Forex transactions hit N26.57tr in 5 months

Nigeria’s Foreign Exchange (Forex) market which would in the next few days’ wrap-up transactions activities for the first six months in 2018 has recorded a whopping total traded value of N26.57 trillion between January and May this year, investigations by The Daily Times revealed.

It is instructive to note that forex market represents a platform in which participants are able to buy, sell, exchange and speculate on currencies, and are made up of banks, commercial companies, the Central Banks, investment management firms, hedge funds, and retail forex brokers and investors.

But the breakdown of the figure showed that transactions in Nigeria’s FX market stood at N5.317 trillion or ($14.77bn) in May, a 10.31 per cent ($1.70bn) decline from N5.929 trillion turnover or ($16.47bn) sold in April.

However, May and April figures were lower than N6.12 trillion ($18.67bn) traded in March, which was an increase of 44.59 per cent against N4.6 trillion ($5.76bn) values recorded in February ($12.92bn).

In January, the FX market had traded $14.01 billion, which was higher than $12.92 billion recorded in February, however, weaker than $18.67 billion transacted in March, 2018.

But turnover transactions value at the Investors & Exporters FX (I&E FX) Window in May was $6.40bn, representing 43.33 per cent of the total FX turnover and a 34.91 per cent ($1.65bn) increase on the value recorded in April ($4.74bn).

The value I&E FX Window, however, traded $6.06 billion in March, an increase of 55.38 per cent ($2.16bn) relative to the value recorded in February ($3.90bn).

In fact, analysis of FX turnover by trade type showed that the contribution of Member-Client trades to total FX turnover declined from 65.70 per cent in April to 58.90 per cent in May, due to a $2.13 billion Month-on-Month (MoM) decline in turnover.

However, this represented a 78.40 per cent ($3.82bn) Year-on -Year (YoY) increase in Member-Client FX trades turnover.

Similarly, Inter-member FX trades turnover declined MoM by 10.37 per cent ($0.19bn) despite its contribution to the total FX turnover remaining flat at 11.04 per cent.

Conversely, turnover for Member-CBN FX trades increased MoM by 16.14 per cent ($0.62bn) to $4.44bn in May, increasing its contribution to total FX turnover from 23.25per cent in April to 30.06 per cent in May.

Analysis of FX turnover by product type showed that turnover in FX Spot and Derivatives declined MoM in line with the trend in FX turnover, with both declining by 9.74% and 11.31 per cent respectively.

In May, the 23rd Naira-settled OTC FX Futures contract (NGUS MAY 30, 2018) with a contract size of $503.12mm, matured and was settled, whilst a new $1.00bn 12-month contract (NGUS MAY 29, 2019) was offered by the CBN at N363.47.

In May, the Naira depreciated across all FX windows/markets, losing N0.41 at the I&E FX Window to close at $/N360.97 from a dollar at N360.51 as at April 30, 2018 and a N2.03 spread to the dollar at rate at the parallel market which closed the month at $/N363.00 (from $/N362.00 as at April 30, 2018).

Meanwhile, Inter-Member trades recorded $2.00billion in March, an increase of 47.15 per cent ($0.64bn) relative to the trades recorded in February ($1.36bn), and a 237.28 per cent ($1.40bn) increase YoY ($0.59mm).

The Member-Client trades stood at $10.98 billion, an increase of 47.50 per cent ($3.54bn) from the previous month and an 84.12 per cent ($5.02bn) increase YoY ($5.96bn).

Member-CBN trades recorded $5.70billion in March ($4.11bn in February), representing an increase of 38.48 per cent ($1.58bn) and a 277.17 per cent ($4.19bn) increase Year on Year ($1.51bn) as the effect of the Secondary Market Intervention Sales (SMIS) continued to boost activity in the FX Market.

The 21st Naira-settled OTC FX Futures contract, NGUS MAR 28, 2018, worth $437.52m, matured and settled in March, whilst a new 12-month contract – NGUS MAR 27, 2019 – for $1.00bn, was introduced by the CBN at $/₦361.96.

The Inter-Member trades recorded $2.00 billion in March, an increase of 47.15 per cent ($0.64bn) relative to the trades recorded in February ($1.36bn), and a 237.28 per cent ($1.40bn) increase from year-on-Year.

During the period under review, the Central Bank of Nigeria (CBN) had moved closer to realising its single exchange rate target by unifying dollar buying rates for banks and Bureau de Change (BDC) operators.

The development, which has brought stability to the foreign exchange market and showed CBN’s proactive approach to ending multiple exchange rates, tipped to permanently send currency speculators out of the market.

Commenting on the development, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, said: “We believe the CBN’s policy direction and the BDCs’/Banks’ rate unification promotes efficiency, transparency, price discovery and will help phase-out multiple exchange rates regime.”

The Daily Times recalls that the CBN during the month under review finally announced that Bureau De Change (BDC) operators and commercial banks will buy dollar at same rate and sell within same margin, as market watchers saw it as a masterstroke needed to eliminate multiple exchange rates in the industry.

However, many financial pundits believe the rate unification also captured CBN’s commitment and readiness to end the multiple exchange rates that have remained a plague to the industry, and in its place, entrench single exchange rate regime that serves the interest of all stakeholders.

Speaking further on this development, ABCON boss, Alhaji Gwadabe, said the speed at which the naira recovered against the dollar after the CBN’s announcement, buttressed the BDCs’ massive influence in the market and economy.

He said the BDCs have so far stamped their role as key players in the forex market, where they remain major economic drivers creating employment and wealth for the people. These contributions, he said, require that the operations of BDCs be supported to sustain ongoing market rally and stability.

He said, “We commend the CBN’s bold move in unifying the BDCs’, banks’ rates. We can safely say that the threat of distortions of market rate by election anxiety have been mitigated by the policy. And the BDCs are committed to supporting the CBN’s policy direction and actions to sustain ongoing market stability.

“The impact of the rate unification is massive, including raising foreign investors’ confidence in the domestic economy, boosting the foreign exchange reserves position and creating opportunity for a better foreign reserve management by the apex bank.”

He assured that the BDCs will continue to meet the critical forex needs of the retail end-users and stick to allowable transactions limits as approved by the regulator.