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Banks’ requirement process for forex sales cumbersome – Financial company

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The Financial Derivatives Company Limited (FDC) said the documentation process required by banks for the sale of foreign exchange is cumbersome.

The FDC added that the documentation process required by banks for the sale of foreign exchange will pose a challenge to the public.

Recall, the CBN Governor, Godwin Emefiele, had last week, at the end of the Monetary Policy Committee meeting, announced the stoppage of forex sale to the Bureaux De Change.

Emefiele noted that they had turned themselves into “agents that facilitate graft and corrupt activities of people who seek illicit fund flow and money laundering in Nigeria”.

According to him,  the CBN would channel a significant portion of its weekly allocation currently meant for BDCs to commercial banks to meet legitimate forex demand for ordinary Nigerians and businesses.

Commenting on the development, analysts at FDC, led by Bismarck Rewane, the parallel market exchange rate plunged to N525/$ the next day as the markets tried to process the implications of the CBN’s decision on businesses.

They said: “Since then, the naira has gradually appreciated, to currently trade at N508/$ (August 4). Other market rates have also appreciated. For instance, the IATA rate (the exchange rate used by airlines to issue tickets) moved from N460/$ to N412-N413.

“Since the CBN is expected to shift the forex supply previously sold to BDCs to the banks, we expect to see an increase in volume and turnover in the banking segment of the forex market, making dollar sales more accessible to the public.

“This will lead to an appreciation of the exchange rate for invisibles such as PTA (personal travel allowance), BTA (business travel allowance), tuition, etc.”

The analysts added that the parallel market rate depreciation would continue, although temporarily, leading to a widening of the forex market premium.

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According to them, “However, as the market adjusts to the new forex ban, the spike in the parallel market premium will fizzle out, leading to a convergence of rates around the IEFX window”. 

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The FDC explained further that the banks would benefit from the increased forex supply from the CBN and, in return, record an increase in transactions.

The analysts said: “However, the cumbersome documentation process required by banks will remain a challenge for the public. We expect the markets to adjust to the new norm, while the BDCs will be forced to survive or become extinct in the new forex market era”.

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