CBN to Punish Banks for Illegal Forex Transactions




Banks were yesterday hit with allegations of round
tripping.
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.
“The 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.
The banks, further findings showed, are engaging in round-
tripping, taking advantage of the huge forex gaps between
the official and the parallel markets.
The 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.
The 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.
The 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.
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