$2.4bn Controversial Forex Backlog: Proper Handling Will Secure Investors’ Confidence – Analysts

Analysts have advised the Central Bank of Nigeria (CBN) to be careful on how it manages the $2.4 billion controversial backlog, saying that clearing the remaining backlog will further incentivise foreign investors to come into the country.

This is even as the Bank Directors Association of Nigeria (BDAN) has given its backing to the measures taken by. CBN to address forex challenges, a decision the group said, would ensure stability and resilience in the banking industry.

CBN governor, Dr Olayemi Cardoso while speaking during an interview on Arise News, mentioned that he met over $7 billion in backlogs owed of which around $2.4 billion could not be backed up with official claims.

Cardoso, who noted that the apex bank had cleared $2.3 billion of the backlog with $2.2 billion still outstanding, however, added that $2.4 billion remains controversial.

Cardoso maintained that CBN would not pay for foreign exchange requests that were not validly constituted, adding that, the bank has written to authorised dealers to explain the disparities identified, ‘and sadly, quite frankly, I think much of those have not been disputed to our satisfaction.’

Commenting on this development, the Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi said: “on the controversial $2.4 billion, how the CBN manages that is very important. The news is that they have cleared the airline backlog and the airlines are still saying they have around $600 million outstanding.

“How the CBN manages and interacts with those guys to resolve the issue is very important because one major thing the CBN needs to do now is to see how it can rebuild its brand as trustworthy and get the confidence of the investors. If this is not managed appropriately and those guys continue spreading the news abroad, other investors might be reluctant to come in. So, it is a very delicate situation that they need to manage.”

READ ALSO: CBN Uncovered $2.4bn Invalid Forex Claims From $7bn Backlog — Cardoso

On his part, the chief executive, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said: “the CBN is in a better position to determine which of the transactions are valid and which ones are not valid. If they have undertaken a forensic audit and they have come up with these figures that is what it is and this is part of the process of cleaning up the space. He also gave assurance that the totality of the backlog will soon be cleared.

“Once that is done, I am sure the level of confidence in the market will begin to improve because the interventions and clearing of the backlogs have also been slowing down and diminished the capacity of the CBN to intervene directly in the market and once they clear the backlog, then the capacity to intervene in the market will improve and that will help to improve and enhance liquidity in the forex market.”

Agusto’s Olubunmi, speaking on the clearing of the backlog said it is ‘reassuring that they have not only started clearing the backlog but that they have gone that far.’

According to him, “they have cleared one third of the initial amount, one third is outstanding and one third is controversial. It is good that they have actually done that

“Another thing that he didn’t mention but he might know is that there is still some pent-up demand, there are investors that want to get out, there are those that need dollars but they have not actually   come out to the market because of the illiquidity in the market so he should not be surprised after clearing all these mess, there will still be some huge amount that want to go out. I hope they also have that at the back of their mind.”

Meanwhile, BDAN has urged banks in the country to comply with the CBN’s directives on forex.

BDAN, in a statement issued and signed by its chairman, Mustafa Chike-Obi, said, having appraised the recent guidelines and circulars issued by the apex bank, it ‘wholeheartedly supports these comprehensive measures which underscore the commitment of the CBN’ at fortifying the nation’s financial system.

Amid concerns surrounding the escalating foreign currency exposure of banks through their Net Open Positions(NOP), CBN had issued directives which stipulated that NOP’s limit for overall foreign currency assets and liabilities should not exceed 20 per cent short or zero per cent long of shareholders’ funds.

Chike-Obi said: “this directive, along with other prudential requirements outlined in the circular, plays a critical role in ensuring the effective management of foreign currency exposures. By imposing these limits, the CBN aims to mitigate potential losses that could pose significant systemic challenges.

“These regulatory measures underscore a strategic initiative aimed at bolstering risk management, transparency, and accountability within the financial industry. The Bank Directors Association of Nigeria (BDAN) acknowledges and commends the Central Bank for its proactive stance in safeguarding the interests of depositors, investors, and the overall economic well-being of Nigeria.

“BDAN views these requirements as a positive step towards creating a resilient financial landscape and preventing adverse effects on the Banking sector. The Association applauds the CBN’s commitment to proactive regulation and remains supportive of initiatives that contribute to the stability and prosperity of the Nigerian economy.

“Therefore, the Association encourages all Banks to fully comply with the new directives and actively participate in the implementation process to achieve full compliance. Furthermore, the Association acknowledges the meticulous work undertaken by the Central Bank of Nigeria in consulting stakeholders and experts to ensure a balanced and effective regulatory approach.

“As advocates for responsible Banking and ethical conduct, BDAN believes that these guidelines will contribute significantly to the long-term sustainability, growth, as well as the overall efficiency, transparency, and stability of the Banking sector, ultimately contributing to the nation’s economic development.

“BDAN pledges its continuous collaboration with the Central Bank of Nigeria and other stakeholders to foster a dynamic and resilient financial ecosystem that serves the interests of all Nigerians. We believe that these steps are in the right direction to improve the effectiveness of the Banking system and we are fully in support.”