Banks Run Out Of Cash As CBN Harmonizes Exchange Rate

By Uche Mbah

Banks are currently under liquidity squeeze due to the ongoing attempt by the Central bank of Nigeria to harmonize exchange rates in the country, resulting in many bureaus de Change companies making a run for cash.

Interbank rates jumped overnight across-board in the banking sector due to high demands for foreign exchange and debit for cash reserve requirements.

The interbank borrowing rate jumped from 19.9 percent to 23.5 percent. Over N122 billion has been withdrawn from the CBN cash reserve for the payment for foreign exchange, and the initial N157.23 billion sank into the system to pay back mature open market operations was not enough to help absorb the shock.

The ripple effect will be too noticeable within a few days as banks grapple with funding of the demands of foreign exchange, particularly as schools are beginning to open overseas. School fees payment is a major source of demand for foreign exchange.

Analysts believe that the recent move to devalue the Naira was preparatory to forex harmonization, which is believed to be a drain on the economy. At the final count, the country operates at least three major concurrent foreign exchange regime, the parallel market, and the official rate. The official window is further jeopardized in that some presidency big wigs are alleged to still buy foreign exchange at about N200 per dollar, and these are allegedly huge buyers. “It is strange that the CBN allows this, and allegedly tacitly approve this multiple regimes”, said a money market source.

Last March, BDC owners are told to adjust their prices to N380 to the dollar. Currently, the prevailing price hovers at N388 per dollar.

It is believed that the latest CBN move has caused the cash to run on banks. The divestment of portfolio investors due to the collapse of oil prices in the wake of COVID 19 has resulted in a sharp increase in disparities between exchange rates.