September 5, 2016

That ill-advised suspension of banks from forex market

That ill-advised suspension of banks from forex market


Although all the nine banks –First Bank, Diamond Bank, Sterling Bank, Skye Bank, Fidelity Bank, United Bank for Africa, Keystone Bank, First City Monument Bank, and Heritage Bank — suspended from the foreign exchange market have since been readmitted by the Central Bank of Nigeria (CBN), the episode points to the need for caution when the regulatory authorities decide to wield the hammer to redress perceived violations.

Even before the formal announcement of a recession by the Federal Government, most economists were of the view that the economy was headed in that direction. All the economic indices were negative and getting progressively worse from the first quarter right through the second quarter. Now the economy has contracted by 2.6 per cent.

Given that scenario, and the vital role which the nation’s banks will have to play in any possible recovery, the CBN should have exhausted all     options before taking the drastic action to bar over half of our commercial banks from the foreign exchange market at once. It became counter-productive. Eight banks in search of $1.77bn to remit immediately drove up the exchange rate to more than N500/US$1. Who can benefit from that?

UBA should not even have been included in the list. The bank’s protest and its immediate return to the forex market pointed to a hasty decision. Secondly, the CBN had just recently taken steps to save Skye Bank from imminent crisis. The bank needs all the restoration of public confidence it can get. Banishing it publicly from the foreign exchange market would deepen its woes and create collateral damage in the inter-bank market.

Granted, the banks failed to remit about $1.77bn NNPC’s funds to the Treasury Single Account (TSA) when instructed to do so. But, the TSA introduction was a sudden policy change, which caught all the banks unawares. The immediate withdrawal ordered was simply not totally feasible given the scarcity of dollars which had characterised the Nigerian economy since 2015.

Until the new government came into office, Ministries, Departments and Agencies of governments kept large funds in various accounts for use when needed. Seldom would any organ of government request for all its funds at once. That was the old normal. With TSA, the Federal Government requested for all the deposits at once. That is the new normal. But, most financial experts are of the view that the Federal Government failed to provide sufficient notice to the banks. That was the cause of the problem.

Now that a more realistic settlement has been reached, the nation can quickly forget this interruption in our march to recovery. However, it needs to be stressed that, more than ever, caution is needed in imposing sanctions on banks during recession. We must do everything legitimate to support them.