New Directive: Banks to Deposit Excess Foreign Exchange at CBN Branches in Lagos and Abuja

The Central Bank of Nigeria (CBN) has rolled out new rules. These rules make it easier for Deposit Money Banks (DMBs) to deposit extra foreign cash at its branches in Lagos and Abuja. This way, they can add money to their accounts in other countries.

The CBN believes this will help the foreign money market, increase money flow, and make exchange rates more matching across different markets.

This decision is because DMBs wanted an easier way to handle their foreign cash.

In a document, Solaja, Mohammed J. Olayemi, the Acting Director of Currency Operations at the CBN, said:

“To improve the foreign exchange market, increase liquidity, and match exchange rates, the CBN has allowed DMBs to deposit their extra foreign notes at its branches in Lagos and Abuja. This is in response to DMBs’ need to deposit their foreign cash with CBN for credit to their accounts abroad.”

Key Rules for Depositing Foreign Cash

• DMBs must give at least three working days’ notice before depositing foreign cash, along with a list of currency owners.
• Daily limits are set: a maximum of $10 million for larger bills ($100 and $50) and $1 million for smaller bills ($20 and below).
• Similar limits for GBP and Euro deposits: £1 million and €1 million, respectively.
• Two representatives from the bank must be present during the deposit process.
• Deposits must be sorted in specific denominations and separate boxes for easy counting and checking.
• CBN-registered Cash-in-Transit (CIT) companies must be used for transporting the cash.
• Deposits accepted from 8 a.m. to 12 p.m. and processed the same day.
• CBN will credit the DMBs’ foreign accounts within five days, with a handling charge of 0.30% deducted from the bank’s CBN account.
• Non-compliance with these rules will result in rejection of deposits.

What You Need to Know

Offshore accounts with correspondent banks are basically bank accounts in foreign countries. These accounts help manage international transactions. Correspondent banks are other banks that handle services like foreign currency exchange on behalf of a local bank.

This system helps local banks get into foreign markets and manage their foreign money without actually being there physically.

Earlier, CBN sent out a circular about some banks speculating and holding too much foreign cash. CBN asked DMBs to sell their extra dollar stock by February 1, 2024. This is to help stabilize the exchange rate. The Net Open Position (NOP) must not exceed 20%, meaning the banks shouldn’t own or owe too much in foreign currencies compared to their shareholders’ funds.

The House of Representatives said four banks have around $5 billion extra foreign cash. This is a concern for Nigeria’s money market.

Because of this, the House has asked the joint Committees on Banking Regulations and Banking Institutions to investigate why banks and financial institutions are not following CBN rules on NOP limits. The results of this investigation are still unknown.