June 19, 2023/CardinalStone Research

Event: Sequel to the Central Bank of Nigeria (CBN) announcement on the abolition of segmentation in Nigeria’s FX market and the collapse of all segments into the Investors and Exporters (I&E) window, an extraordinary Bankers’ Committee meeting was held to discuss its implementation and implications for the banking public on Friday, 16th of June 2023. Aided by the deliberations at the meeting, the CBN provided further guidance to Deposit Money Banks (DMBs) as follows: 

• All visible and invisible transactions (medicals, school fees, BTA/PTA, airline, and other remittances) are eligible for the Investors’ and Exporters’ (I & E) window.
• DMBs shall ensure expeditious processing of all eligible invisible transactions on behalf of their customers using the applicable rate at the I & E window.
• Ordinary domiciliary account holders shall have unfettered and unrestricted access to funds in their accounts. Domiciliary account holders are permitted to utilise cash deposits not exceeding USD$ 10,000 per day or its equivalent via telegraphic transfer. DMBs shall provide returns to the CBN, including the “purpose” for such transactions. 
• Cash deposits into domiciliary accounts will not be restricted, subject to DMBs conducting proper KYC, due diligence and adhering to the spirit and letter of extant AML/CFT laws and other relevant rules and regulations. 
• The CBN will prioritise orderly settlement of any committed FX forward transactions as they fall due to further boost market confidence.
• The Bank will normalise its CRR maintenance processes and ensure equity in its implementation across the banking industry.

Our Assessment

Removing restrictions on domiciliary accounts may combine with the flexible FX pricing framework to support improved capture of autonomous dollar inflows into the country in the near to medium term and boost confidence. The normalisation of CRR maintenance processes, which we assume also implies strict compliance with regulatory requirements as opposed to the legacy issue of having banks’ effective CRR higher than required, could strengthen DMBs. In particular, the banking sector is likely to start earning on the portion of the difference between effective and regulatory CRR they do not currently earn on. The previously communicated guidelines also suggest better spread fee income for banks with large trading books, with the effective weakening of the naira at I&E likely to drive significant FX gains for DMBs with net long dollar positions.