of transparency,” Abuede said. 

However, the analyst said “the impact would not be now”, noting that the country needs to address insecurity, oil theft, pipeline vandalism, and increasing oil production, for the naira to be strengthened against the dollar. 

This, he added, would help Nigeria with crude oil exports and “also impact the FX reserves and make it easy for supply to banks and IMTOs, thereby reducing the rate”. 

On his part, Afolabi Oriyomi, research head, country relations and investment professional at Africa Finance Corporation (AFC), said the CBN’s move to restrict all in-bound transfers became necessary due to the naira’s significant fall in value against the dollar. 

Before now, according to Oriyomi, most of the diaspora remittances flowed to the parallel market “as people wanted to exchange the USD at a higher conversion rate. 

“With this circular, alongside others , including harmonisation of reporting requirements on foreign Currency exposures of banks) from the CBN aimed at a market-reflective rate, the incentive and the possibility of going to the parallel market becomes remote,” he said. 

“Generally, the CBN is working towards reducing the supply to the parallel market and increasing the liquidity at the official FX window (NAFEM). With more liquidity in NAFEM arising from this alongside that of harmonisation reporting requirement (that encourages banks to sell forex into the market), this can help stabilise FX temporarily. 

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“Following these circulars, there has been inflow of over $86 million in the official FX window in the last five months and the clearing of FX backlog to about $2.2 billion.” 

Oriyomi, however, said while this move can help stabilise the foreign exchange in the immediate term, there needs to be more synergy with the fiscal side to get more FX proceeds alongside addressing more Following the directive of the Central Bank of Nigeria (CBN) barring international money transfer operators (IMTOs) from paying Nigerians in foreign currencies, Nigerians abroad will no longer be able to send dollars or any foreign currency into bank accounts in the country. 

However, despite efforts by the Central Bank of Nigeria (CBN) to restore sanity in the foreign exchange market by rolling out three new circulars, the naira has suffered further slide. 

The naira experienced another decline in both the official and parallel foreign exchange markets in the last one week. 

At the parallel market, the naira depreciated to N1,700/$ on Friday from the previous day’s N1,640/$, while the official rate closed at N1,537/$ compared to N1,498/$ recorded on Thursday. 

Analysts worried that despite CBN’s efforts to boost forex supply, challenges persist, and the gap between rates in the official and parallel markets is widening, raising concerns about potential round-tripping activities. 

They argued that the recent circulars by the CBN, addressing issues such as personal travel allowances and foreign revenue repatriation, add complexity to the forex market dynamics. 

The ongoing operational adjustments by banking institutions and IMTOs aim to accommodate the revised remittance framework. 

In the first circular titled “Allowable channels for the payout of Personal Travel Allowance (PTA) and Business Travel Allowance (BTA)”, the CBN directed all authorised dealer banks to restrict PTA/ BTA payout to electronic channels only, including debit and credit cards. 

In the second circular, the CBN revised upward, the allowable limit of price deviation for exports and imports to -15.0% and +15.0% of global average prices respectively from -2.5 per cent and +2.5 per cent previously, citing global inflation dynamics and other related challenges as reasons for the review.