Sharp drop in oil prices hurts forex reserves
The Central Bank of Nigeria (CBN) sold foreign exchange amounting to $3.75 billion to the Bureaux De Change (BDC) segment of the foreign exchange market between January and November last year, latest data released by the apex bank shows.
New Telegraph’s analysis of CBN’s forex data indicates that the figure is $5.57 billion below the $9.32 billion the apex bank sold to the same segment of the forex market in the corresponding period of 2019. Indeed, findings show that when compared to 2019 numbers, the regulator’s forex sales to authorised dealers, including BDCs, headed north only in Q1’20 due to the sharp drop in the price of oil – the commodity that accounts for about 90 per cent of the country’s export earnings – which, combined with COVID-19 crisis, resulted in a decline in the country’s external reserves and forced CBN to scale down the amounts it injected into the forex market last year to defend the naira.
For instance, in its November 2020 economic report released a few days ago, CBN said: “Foreign exchange sales to authorised dealers by the bank was $1.27 billion in November 2020, a decrease of 18.5 per cent and 63.1 per cent below the levels in the preceding month and corresponding month of 2019, respectively.
“A disaggregated analysis showed that foreign exchange sales to BDC operators, Swaps transactions, SMIS and SME interventions declined by 0.7 per cent, 10.9 per cent, 55.9 per cent and 8.8 per cent below the levels in the preceding month to $0.42 billion, $0.11 billion, $0.28 billion and $0.09 billion, respectively.
However, sales at the interbank and intervention at the I&E window rose by 86.3 per cent and 29.7 per cent, respectively over the levels in the preceding month.” Similarly, the regulator had stated in its Q3’20 economic report that “during the third quarter of 2020, total foreign exchange sales to authorised dealers by the bank amounted to $4.37 billion, a decline of 2.3 per cent from the level in the preceding quarter. “This was attributed largely to the decrease in wholesale forward intervention and interbank sales.
The total foreign exchange sales represented a decrease of 56.4 per cent, compared with the corresponding quarter of 2019.
Further disaggregation showed that matured swap transactions and SMIS intervention rose by 50.8 per cent and 0.7 per cent to $1.24 billion and $1.96 billion, from the levels in the preceding quarter. “However, interbank sales, interventions at the I&E window and SME fell by 22.3 per cent, 18.7 per cent and 3.5 per cent to $0.15 bil-lion $0.39 billion and $0.30 billion relative to their levels in the preceding quarter.
Foreign exchange cash sales to BDCs was $0.33 billion in the review period.” Equally, in its economic report for half year 2020, CBN said: “The precautious level of economic activities hampered foreign exchange supply to authorised dealers.
Total foreign exchange supply to authorised dealers by the bank stood at $13.98 billion, indicating a decline of 15.3 per cent each, below the levels in the preceding half year and the corresponding half of 2019, respectively. Of the total, inter-bank sales amounted to $0.38 billion, compared with $0.62 billion and $0.81 billion in the preceding six months and the corresponding period of 2019, respectively.
“At the BDC segment, total sales declined to $3.63 billion in the review period, compared with $6.75 billion and $6.86 billion in the preceding half year and corresponding period of 2019, respectively, due to the temporary suspension of sales to the segment as international travels were grounded.
“Foreign exchange sales under the Secondary Market Intervention Scheme (SMIS) and to Small and Medium Enterprises (SME) declined by 7.6 per cent and 31.0 per cent to $3.16 billion and $0.57
billion, respectively, from their levels in the preceding half year. Sales to the I&E window rose by 27.6 per cent to $6.24 billion, compared with the levels in the preceding six months and the corresponding period of 2019, respectively.”
Thus, specifically, the CBN data shows that it sold forex to BDCs amounting to $3.63 billion and $0.33 billion in the first half of last year and Q3’20 respectively and another total of $0.84 billion for the months of October and November.
This means that the apex bank sold forex amounting to $3.75 billion between January and November last year. New Telegraph recently reported that CBN sold foreign exchange amounting to $21.18 billion to authorised dealers between January and November last year compared with $34.58 billion in the corresponding period of the previous year.
According to latest data obtained from CBN, the total number of licensed BDCs in the country stood at 5,530 as at the end of October 2020. Given that the number of the operators was about 3,000 in early 2015, it means that the number of BDCs increased by over 2,530 in a sixyear period.
Financial analysts point out that BDC operators’ sale of forex for Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) enable the regulator to deepen forex liquidity in the retail end of the market. In fact, in its H1’20 Economic Report, the apex bank stated that “the number of licensed BDCs increased to 5,300 at end- June 2020, compared with 5,164 at end December 2019. The increased licensing reflected the desire of the Bank to deepen foreign liquidity, especially in the retail end of the market.”