Wed | Aug 23, 2017

Nigeria central bank bans 9 local banks from trading forex

Published:Friday | August 26, 2016 | 8:00 AM

Nigeria's central bank has banned nine local banks from trading in foreign exchange, accusing them of withholding US$2.1 billion in government funds and "round-tripping" to profit from a devalued naira currency.

The central bank on Tuesday said it would punish banks accused of withholding the money belonging to the state oil company that was to be paid into a single account last year. That effort to fight corruption has deprived most banks of funds.

Tuesday's move will further pressure banks that already have laid off hundreds of workers.

Nigeria's oil- and import-dependent economy is in recession because of low petroleum prices, attacks by oil militants and foreign currency shortages. Inflation is running at 16 per cent, and the naira is trading at an official floating rate of 303 to the dollar but 400 on the parallel market.

"Round-tripping" involves buying dollars from the central bank at the official rate and selling at the higher rate.

One affected bank, First City Monument Bank, on Wednesday blamed "the dire macroeconomic situation and illiquidity in the FX (foreign exchange) markets" rather than "concealment or wilful non-compliance."

Remembering 2009 banking fraud

The central bank earlier this month fired the management of another affected bank, Skye Bank, then hastened to tell depositors that Nigerian banks are not in distress. But many Nigerians are remembering the massive 2009 banking fraud scandal in which senior executives were removed from five of the largest banks and the government pumped in US$2.6 billion to stabilise the sector.

SBM Intelligence risk analysis noted this week that banks also are suffering from increased unpaid loans and overexposure to the embattled oil and gas industry.

"While some banks have shored up their results vigorously trading in FX due to the opportunities created by the current monetary policy, this is not a sustainable situation," it warned.

- AP