The Central Bank of Nigeria (CBN) has introduced revised guidelines to allow Deposit Money Banks (DMBs) to deposit excess foreign currency notes at its branches in Lagos and Abuja in order to credit their offshore accounts with correspondent banks. 

According to the apex bank, this move will deepen the foreign exchange market, boost liquidity, and align exchange rates between the parallel and official markets. 

The decision comes in response to increasing demands from DMBs to streamline their forex cash management. 

The document containing the guidelines and signed by Solaja, Mohammed J. Olayemi, the Acting Director, Currency Operations Department at the CBN read in part: “In order to deepen the foreign exchange market, boost liquidity and attain convergence in the exchange rates of the parallel and official markets, the Central Bank of Nigeria (CBN) has approved that DMBS may deposit their excess foreign currency notes with Lagos and Abuja branches of the Bank. The approval is a response to the increasing demand by DMBS to deposit their forex cash with CBN for onward credit to their off-shore accounts with the correspondent banks.” 

Key Guidelines for FX Deposits 

• The new rules require DMBs to give at least three working days’ notice before depositing foreign currency. This notice must be accompanied by a list of the owners of the currencies. 
• Daily deposit limits have been set, with a maximum of $10 million for higher denomination bills ($100 and $50), and $1 million for lower denomination bills ($20 and below). 
• Similar limits are set for GBP and Euro deposits at £1 million and €1 million, respectively. 
• Also, the CBN mandates that two representatives from the depositing bank be present to witness the deposit process. 
• Deposits must be made in specific denominations and stored in separate boxes to facilitate counting and authentication. 
• To ensure security and compliance, DMBs must utilize CBN-registered Cash-in-Transit (CIT) companies for transporting foreign currency. 
• Deposits will be accepted between 8 a.m. and 12 p.m., and processing will be completed on the same day. 
• The CBN will credit the DMBs’ offshore correspondent bank accounts within a cycle time of T+5 days, with a handling charge of 0.30% on the authenticated amount. This handling charge will be recovered from the bank’s current account with the CBN. 
• Failure to adhere to these guidelines will result in the rejection of deposits, emphasizing the importance of compliance with the CBN’s structured approach to managing excess forex reserves. 

What you should know 

Offshore accounts with correspondent banks refer to bank accounts held in foreign countries, typically used to facilitate international transactions. Correspondent banks are financial institutions that provide services on behalf of another bank, such as processing foreign currency exchanges or payments.

This arrangement allows local banks to access foreign markets and manage foreign exchange more efficiently without establishing a physical presence abroad. 

Earlier, the CBN released a circular addressing suspected cases of excessive foreign currency speculation and hoarding from Nigerian banks. It, therefore, mandated DMBs to sell their excess dollar stock latest February 1, 2024, as part of moves to stabilize the nation’s volatile exchange rate. It did this by stating that the Net Open Position (NOP) must not exceed 20% short (owning more than owning) or 0% long (owning no more than the bank’s shareholder funds not reduced by losses) of the bank’s shareholders’ funds. The NOP measures the difference between a bank’s foreign currency assets (what it owns in foreign currencies) and its foreign currency liabilities (what it owes in foreign currencies). 

The House of Representatives recently claimed that four banks are holding approximately $5 billion in surplus foreign exchange, signaling concerns about the volatility in Nigeria’s foreign exchange market. 

Responding to this, the House directed the joint Committees on Banking Regulations and Banking Institutions to undertake an investigative hearing into the failure of banks and financial institutions to adhere to CBN directives regarding NOP Limits. The result of this probe remains unknown.