The Central Bank of Nigeria (CBN) has suspended nine banks from the interbank currency market for failing to remit money owed to the government, banking sources told Reuters on Tuesday.
The suspension comes after the central bank tightened restrictions on the flow of dollars to domestic lenders in March. That has forced the banks to delay hard-currency loan and trade repayments and increased their risk of default.
"This is really a function of the dire macroeconomic situation and illiquidity in the FX markets rather than willful non-compliance by banks," said Diran Olojo, a spokesman for FCMB, one of the banks.
Olojo said the bank was working with the central bank to resolve the issue.
The banks have failed to remit $2.1 billion, the government's share of dividends from the state-owned gas company, NLNG. The banks were supposed to pay the money into the government's account at the central bank.
Last year, President Muhammadu Buhari ordered the merger of state accounts into that one account at the central bank to reduce corruption.
In addition to FCMB, the banks are First Bank, United Bank for Africa (UBA), Heritage Bank, Keystone Bank, Skye Bank, Diamond Bank, Sterling Bank and Fidelity Bank, banking sources say.
"We could not trade today," one banker said. "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, Africa's largest economy, is suffering its worst financial crisis in decades as a slump in oil revenues hammers public finances and the naira. The central bank governor has said recession is likely.
The bank floated the currency in June to attract investment, allowing the naira to fall by 40 percent against the dollar. But foreign investors have remained on the sidelines, making the central bank the main supplier of dollars.
Some lenders were trying to sell assets to pay the funds, another banker said, adding that the central bank was aware of refinancing challenges facing the industry.
A director at one of the affected lenders said his bank informed all board members of the suspension via a letter on Tuesday, adding it held $125 million of the total sum.
The central bank has been selling dollars almost daily to boost interbank trading and liquidity. But it reduced its sales volume this week, traders said, after it settled two-month outright forwards it sold in June.
The regulator paid $1.2 billion for currency forwards it sold in June at 280 per dollar, the bankers said, further draining its dollar reserves. Those reserves are down to $25.7 billion, their lowest in more than 11 years.
The naira, which hit a record low of 365.25 per dollar on Thursday, closed flat at 305.50 on Tuesday, gaining ground after the central bank sold dollars.
Clarification On CBN’s Directive on TSA Infringement
In the mean time, the management of Diamond Bank Plc, in a statement, titled –Clarification On CBN’s Directive on TSA Infringement, explained that:
“The Central Bank of Nigeria recently announced a temporary suspension of nine commercial banks, including Diamond Bank, from accessing the foreign exchange market. This is related to the Treasury Single Account (TSA) directive, where banks no longer hold funds from government entities and instead remit to the CBN at the end of each day.
“As a financial institution built on a foundation of sound corporate governance, we have always made full disclosure of the outstanding TSA funds and have worked diligently to fulfill our obligations. We will continue to remit funds towards our commitments to the CBN, even under these challenging market conditions.
“We are engaging with relevant stakeholders, with the support of the Regulator, to resolve this industry-wide issue quickly. We understand the importance of helping our customers to find foreign exchange to help promote economic growth in Nigeria.
“Many of our customers who have read the news about developments in the industry have asked us what this means for them. So we think it is important to share information with you.
“For the majority of banking customers there will be no impact at all. There will be some impact on establishing new trade lines through the foreign exchange market and your relationship manager will be able to help you with best-advice if you need to do this. This development does not affect customers' own deposits, both local and those in foreign currency. It also means that services such as payments – local and international, will go through as normal whenever you need to make them. Remittance services continue as normal and you can transact anywhere in the world, any time of the day, on your mobile application or internet banking.
“Our primary responsibility is to you, our customer. Whether that is getting a great rate on savings for the future, cards to remove the hassle of making payments, access to finance or advice for growing your business.”