18 February 2016, Lagos — A review of the latest returns on utilisation of foreign exchange bought by 14 commercial banks from the Central Bank of Nigeria, CBN, has shown that First Bank of Nigeria Limited (FirstBank) with a total of $25,701,921.17 reported the highest amount of forex purchased from the apex bank on behalf of its customers.
Forex consumption is a function of the volume of business a bank does, particularly with the larger corporate and manufacturing firms that utilise it for transactions.
The allocations ranged from fuel, machinery and pharmaceuticals imports, all the way down to invisible dominated divestment by foreign investors exiting the Nigerian equities and bond markets, and Forex allocations to school fees.
For the second time, school fees accounted for the highest number of allocations across several of the banks, but not in value, reflecting the lack of confidence Nigerian parents in high and upper middle-income brackets have in the country’s education sector.
Education standards in Nigeria in the last one-and-a-half decades have fallen precipitously, forcing many Nigerian parents that can afford it to send their children overseas to study.
The situation in the education sector has been made worse by the absence of a political will by successive administrations to holistically fashion out a plan to reform the education sector, effectively rendering 90 per cent of Nigerian secondary school leavers and university graduates uncompetitive relative to their peers in other parts of the world.
FirstBank was followed by Zenith Bank Plc and Stanbic IBTC Limited with $23,811,329.77 and $20,618,105.09 respectively.
Standard Chartered Bank with total returns of $17,795,338.87 came in fourth, while Diamond Bank Plc reported returns of $17,691,840.54.
Guaranty Trust Bank Plc (GTBank) reported returns of $15,828,891.14 to occupy the sixth place, while Ecobank Nigeria Limited reported returns of $14,684,365.28.
Also, while Union Bank of Nigeria Plc reported returns of $12,550,289.46; Access Bank Plc published returns of $11,994,742.86; Citibank Nigeria Limited – $9,238,688.09; Fidelity Bank Plc – $7,447,530.26; and United Bank for Africa Plc (UBA) Plc – $6,711,545.29. Others included Sterling Bank Plc with total returns of $4,792,887.67 and Keystone Bank Limited which also reported returns of $3,732,629.81.
For the first time, three merchant banks also published their returns on utilisation of funds. They were Coronation Merchant Bank Limited – $4,838,429.62; FSDH Merchant Bank Limited – $3,701,840.84; and Rand Merchant Bank Limited which reported total returns of $2,225,002.42.
Just like the previous week, divestment by foreign portfolio investors from the equities and bond markets accounted for the largest chunk of forex, in terms of value of allocations to bank customers.
But in terms of volume, the purchase of foreign exchange for other invisibles such as school fees, business travel allowance (BTA) and personal travel allowance (PTA), was the highest.
However, top bank officials explained to THISDAY that the returns were not in any way reflective of total demand by the banks on behalf of their customers.
A bank CEO, who preferred not to be named, said: “On average, our returns or allocations are just about 10 per cent of total demand, which means that the CBN is unable to meet forex demand on the official market.
“It is for this reason there is so much pressure on the parallel market, where businesses that are unable to get their forex requirements met through the official window turn to.
“It also means that the parallel market mirrors the true value of the naira, so the best solution to the widening gap between the interbank and parallel market rates is for the central bank to devalue.”
For FirstBank, the returns on utilisation of forex bought from the CBN showed that the bank sold $25,701,921.17 it was allocated to 73 corporate customers. Of this, 38 per cent (approximately $10 million) was sold to Dangote Cement Plc for power plant equipment, Congo Cement and spare parts for cement plant machinery.
Forex sales to FirstBank customers also showed a diverse allocation to various sectors of the economy such as raw materials (propylene), agro-veterinary and livestock products, steel, industrial machine parts and accessory, and materials for pharmaceutical products. But it sold a total of $3,573,380.80 to 785 customers for the payment of school fees.
Also, Zenith Bank returns showed that the bank sold a total of $23,811,329.77 to 337 customers. The distribution of forex purchased by Zenith Bank customers showed that a large portion was allocated to the payment of school fees as 272 customers bought dollars from the bank for this purpose.
But some customers were sold dollars for the importation of industrial raw materials and machine tools, among others.
Just like the previous week, Stanbic IBTC returns reflected a large number of divestments by foreign portfolio investors comprising BP2S Milan/BNP Paribas, CACEIS Bank, Luxembourg, Brown Brothers Harriman/Stanbic Nominees, HSBC Funds Services London, JPM (JP Morgan) London, JPM Securities, Northern Trust London, State Street/Stanbic Nominees, Credit Suisse International, and the Bank of New York.
It also sold dollars for the importation of Dano Full Cream powder, polypropylene and industrial raw materials.
For Standard Chartered Bank Nigeria Limited, of the 189 customers it sold dollars to, 127 of them purchased the greenback for invisible items. A breakdown of this further showed that while 100 procured dollars for school fees, while 27 customers bought PTA. Like other banks, it also sold dollars for the importation of visible items such as electronic materials, petroleum products and industrial spare parts, among others.
Purchase of forex for payments of tuition fees abroad also featured prominently in Diamond Bank’s returns, even though the bank also sold forex to customers for the importation of other visible items such as chemicals, plants and machinery.
For GTBank, of the 303 customers it sold dollars to, 269 (89 per cent), was for the payment of school fees. In addition, 34 corporate customers bought forex from the bank for the importation of plant, machinery and raw materials, among others.
Similarly, Ecobank Nigeria’s forex sales showed that of the 177 customers that bought the greenback from the bank, 119 individuals bought for tuition fees, while 58 corporate customers bought forex to import visible items.
However, unlike most of its peers, a large chunk of dollars sold by Union Bank was for the importation of industrial raw materials and other visible items. Only 10 of the 53 individuals/firms that Union Bank sold forex to was for payment of school fees.
For Access Bank, the bank sold mostly to customers that needed school fees and PTA. Of the 149 customers (124 customers for February 15 and 25 customers for February 16), 114 customers bought forex from the bank for invisible items.
On the other hand, Citibank’s utilisation of forex showed divestments by foreign portfolio investors through NIB Nominees/RBC: Longbow Securities Limited. It also sold to major multinationals such as Nigerian Breweries, Nestle Nigeria, Honda Automobile and Fine Chemicals, etc. Citibank did not sell to any individual customer.
For Fidelity Bank, it sold dollars to 106 customers, of which 75 customers bought forex for school fees.
Commenting on the returns published by the banks, analysts at CSL Stockbrokers Limited said the whole world can now see how much wealthy Nigerians are spending on school fees overseas.
They said: “The implication is that banks now know each others’ forex clients. Importers know how much foreign exchange their competitors have obtained at the interbank rate of 199.3/US$, as opposed to the parallel rate of N350.0/US$1. And wealthy Nigerians can check out how much money their peers are spending on foreign school fees.”
CBN’s Director, Corporate Communications, Mr. Ibrahim Muazu, explained last week that the publications were meant to improve transparency in the allocation of forex to the banks.
According to him, banks would be publishing their returns almost weekly.
Meanwhile, there appeared to be no end in sight to the free fall of the naira on the parallel market, where it fell further to N370 to a dollar yesterday, from the N350 at which it sold on Tuesday as there was no let up on panic buying by users.
It was gathered that some black market currency dealers even resorted to hoarding dollars in anticipation that it would depreciate further in the coming days.
Currency dealers at Marina, Lagos Island and the Murtala Muhammad Airport, Lagos, who confirmed this to THISDAY, said the demand pressure on the parallel market continued to rise.
Concerns over the likelihood of a ban by the central bank on the allocation of forex for the payment of school fees abroad had triggered the increased demand observed in the market.
The Bankers’ Committee last week discussed ways of ensuring that forex demand for school fees, among other invisibles, does not crowd out real sector demand.
The discussions also centred on how to redirect foreign exchange to the real sector, particularly industries that utilise raw materials. Speaking on the phone with THISDAY wednesday, a senior lecturer of economics at the Lagos Business School (LBS), Dr. Bongo Adi, advised the CBN to come out with a policy that would help halt the slide of the naira.
“This is exactly what would continue until government decides what should be done. Government has avoided the hard choice on devaluation, so the parallel market is actually giving you the actual price of the naira.
“What we are seeing shows that there is a mismatch between supply and demand of forex in the market. Unfortunately, Nigeria is not attracting enough forex to meet the huge dollar demand in the economy,” Adi said.
The economist also held the view that JP Morgan may have anticipated the current exchange rate situation in the country, leading to Nigeria’s exclusion from its emerging markets bond index.
On his part, the Head of Research at Afrinvest, Mr. Ayodeji Ebo, said the naira may plummet further against the dollar if there was no policy pronouncement from the central bank.
“If you have a forex policy and you feel it is not having the desired impact, I think you need to do something to address the situation. If we continue like this, most of the companies government is looking up to, to drive local consumption, may even collapse and unemployment would increase.
“Inflation is expected to rise as most importers are already purchasing dollars from the parallel market and this would definitely be factored into the cost of goods and services,” Ebo added.
Nigeria gets about 90 per cent of its forex earnings from crude oil exports.
*Obinna Chima – Thisday