CBN Abolishes Preferential Treatment for Manufacturing, Other Sectors

Following its resolve to meet all unfilled foreign exchange (FX) demand in the country, the Central Bank of Nigeria (CBN) monday announced that it will no longer impose allocation/utilisation rules for the manufacturing and other select sectors on commercial banks.

The CBN stated this in a statement on new policy actions in the FX market signed by its acting Director, Corporate Communications, Mr. Isaac Okorafor.

Also, in order to further ease the burden of travellers and ensure that transactions are settled at much more competitive exchange rates, the CBN directed all banks to open FX retail outlets at major airports as soon as logistics permit.The move, THISDAY learnt, is aimed at enthroning a more efficient and competitive FX market.
Despite its decision to eliminate the preferential treatment, which required banks to allocate 60 per cent of FX purchases from all sources to specific sectors of the economy, the central bank maintained that the provision of FX to the manufacturing sector would remain its strong priority.

The CBN also said it has decided to significantly reduce the tenor of its forward sales from the current maximum cycle of 180 days, to no more than 60 days from the date of a transaction.

Confirming THISDAY’s exclusive report at the weekend, it also reiterated its commitment to increase the availability of FX to banks to meet demand for the payment of school fees, medicals and Business and Personal Travel Allowances.
In this regard, the CBN said: “In order to ease the difficulties encountered by Nigerians in obtaining funds for foreign exchange transactions, the CBN is providing direct additional funding to banks to meet the needs of Nigerians for personal and business travel, medical needs, and school fees, effective immediately.

“The CBN expects such retail transactions to be settled at a rate not exceeding 20 per cent above the interbank market rate.”

According to the central bank, having cleared “the historic backlog of matured letters of credit at the inception of the current flexible exchange rate system”, it would immediately begin to provide FX to all commercial banks to meet the needs of both personal travel allowances (PTA) and business travel allowances (BTA) for onward sale to customers.

It assured Nigerians that all banks would receive amounts commensurate with their demand per week, which would be sold to customers who meet the usual basic documentary requirements.

“Similarly, the CBN would meet the needs of parents, guardians and sponsors who are seeking to make payments of school and educational fees for their children and wards.

“Such payments must be made by commercial banks directly to the institution specified by the customer.
“The CBN would ensure that this process is as smooth as possible and that as many customers as possible get the foreign exchange they genuinely demand.

“This would also apply to customers seeking to make payments, or purchase foreign exchange for medical bills and paid directly to hospitals.

“The supply of FX to retail end-users (PTA, BTA, school fees, medical bills, etc) would be sustained by the CBN,” it added.

Reinforcing the policy on increasing FX for PTA and school fees another circular signed by the CBN Director, Financial Markets, Dr. Alvan Ikoku, said yesterday that it would commence the sale of FX on a weekly basis to banks.
It classified the banks into merchants, small banks, medium banks and big banks. The FX sales shall be strictly for PTA and school fees and is expected to hold every Tuesday, it said.

Part of the conditions stipulate that applicants for PTA shall be 18 years of age, holder(s) of Nigerian passports, must be an account holder in the chosen bank, and must have a current tax clearance certificate.
Others require applicants to have verifiable BVNs and limited the amount to $4,000 per quarter.

On the other hand, some of the requirements for FX sales for school fees stipulated that applicants shall be for university education only, remittances shall be made directly to the university’s account, applications shall be for not more than $15,000 or its equivalent per term, and applicants shall be recognised parents or guardians.

“All banks are expected to submit daily returns of their sale of foreign exchange for PTA and school fees to the CBN. The report must reach the Director, Financial Markets Department, on or before 4pm daily in soft and hard copied.
“Any bank that fails to comply with this circular shall be sanctioned,” the CBN said.

In addition, in order to improve efficiency in the FX market, the CBN said that it would immediately start the implementation of its articulated programme to clear all the unfilled orders in the interbank FX market; and implement an effective intervention programme to support the inter-bank market to ensure adequate liquidity necessary to deliver an efficient FX market.

“Given our plan to meet all unfilled orders, and while provisions of FX to the manufacturing sector would remain the CBN’s strong priority, we will no longer impose allocation/utilisation rules on commercial banks,” it stated.

Also, the CBN said it would advise the FMDQ to activate the securities exchange’s FX Order-Book systems as soon as possible and also accelerate the on-boarding of FX clients on the FX Relationship Systems to enhance transparency in the FX market.

The CBN said it would neither tolerate unscrupulous actions nor hesitate to bring serious sanctions on offenders, be they banks or their staff who flout the rules.

“The Bank therefore encourages market participants to assist in ensuring that these new measures engender the preservation of our external reserves, stability of our financial system, and growth of our economy to the benefit of all Nigerians,” it added.

Despite the new policy actions on the FX market, the naira continued it slide yesterday, selling at N520/$ on the parallel market, lower than the N516/$ at which it closed last Friday.