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Net Open Operation: Reps Uncovers Five Banks Withholding $5bn Forex

Published

11 months ago

Feb 8, 2024.

Eko Hot Blog reports that the House of Representatives on Wednesday uncovered five banks withholding five billion dollars in forex.

Worried by the instability in the foreign exchange market in the country, the House mandated the joint Committees on Banking Regulations and Banking Institutions to conduct an investigative hearing into the non-compliance by banks and financial institutions with CBN directives on the Net Open Position Limits.

The resolution was passed following the adoption of a motion on a Matter of Urgent National Importance regarding the need for banks to implement CBN’s policies on holding excess long foreign exchange and net open position limits, sponsored by Chairman of the House Committee on Defence, Hon. Babajimi Benson.

House Of Representatives

In his lead debate, Hon. Benson, who observed that the apex bank is tasked with regulating the monetary policies of the country as provided for by the CBN Act, frowned upon the blatant disregard for extant financial regulations.

According to him, “Records show that GTB, Zenith Bank, UBA, and First Bank have a cumulative excess holding of over $5 billion as of January 2024. The only fully compliant bank is Stanbic IBTC, which has made all FX in its reserve available to their clients.

“t is important to note that these banks often obtain foreign exchange either through purchase, borrowing, or allocation from the CBN at the official rate of N461.5 to a dollar for their various customers but hoard them as part of their bank balances or reserves.

They eventually sell at higher rates to make extra profit.

“It is this speculative practice that has prompted the CBN to issue a fresh directive centered around the Net Open Position (NOP) for all commercial banks. Simply put, the NOP measures the difference between a bank’s foreign currency assets (what it owns) and foreign currency liabilities (what it owes). Investigations have shown that banks hold far more forex than they require, thereby creating artificial scarcity and an increase in the exchange rate.

“The new CBN directive will help limit how much foreign exchange banks can hold and for how long. The aim is to discourage hoarding of forex, thereby making it available for intended users at reasonable rates.

“Despite measures adopted by CBN in the past and based on previous experiences with CBN policies directives, many banks are in default of its implementation. This explains why eight banks currently hold a huge NOP of over $6 billion while there is a biting scarcity. This motion will provide the legislative impetus for the required action to compel them to fully comply with the directive.”

Hon. Benson observed that Section 8 (4) and (5) of the CBN Act require that the CBN Governor is expected to brief the relevant Committees of the National Assembly during the semi-annual hearings as well as provide periodic reports on the performance of the economy to the National Assembly.

While frowning upon the non-compliance to the extant law, Hon. Benson lamented that: “there has been a steady rise in the rate of the dollar in comparison to the naira. It rose to N1,520 to the dollar last week.

Speaker Tajudeen Abass

“The House is also concerned that this astronomical rise has been caused by diverse market forces and certain economic policies adopted by the government, including the liberalization of the dollar.

“The House is further concerned, however, that commercial banks and certain financial institutions in Nigeria usually hold back a large part of forex they obtain either through purchase, borrowing, or allocation from the CBN rather than lending to their customers with a view to selling it when the exchange rate is high

“The House is worried that this speculative activity by commercial banks and certain financial institutions has further exacerbated the harsh economic situation in the country and led to difficulty by legitimate businesses to obtain forex for their business transactions.

“The House is aware that the CBN has intervened by introducing new monetary policies to check the rise in the rate of the dollar, among which are the Net Open Position Limits and holding excess long foreign exchange.

“The House is also aware that commercial banks and certain financial institutions are reluctant to implement the monetary measures put in place by the apex bank to check these unwholesome practices by banks and other financial institutions in the country.

“The House is concerned that unless drastic legislative measures are taken to enforce the implementation of these directives, the country will continue to experience dire economic hardship as a result of the continuous rise in foreign exchange rates,” he warned.

To this end, the House mandated its Committee on Legislative Compliance to ensure full implementation.

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