CBN clears FX backlog with payments to 31 banks, introduces new forex frameworks
By Sodiq Adelakun
In a significant move to address the foreign exchange liquidity issues in Nigeria, the Central Bank of Nigeria (CBN) has completed tranche payments to 31 banks, aiming to clear the longstanding backlog of foreign exchange forward obligations.
This development was announced by the CBN Governor, Yemi Cardoso, during the annual bankers’ dinner held in Lagos.
Cardoso expressed optimism about the recent improvements in the FX market, attributing the positive market response to the strategic payments made to the banks.
He emphasised the rigorous verification process that these payments underwent to ensure that only legitimate transactions were processed.
The CBN’s commitment to stabilising the FX market is evident in its projection that a well-functioning market could see daily trades surpassing the $1.0 billion mark.
The Governor underscored the importance of discipline and a focused commitment to rebuilding the foreign exchange reserves, aspiring to reach levels comparable to those of similar economies.
In addition to clearing the FX backlog, the apex bank has also established new foreign exchange frameworks designed to tackle the FX issues more systematically.
These frameworks are part of a broader strategy to enhance liquidity and ensure the stability of the Nigerian currency in the global market.
The CBN’s actions have been welcomed by stakeholders, who see this as a positive step towards restoring confidence in Nigeria’s financial markets and supporting economic growth.
According to the CBN governor, “We have already witnessed improvements in FX market liquidity in recent weeks, as the market responded positively to tranche payments which have been made to 31 banks to clear the backlog of FX forward obligations.
“We have been subjecting these payments to detailed verification to ensure only valid transactions are honoured. In a properly functioning market, it is reasonable to expect significant FX liquidity, with daily trade potentially exceeding $1.0 billion.
“We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies.”
The value of the Nigerian currency has been steadily declining as the country struggles with foreign exchange illiquidity and the inability to pay down its forex backlog.
Recent remarks by President Bola Tinubu indicate that he intends to pay off the almost $7 billion in outstanding foreign exchange obligations owed to banks.
At the 29th Nigerian Economic Summit in Abuja, Tinubu acknowledged the challenges faced by the corporate sector in the financial markets and pledged additional foreign exchange liquidity.
It was also learned that the CBN has started paying off some of its foreign exchange debts with banks like Citibank, Stanbic IBTC, and Standard Chartered.
This breakthrough is expected to alleviate the foreign exchange backlog, which has been eroding investor trust in the Nigerian economy.
Despite the efforts of the Central Bank of Nigeria (CBN) to address the issue, problems persist in efficiently distributing foreign exchange (FX) and clearing the backlog.
Foreign airlines have revealed that 90 percent of their $783 million trapped funds is yet to be paid.
The Economist Intelligence Unit (EIU) has also expressed doubts about the success of a currency float between 2024-2028, citing the CBN’s limited ability to adequately supply the market and clear a backlog of over $6 billion in foreign exchange orders.
