UBA, Zenith, Access, Others Finally Cut Rate on Forex Deposit as Dollar Improves
- Banks are beginning to reduce interest rates on foreign currency (FX) deposits as the dollar supply increases
- This action contributes to a decline in foreign deposit currency rates and indicates that banks now have enough FX
- As financial firms adjust to shifting market conditions and changes in apex bank policy, the transition takes place
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As the dollar supply improves, banks are starting to lower their interest rates on foreign currency (FX) deposits.
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During an executive roundtable organized by PwC and BusinessDay on Thursday, Olusegun Alebiosu, the CEO of First Bank of Nigeria, disclosed that the Central Bank of Nigeria (CBN) restored certain foreign exchange swaps to certain banks in January 2025.
“This move signals that banks now have sufficient FX to return to customers, contributing to a drop in foreign deposit currency rates,” he said.
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A senior bank executive confirmed this to BusinessDay at another Tier-1 bank, who also mentioned that FX supplies have improved among banks, relieving economic strain.
BTA, PTA sales resume
Following past difficulties linked to supply constraints, certain banks have started offering their clients Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) again, indicating the availability of foreign exchange.
The transformation occurs as financial firms adapt to changing market dynamics and shifts in apex bank policy.
Agusto Consulting's head of financial institution ratings, Ayokunle Olubunmi, provided an analysis of the foreign exchange market dynamics.
He clarified that clients had little reason to contact banks for PTA when the difference between official and parallel market rates was minimal. According to him, there were times when people preferred parallel market pricing because the official market rate was higher.
Olubunmi pointed out that more Nigerians are increasingly requesting PTA and BTA directly from banks due to the growing distinction between these rates.
The modification aligns with the CBN's policy changes from the previous year, which were made to stabilize the foreign exchange market.
A shift toward market-determined rates was evident in early 2024 when the CBN instructed International Money Transfer Operators (IMTOs) to provide exchange rates for Naira payouts based on current market pricing.
The CBN abolished limitations on interbank foreign currency transaction spreads and interbank proceeds sales limits in February 2024.
Additionally, it required that PTA and BTA payouts only be delivered via electronic channels, which Afrinvest Securities Limited analysts thought would lessen the likelihood of foreign exchange round-tripping in this market.
The apex bank said earlier said it has authorised the publication of the Nigerian Foreign Exchange (FX) Code and will formally launch it on January 28, 2025, to expedite this process.
The banking sector adheres to the FX code to encourage the moral behaviour of authorized dealers in the Nigerian Foreign Exchange Market (NFEM).
Speaking on the development, Samuel Oyekanmi, a macroeconomic analyst said the recent action of the CBN restores some level of confidence in the Nigerian FX system for foreign investors.
He added,
"It also sends a signal of FX liquidity in the economy, hence reducing the pressure on the exchange rate both at the official and parallel FX market."
CBN issues instructions to banks
Legit.ng earlier reported that the Central Bank of Nigeria (CBN) issued guidelines for implementing the free foreign exchange deposit window announced by the federal government.
The FG's exchange window, which kicked off on October 31, 2024, provides a nine-month amnesty for Nigerians with foreign currencies at home to disclose and deposit the same in banks without paying taxes or penalties.
In a circular with reference number FPR/DIR/PUB/CIR002/013 to banks dated November 5, 2024, the CBN clearly stated the dos and don'ts of the scheme.
Proofreading by James, Ojo Adakole, journalist and copy editor at Legit.ng.
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