The chief executive and managing director of Financial Derivaties Company Limited, Bismarck Rewane, has expressed fears that a Central Bank of Nigeria (CBN)’s directive on domiciliary accounts could turn out to be a tool for taxation or witch-hunting,
Speaking at the monthly Executive Breakfast meeting at the Lagos Business School, Rewane described the directive by the apex bank that banks give information on domiciliary account holders and balances as a breach of confidentiality.
According to him, the CBN, believing that domiciliary transactions are used for round tripping by banks, had directed that banks submit details of domiciliary account holders, including name, account number and balances as at January 29, 2015.
It also required banks to present total balance of all domiciliary accounts as at the same date, list of corporate domiciliary account holders and their balances, list of individual domiciliary account holders and their balances, list of public sector institutions domiciliary account holders and their balances as well as the mode of lodgement to the account transactions (either cash or by wire transfer). Domiciliary deposits were equivalent to 21 per cent of the N17 trillion or $19.5 billion deposits in the Nigerian banking system as at half year 2014, according to data from an investment firm, Renaissance Capital.
Stating that the apex bank had given the directives based on its concerns about the high level of domiciliary balances at an average of 1 per cent per annum, Rewane noted that the move will spur a rush of transfers to overseas banks, even as he expressed fear that the CBN will now seek for information on naira accounts. He also postulated that the apex bank will increase net open position of banks from the present level of 0.5 per cent to 1 per cent, even as the naira is expected to trade at N195 and N210 to the dollar at the interbank and parallel markets respectively.
The CBN had, last week Friday, held a special intervention selling more foriegn exchange (FOREX) to banks and bureax de change (BDCs) as part of measures to increase liquidity in the system. However, this did little to lift he value of the naira as the currency closed last week at N193 to the dollar at the interbank end of the market. Dealers said currency users were holding on to cheap dollars bought at the almost-daily central bank interventions, because they believed the naira would continue to weaken as falling oil prices hurt Nigeria’s economy.
According to an analyst at the FBN Capital, Bunmi Asaolu, “until investors can see and believe that the naira is stable, their confidence will remain low.” He noted in an emailed note to Leadership that “there is a limit to what the CBN and the Monetary Policy Committee (MPC) can do to defend the naira without a massive erosion in the reserves.”
The external reserves had been on the decline since last year and is currently down to $33.872 billion as at February 5, 2015, according to latest figures by the CBN. The CBN has been battling to defend the naira currency as the 50 per cent sell-off in crude oil prices last year left the economy which gets 70 per cent of its income and 95 per cent of FOREX from oil sales, and is still struggling to adjust.
Source : Leadership