Banks lower their interest rates on foreign currency (FX) deposits as the dollar supply improves.
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 contributes to a decline in foreign deposit currency rates by signalling that banks now have enough foreign exchange to return to customers,” he said.
This was confirmed by a senior bank executive at another Tier-1 bank, who also mentioned that FX supplies have improved among banks, relieving economic strain.
Resume For BTA And PTA Sales
Following past difficulties linked to supply constraints, BusinessDay reported that 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 difference 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 towards market-determined rates was evident in early 2024 when the CBN instructed International Money Transfer Operators (IMTOs) to provide exchange rates for Naira disbursements 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 be done only via electronic means, which Afrinvest Securities Limited analysts thought would lessen the impact of foreign exchange round-tripping in this segment.
The apex bank said it had authorized 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 behavior of authorized dealers in the Nigerian Foreign Exchange Market (NFEM).
In an announcement on its website, the CBN stated that the bank would formally introduce the Code on Tuesday, January 28, 2025, in the CBN Head Office Auditorium in Abuja.
The CBN’s new FX code will improve transparency, and “about $20 million every day is off the market,” according to Taiwo Oyedele, chairman of Nigeria’s Fiscal Policy and Tax Reforms, who spoke at the PwC event.
Oyedele contended that if implemented this year, the planned tax reforms would also provide a soft landing for the exchange rate, reducing its pressures and improving fiscal sustainability.
According to the tax chief, “some of the fiscal reforms we are doing will also relieve the market of about $4 billion in pressure.”
Naira Reacts
The naira started the year on January 2, 2025, at the official exchange rate of N1,538.50 per dollar, according to data from the apex bank. Its value had marginally declined by 0.4 percent to N1,544.50 per dollar by the end of the first trading week.
At the Nigerian Foreign Exchange Market (NFEM), the naira closed at N1,553 to the dollar on January 22, down from N1,551.9.
The director of Nasarawa State University’s Institute of Capital Market Studies, Uche Uwaleke, predicts that the naira will continue on its upward trajectory. He attributes this prediction to both a rise in fuel exports this year and a decrease in the importation of food and petrol.
Uwaleke identified decreased imports of petroleum products as one of the main factors contributing to the naira’s recovery.
“We expect a significant decline in fuel imports with increased domestic refining capacity, which will strengthen the naira and ease pressure on foreign exchange demand,” he said.
He also emphasized the possible effects of more revenue from petroleum product exports.
“Foreign exchange inflows will improve as Nigeria increases its export capacity, supporting the local currency,” Uwaleke stated.
He claims that the decrease in food imports due to increased agricultural productivity is another issue.
“Increased foreign investments and remittances from Nigerians abroad will inject much-needed liquidity into the economy,” Uwaleke added, highlighting the importance of diaspora remittances and foreign portfolio investments in bolstering the naira.
He emphasized the need to have healthy foreign reserves, pointing out that doing so is essential to protecting the economy from outside shocks and boosting investor confidence.
