CBN Pays 14 Banks’ FX Backlog in Bold Move to Strengthen the Naira, Set to Pay Foreign Airlines

• The Central Bank of Nigeria (CBN) said it has paid 14 banks all the forex forward backlog owed them
• The bank also stated that it had begun paying foreign airlines after a recent $61 million settlement
• The development came as the naira continued to depreciate against the US dollar in the parallel and official markets

Pascal Oparada has over a decade of experience covering Tech, Energy, Stocks, Investments, and Economy.

The Central Bank of Nigeria (CBN) has cleared the entire foreign exchange forwards liability of 14 banks.

According to reports, a CBN official disclosed Wednesday that settlements with foreign airlines have also begun.

Nigeria owes foreign airlines, others about $7 billion in backlog

Nigeria has about $7 billion in mature FX forwards. This is a significant worry for investors as foreign currency shortages continue to cause the naira to depreciate despite assurances by the apex bank to clear the backlogs.

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Reuters reports that about $2 billion of the backlog across sectors such as manufacturing, aviation, and petroleum has been settled, per a statement from Acting CBN spokesman Hakama Sidi Ali.

She said an independent forensic review of the backlog authorized by CBN revealed serious infractions, abuse, and significant non-compliance with the market regulations.

Ali said the CBN will enforce appropriate sanctions against offenders in partnership with relevant security agencies.

The financial institutions regulator said it is committed to cleaning up the financial services industry to enhance market confidence.

ABCON says $2 billion not enough to stimulate economy

The development comes as the Chairman of the Association of Bureau de Change Operators of Nigeria (ABCON), Aminu Gwadabe, said that the $2 billion paid by the CBN is insufficient to rejuvenate the naira.

Legit.ng reported that the ABCON boss said Nigerians are resorting to hoarding foreign currencies, which causes a drop in the value of the naira.

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According to Gwadabe, the $2 billion will be exhausted in a few days, and the naira will continue to tumble against the dollar.

Analysts have said there is about $7 billion outstanding backlog to be paid by the CBN to strengthen the Nigerian currency.

Analysts optimistic despite naira's fall

Banker and financial analyst Chukwudi Iheme predicted that the naira will rebound sooner than later if the CBN continues to offset the backlog.

“There is a chance that things will improve. There is an honest commitment by the CBN and the federal government to enhance the value of the naira.”

“What we are seeing is just the beginning, and we believe that with this action, the naira will recover against the US dollar.”

Despite the development, the Nigerian currency fell against the US dollar on Wednesday, January 17, 2024, trading N931.13 to a dollar in the official market.

The naira also experienced its worst performance in the parallel market, where it traded for N1,300 to a dollar, leaving many worried about the effect of the $2 billion injected into the economy.

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CBN issues strong warning to Forex defaulters as it clears backlogs in 14 banks, others

Despite cash scarcity, CBN says currency in circulation is N3.35 trillion

Legit.ng reported that data from the Central Bank of Nigeria (CBN) says the currency in circulation has spiked by 21.37% in less than three months despite the liquidity squeeze plaguing Nigerian banks.

The CBN data showed that currency in circulation increased to N3.35 trillion in November 2023, compared to N2.76 trillion recorded in September 2023, when the new Governor of the CBN, Yemi Cardoso, assumed office.

The report revealed that cash outside banks rose by 27.80% to N3.08 trillion in November 2023 from N2.41 trillion in September 2023.

Source: Legit.ng