FOREX Africa: Nine Nigerian Banks Suspended From FX Market

Written by Kevin Mwanza

Nine Nigerian banks were on Tuesday suspend from foreign exchange transactions for failing to remit up to $2.3 billion, belonging to state-owned oil companies, to the government.

The nine lenders include Diamond Bank, Fidelity Bank, First Bank, First City Monument Bank, Heritage Bank, Keystone Bank, Skye Bank, Sterling Bank and United Bank for Africa, BBC reported.

The money the banks owed were part of dividends to the Federal government from the state companies Nigerian National Petroleum Corp. and Nigeria LNG Ltd.

They were supposed to remit the amount through a consolidated account at the Central Bank of Nigeria (CBN) that was set up last year after President Muhammadu Buhari ordered the merger of all state accounts into one single account at the central bank to reduce corruption.

The deadline of transferring the money expired nearly a year ago.

Bankers, who were set to meet with CBN officials on Wednesday, told Reuters the regulator wanted the funds remitted in dollars, which are in short supply as Africa’s largest economy suffers its worst financial crisis in decades due to a slump in the price of oil, its dominant commodity.

CBN’s move to tighten foreign exchange transactions in the West African nation in March forced banks to delay hard currency loan and trade repayments, which increased their risk of default.

The barred banks are likely to be fined and face the loss of customers and trading income, analysts at Lagos-based CSL Stockbrokers said in an emailed note.

“The CBN may impose various fines,” analysts at CSL said. “Of greater concern to us is the ability of these banks to remit these funds given the illiquidity in the market. Inability to remit these funds will mean staying away from all forex transactions for an extended period.”

Shares in some of the suspended banks dropped during Wednesday’s trade, with Diamond Bank posting the largest intra-day fall, Bloomberg reported.

CBN later said in a statement that it had readmitted UBA to foreign exchange trading as it had remitted all outstanding deposits.

According to a Reuters report, another bank, FCMB, was also working with the central bank to resolve the issue, while a third, First Bank, said it remits government funds when due but was discussing with the central bank and state-oil firms on ways of retaining the dollars to help solve forex shortages and meet its obligations.

In recent months, there have been concerns over the stability of Nigeria’s banking sector after CBN took over management of the country’s eighth largest commercial bank, Skye Bank, in what it said were consistent breach of cash liquidity ratios by the lender.

The regulator further disclosed that “one or two other” banks were showing signs of distress.

While authorities in Nigeria have maintained that banks are not in distress at the moment, there has been an increase in unpaid loans as Africa’s largest economy stare at a possible recession dragged down by a tumbling local currency and low oil prices on the international markets.