A Review of the Nigerian Energy Industry

Naira rebounds, as CBN moves to block illicit financial flows

Central Bank of Nigeria.
Central Bank of Nigeria.

*Banks set to publish names of chronic debtors this week

04 August 2015, Lagos – The Central Bank of Nigeria (CBN) yesterday vowed to increase its vigilance to ensure that Nigerian banks are not used as conduits for illicit fund flows, especially in foreign currencies.

The CBN’s move came as money deposit banks are set to publish list of chronic debtors this week following the expiration of the apex bank’s three-month deadline for the chronic debtors to meet their obligations or be exposed to the public.

The apex bank’s new posture is part of the efforts that have helped shore up the value of the naira as reflected in the dollar exchanging for N210 at the weekend from the previous exchange rate of N245 a few days ago.

The CBN’s latest move was in reaction to a recent report by the Global Financial Integrity Group, which ranks Nigeria as one of the 10 largest countries for illicit financial flows in the world.

The CBN quoted the report as saying that the illicit fund put at $15.7 billion was going through Nigeria’s financial system annually, although it said it did not have an independent confirmation of the report.

A statement signed by the bank’s Director, Corporate Communications, Alhaji Ibrahim Mu’azu, on Saturday said: “The Central Bank of Nigeria (CBN) notes with concern a recent report by the Global Financial Integrity Group, which ranks Nigeria as one of the 10 largest countries for illicit financial flows in the world. Although we do not have an independent confirmation of this assertion, the report estimates that about US$15.7 billion of illicit funds go through our system annually.

“In the light of this avoidably negative commentary, we wish to draw the public’s attention to several protocols on illicit fund flows, money laundering, and terrorism financing both in Nigeria and around the world, and warn that the CBN will increase its vigilance to ensure that Nigerian banks are not used as conduits for illicit fund flows, especially in foreign currencies.”

The CBN commended deposit money banks in the country for curtailing the acceptance of foreign currency cash deposits without proper documentation. It assure all genuine foreign currency users of access to forex, saying. “We wish to assure all citizens seeking foreign currencies for legitimate personal and/or business interests that there remains ample opportunity to do so within the law. The CBN’s Foreign Exchange Rules have many windows for accessing foreign exchange for legitimate business as well as for personal commitments including payment of medical bills, school fees, mortgages, demand notes and other bills.

“Also, Bureaux de Change (BDC) services to small-scale users remain valid as long as this is to meet genuine needs, and BDCs’ documentations to the CBN include the customer’s Bank Verification Number (BVN).”

The statement expressed the readiness of the CBN to continue to support the Federal Government’s fight against money laundering, corruption, and terrorism financing, saying it will block any and every avenue that may be used for these purposes.

The CBN wish called for the cooperation of all Nigerians, said: “We will also ensure that persons who venture into currency speculation and currency substitution find it unattractive and dangerous.”

Meanwhile, industry operators including bank chiefs and financial analysts pointed out that one of the implications of banks rejecting the deposits is that since safe-keeping of such cash at the banks are limited, the need to obtain the currency will also reduce. It was argued that the potential lower demand for dollar will also reduce the pressure on the foreign reserves used to fill the demand and by extension prevent the dollarisation of the economy.

According to the Managing Director, Wema Bank Plc, Mr. Segun Oloketuyi, banks were compelled to be cautious in their relationship with customers on foreign exchange given the fact that the vaults of most of the banks are awash with dollars these days.

He explained that the situation has come to a point whereby banks have to deal with their customers on a case by case basis. The loss of appetite for dollars deposit, he said was largely caused by the fact that the pressure on banks which used to compel them to go cap in hand to fellow banks for dollars is no longer there.

“What has happened in the past was what we called cash swap. Some banks had to borrow to pay those who want to withdraw dollars. Some have excess, some don’t have enough. So we do swap among each other, but in a regime where everybody literally has cash sitting in the vaults, the opportunity for such swap doesn’t arise,” he explained. He pointed out that banks are currently under pressure by some categories of customers, especially importers of some goods currently exempted from sourcing dollars at the official market because the door has been shut against them. According to him, these people are mounting pressures on banks to keep their idle dollars. He said: “People also go to the market because goods have been banned and it is pretty difficult to get things from the official market, so what they do is to change their money into dollars, dump them in the vaults of banks and immediately they say, I have put this money in my domiciliary account, help me wire it or send money to UK or to US. Now the money is sitting in your own vaults here, you are not able to pick that money and get them into your offshore account. If you don’t have much money in your offshore accounts, how will you be able to fund your account to be able to meet those kinds of demand?”

On how banks are responding to the pressure, Oloketuyi said operators are looking at the situation on a case to case basis. He said, “For instance, if a customer come and open a domiciliary account with me few days ago and come today and dump $200 million in the account, and tomorrow he does the same, and then come two days after and tell me to move the money, then I will know that he is trying to achieve something, using the vehicle of the bank. If I see a pattern of behavior from a customer that doesn’t look reasonable, I may say sorry, I don’t want it because it is going to create service problem. It creates problems for the bank because if I don’t have enough in my offshore account to meet the demand, why do I want to offer that service to you. There is still a lot of instability in the foreign exchange market.”

In his submission, Head of Strategy, BGL, Olufemi Ademola, noted that the high level of speculation on the currency was putting a serious demand pressure of naira and hence the increasing gap between the interbank and the parallel market. He said, by rejecting dollar deposits, the security risk of keeping foreign exchange in cash at home will reduce the demand for the currency and also the rates; thus reducing the spread between interbank and parallel market rates.

“For speculators, the banks’ policy will limit the value of currency that they can acquire because of the higher risk of safe-keeping. This will arguably limit their activities with potential for an appreciation of the naira against the dollar,” saying this may result in losses for speculators.

He believed that money launderers, who operate through the banks by making phony payments abroad could be significantly affected by this policy.

However, all is set for the publication of lists of chronic debtors by the money deposit banks this week following the expiration of the three-month deadline set by the Central Bank of Nigeria at the weekend.

Confirming the position of bank chiefs, Oloketuyi said Wema will publish the names of the affected debtors this week, a development which will be replicated in some of the other banks in the week. Industry sources said some of the affected debtors including individuals and corporate organisations were in last-minute negotiations with banks to escape the name and shame measure ordered by the apex bank.

But opposition to the publication of the list continued at weekend with the Lagos Chambers of Commerce and Industry (LCCI) restating its reservations for what it described as a betrayal of customers’ trust by the banks.

Director-General, Lagos Chamber of Commerce and Industry, (LCCI), Mr. Muda Yusuf, in an interview with THISDAY yesterday said the chamber was not happy at the blanket treatment about to be given banks’ debtors.

He picked holes in a directive that seems to have lumped all categories of debtors together saying, “We still stand by our position on the publication of banks’ debtors’ list. We have stressed the need to distinguish between those who have criminal intentions and those whose businesses genuinely have failed and so they are having challenges in paying the debts. We feel that for genuine entrepreneurs, it will not be fair to be publishing their names. We expect that banks should have ideally, followed due process, in granting loans so that if there is any default, they should take the next necessary steps by foreclosing on whatever collaterals that might be involved. That we think is the best practice but they have decided to do what they said they want to do. We have explained our own view but they have decided to have their way.”
*Festus Akanbi – Thisday

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