Banks Cut FX Deposit Rates as Dollar Supply Improves

UBA, Zenith, Access, and other Nigerian banks have started reducing interest rates on foreign currency (FX) deposits due to an increase in dollar supply.

This reduction has contributed to a decline in foreign currency deposit rates, signaling sufficient FX availability in the banking sector. Financial institutions are adjusting to evolving market dynamics and recent policy changes from the Central Bank of Nigeria (CBN).

During a roundtable event organized by PwC and BusinessDay, Olusegun Alebiosu, CEO of First Bank of Nigeria, revealed that the CBN reinstated certain foreign exchange swaps with specific banks earlier this month.

“This move signals that banks now have sufficient FX to return to customers, contributing to a drop in foreign deposit currency rates,” he said.

A senior executive at another Tier-1 bank corroborated this during an interview with BusinessDay, explaining that improved FX supply has eased economic pressure on banks.

PTA and BTA sales resume
After experiencing challenges due to FX supply shortages, some banks have resumed offering Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) to customers. This development highlights the improved availability of foreign exchange in the market.

Ayokunle Olubunmi, head of financial institution ratings at Agusto Consulting, analyzed the situation, noting that customers were less likely to approach banks for PTA when the gap between official and parallel market rates was minimal. He explained that there were instances where customers favored parallel market rates over the official ones.

As the difference between official and parallel market rates increases, more Nigerians are now turning to banks for PTA and BTA services.

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This change aligns with the CBN’s policies from the previous year aimed at stabilizing the foreign exchange market. For instance, in early 2024, the CBN directed International Money Transfer Operators (IMTOs) to set Naira payout exchange rates based on prevailing market conditions.

In February 2024, the CBN lifted restrictions on interbank FX transaction spreads and interbank proceeds sales limits. It also mandated that PTA and BTA payouts be made exclusively through electronic channels. Analysts from Afrinvest Securities Limited believe these measures will reduce the potential for round-tripping in the FX market.

The CBN also announced that it will formally launch the Nigerian Foreign Exchange (FX) Code on January 28, 2025. This code is designed to promote ethical conduct among authorized dealers in the Nigerian Foreign Exchange Market (NFEM).

Samuel Oyekanmi, a macroeconomic analyst, commented on the development, saying, “It also sends a signal of FX liquidity in the economy, hence reducing the pressure on the exchange rate both at the official and parallel FX market.”

CBN’s new FX deposit window guidelines
The CBN has issued guidelines for the free foreign exchange deposit window introduced by the federal government. This initiative, which began on October 31, 2024, provides a nine-month grace period for Nigerians holding foreign currency at home to disclose and deposit it in banks without facing taxes or penalties.

The circular, issued on November 5, 2024, outlined specific rules to ensure compliance with the initiative. This effort aims to enhance FX liquidity while encouraging adherence to the updated financial policies.