Finance Magnates has learned that CBN, Nigeria’s central bank, has suspended nine banks from the interbank currency market for failing to remit money owed to the government, according to a report in Reuters today.
Suspension in Force
A director at one of the affected lenders said his bank informed all board members of the suspension on Tuesday, adding it held $125 million of the total sum.
The suspension follows the tightening of restrictions by the central bank on the flow of dollars to domestic lenders in March which forced the banks to delay hard-currency loan and trade repayments and increased their risk of default.
The banks have collectively failed to remit $2.1 billion, the government’s share of dividends from the state-owned gas company, Nigerian National Petroleum Corporation (NNPC), which they were supposed to pay into the government’s account at the central bank.
The banks for which suspension will remain in force until they remit all outstanding NNPC funds are United Bank for Africa ($530m), FirstBank of Nigeria ($469m), Diamond Bank ($287m), Sterling Bank ($269m), Skye Bank ($221m), Fidelity Bank ($209m), Keystone Bank ($139m), FCMB ($125m) and Heritage Bank ($85m).
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A banker reportedly commented: “We could not trade today. The suspension is meant to pass on the pressure to banks to make payments but this is foreign currency and we have to source the dollars.”
Nigeria has experienced its worst financial crisis in years as a decline in oil revenues impacts on public finances and the naira. The central bank has said recession is likely.
CBN floated the currency in June in order to attract investment, allowing the naira to fall by 40 percent against the dollar but the central bank has remained the main supplier of dollars as foreign investors continue to sit on the sidelines.
The bank has been selling dollars virtually on a daily basis to boost interbank trading and liquidity but it reduced its sales volume this week after it settled two-month outright forwards it sold in June.
CBN reportedly paid $1.2 billion for currency forwards it sold in June at 280 per dollar, further draining its dollar reserves. The reserves are now down to $25.7 billion, their lowest in over 11 years.