The CBN to punish banks for illegal forex transactions

Apex bank levels round tripping allegations. Banks were yesterday hit with allegations of round tripping.

The Acting Director, Trade & Exchange, W.D. Gotring, in a circular to authorised dealers titled: Re: Transactions in ‘Free Funds’ by Authorised Dealers’,  accused banks of buying and selling forex without following stipulated guidelines.

“CBN has noticed that some Authorised Dealers have continued to buy and sell foreign exchange referred to as ‘free funds’ despite the provision of the circular of March 4, 2004 on the subject,” he said.

He cautioned the lenders that their action is a breach of extant regulations. “Against the background, authorised dealers are to note that dealing in foreign exchange without appropriate documentation, which includes relevant entries, blotters, physical documents and non-disclosure to the Regulatory Authorities is a breach of extant regulations”.

He reiterated that as provided in the laws and regulations governing dealings in foreign exchange, authorised dealers shall not sell foreign exchange without appropriate documentation and disclosure to the regulatory authorities, irrespective of the source of the funds.

“Accordingly, authorised dealers shall deal in eligible transactions only, and not engage in any foreign exchange transactions on terms inconsistent with the extant laws and or regulations,” he said.

Banks, further findings showed, are engaging in round-tripping, taking advantage of the huge forex gaps between the official and the parallel markets.

Naira yesterday closed at N305.50 to dollar in the interbank market, but was exchanging at N398 to dollar in the parallel market/ black market, hence creating huge temptations for greedy lenders to exploit. This structural defect is exploited by authorised dealers (banks) to make huge trading profits, but it weakens the naira.

Naira yesterday closed firmer on the interbank market after the CBN sold dollars to some commercial lenders towards the end of a session that featured no trades in the first four hours, traders said.

Naira was 0.81 percent firmer than its Friday close. The CBN has been selling dollars almost daily to boost liquidity and support the naira

About 20 to 25 per cent of the volume of forex traded in the country is from autonomous sources, usually diverted into the parallel market through round-tripping.

Also, the CBN directed authorised dealers to sell 60 per cent of all sourced forex to manufacturers.

Gotring said: “Following the review of returns on the disbursement of foreign exchange to end users, it has been observed that negligible proportion of foreign exchange sales are being channelled towards the importation of raw materials for the manufacturing sector”.

“Against this background and in order to address the observed imbalance, authorized dealers are hereby directed to henceforth dedicate 60 per cent of their total foreign exchange purchases from all sources, interbank inclusive, to end users strictly for the purposes of importation of raw materials, plant and machinery. The balance of 40 per cent should be used to meet other trade obligations, visible and invisible transactions,” Gotring said in a statement.