FirstBank, Zenith, UBA, GTB okay as FX dealers

As banks begin to settle into the dynamics of the flexible foreign exchange regime, which will take effect from Monday, the Central Bank of Nigeria, CBN, is set to name the lead players in the foreign exchange market today.

The lead players would be known as Foreign Exchange Primary Dealers, FXPD.
Though CBN’s guidelines indicated that about eight or 10 banks would be registered as FXPD, Vanguard investigations showed that only about four banks are fully qualified, considering their audited financial positions as at end of 2015 and first quarter of 2016.

The apex bank would consider shareholders funds, liquidity ratios and volume of foreign currency assets of banks in arriving at top 10 that would be registered as FXPDs. Additional requirements may include capital adequacy ratios and historical volume of bids recorded in the CBN weekly forex market regime due to be phased out today.

FirstBank, Zenith, UBA, GTB qualify for FXPD

The four banks that have fully met the criteria are FirstBank of Nigeria Limited, Zenith Bank Plc, United Bank for Africa Plc and Guaranty Trust Bank Plc.
Further analysis of the top 10 banks in the country, going by CBN’s criteria, shows that about four others may have also qualified with additional four close to meeting the benchmark.

The banks are Access Bank Plc, Diamond Bank Plc, FCMB Plc, Fidelity Bank Plc, which have some of the key requirements as at end of 2015 and are expected to have qualified by the first quarter of 2016.

Access Bank, GTB, FirstBank, Zenith and UBA have been leading in volume of bids and allocation of foreign exchange from the CBN weekly foreign exchange trading since last year.

Industry observers believe that other banks expected to jostle for the ninth and tenth positions should CBN decide to move up the list, include Stanbic IBTC Bank Plc, Skye Bank Plc and Sterling Bank Plc, but their financial positions could not be ascertained due to non-availability of their financial reports as at end of 2015 and first quarter of 2016.

Also, Ecobank Nigeria is expected to make the top 10 but their financial reports were US dollar denominated and could not be immediately translated into Naira due to the transitional exchange rate as at today.

While announcing the new foreign exchange regime two days ago, CBN had indicated a two-level trading structure where the apex bank would deal on wholesale basis with some banks that would in turn transact with other banks to be known as non-primary dealers, and other dealers at lower retail volume.

In this connection CBN stated: “To improve the dynamics of the market, the apex bank will introduce Foreign Exchange Primary Dealers (FXPD), who would be registered with the CBN to deal directly with the apex bank for large trade sizes on a two-way quotes basis

“These primary dealers shall operate with other dealers in the inter-bank market, among other obligations that will be stipulated in the Foreign Exchange Primary Dealers (FXPD) Guidelines.

“There will be no predetermined spread on foreign exchange spot transactions executed through the CBN intervention with primary dealers, while all foreign exchange spot purchased by the authorized dealers are transferable in the inter-bank foreign exchange market.”

CBN meets banks’ treasurers
Also, the CBN will today meet banks’ treasurers to clarify issues relating to the operations of the flexible exchange rate regime.

A CBN source told Vanguard: “We are going to meet with bank treasurers in Lagos tomorrow (today) to discuss operations of the new system. The meeting is to provide further explanations on how the new system will operate and also respond to questions and concerns over the guidelines released yesterday.”

In the same vein, Vanguard learned that the Financial Market Dealers Quote, FMDQ, met with foreign exchange dealers of banks, yesterday.
A source with knowledge of the meeting told Vanguard on condition of anonymity that the meeting was to discuss parameters for interbank trading in the new foreign exchange regime commencing Monday.

The source said: “The meeting was to agree or to determine the spread between the offer and bid rates as well as the standard volume of trade. The standard volume of trade is the volume of dollars, whether $100,000 or $200,000, banks will bid and offer to trade among each other.

“This will be determined by the total volume of dollars in the system. At the commencement of the new system on Monday, dollars in the system will be determined by how much the CBN sells to the Primary Foreign Exchange Dealers (FXPDs).”

Ecobank projects N280-N320/$ interbank rate
Analysts at Ecobank have projected that the Naira will depreciate to between N280 to N320 per dollar in the interbank market in the short term.

In a comment on the new foreign exchange regime, they stated: “While the CBN did not announce any exchange rate, it is our opinion that a new exchange rate will emerge from the interbank exchange market, which will likely be above the current rate of $1:N197, at which the CBN has been selling dollars to banks.

“We think this rate is initially likely to be around $1:N285-320 as pent-up demand for dollar is released onto the market. Over time, the move is likely to increase the supply of US$ liquidity to the interbank market as remitters and exporters are likely to be more willing to sell dollars at the interbank rate.

“Similarly, we believe that investors, who have been sitting on the sidelines for fear of not being able to get dollar out of the economy, will now be more willing to commit. Overall, this greater flexibility will be positive for the economy as it will improve access to foreign exchange (albeit it at a higher rate) for firms which have been struggling to buy hard currency.

“The inflationary impact, we believe, will be fairly limited because many importers who were accessing dollars were already doing so on the inefficient parallel market.”

It’s good for manufacturers —CardinalStone Partners

Irrespective of the exchange rate, financial analysts at CardinalStone Partners, a Lagos-based investment house, said the take-off of the long-awaited flexible foreign exchange regime is a positive development as it will improve accessibility and supply of forex.

According to them, “local manufacturers will be able to source forex to purchase the requisite inputs and this will have a corresponding positive impact on economic growth, particularly the industrial sector.

“Secondly, this move will attract capital inflows as foreign investors, who were on the sidelines, will return to the market. We are also likely to see a return to the JPMorgan and Barclays Bank Government Bond Indices.”

Stock market continues rally with N206bn gain

The Nigeria stock market, yesterday, maintained its upward trend as total value of listed shares rose by N206 billion, indicating continued positive reaction by investors to the adoption of flexible exchange rate policy by the CBN.

Economists and investment bankers had said the market would continue to rally in the days ahead as local investors take position ahead of return of foreign portfolio investors.

Nigerian Stock Exchange, NSE, benchmark indicator, the All Share Index, ASI, rose 2.2 per cent to 28,489.89 points from 27,891.96 points, on Wednesday, while the second key performance indicator, the market capitalisation (or total value) of listed equities rose by N206 billion to close at N9.78 trillion from N9.6 trillion the previous day, also representing 2.2 per cent increase.

The rally, yesterday, cut across all sectors in the market with the exception of Alternative Securities Market (AseM) that fell by 0.2 per cent. The banking sector recorded the highest increase of 7.3 per cent to finish at 295.34 points on the back of gains on the shares of mid cap banking stocks like Unity Bank Plc and Wema Bank Plc, as well as 5.58 per cent gains on the shares of Zenith International Bank Plc.

The consumer goods sector followed, rallying 2.8 per cent as a result of appreciation on the shares of brewery gaint – Nigerian Breweries Plc and Champion Breweries Plc, while industrial sector rose 2.1 per cent to settle at 2,040.95 points. The NSE 30 Index was up 2.2 per cent to 1,265.73 points from 1,238.02 basis points.

The insurance sector recorded 1.6 per cent increase propelled by surge in Mansard, Custodian and Allied Insurance and Continental Reinsurance, which rose by five per cent, 4.86 per cent and 4.59 per cent in that order.

For every two gainers in the day, there was a loser. Champion Breweries Plc led the advancers with 9.87 per cent increase to close at N3.34, followed by Unity Bank Plc with 8.33 per cent gains to close at N1.17. Lafarge WAPCO appreciated by 7.29 per cent to close at N74.01; Wema Bank rose 6.33 per cent to close at N0.84, while NB closed as the last on top five gainers table with 5.99 per cent increase to close at N141.76 per share.

Market breath also closed higher with volume traded stood at 618.25 million shares valued at N5.41 billion in 6,757 deals.

IMF welcomes new forex regime

Meanwhile, The International Monetary Fund, IMF, yesterday, welcomed the decision by the CBN to abandon its currency peg and adopt a flexible exchange rate policy, saying this was important to reduce fiscal and external imbalances.

According to Reuters, IMF spokesman, Gerry Rice, told a weekly news briefing the Fund wanted to see how effectively the Naira exchange market functions once the new float system is put into effect on Monday.

Reuters also indicated that CBN governor, in a letter to President Muhammadu Buhari, said the apex bank expected the Naira to settle at around N250 to the dollar, as against the peg of N197 to the dollar it had held for 16 months now.

“I think the announcement yesterday (Wednesday) to revise the guidelines for the operation of the Nigerian interbank foreign exchange market is an important and welcome step,” Rice told reporters.

“It will provide greater flexibility in that market, the foreign exchange market,” Reuters quoted IMF.
Senior IMF officials, including Managing Director, Christine Lagarde, have urged Nigerian officials to allow the Naira to fall to absorb some of the shock to the economy from a plunge in oil prices and revenues. OPEC member, Nigeria, is a major oil producer. IMF officials have said that Nigeria had not requested IMF financial assistance, but had been in consultation with the Fund on dealing with budget shortfalls.

Rice said: “As we have said before, a significant macroeconomic adjustment that Nigeria urgently needs to eliminate existing imbalances and support the competitiveness of the economy is best achieved through a credible package of policies involving fiscal discipline, monetary tightening, a flexible exchange rate regime and structural reform. Allowing the exchange rate to better reflect market forces is an integral part of that.”

Vanguard

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