12 Banks May Be Barred From Forex Market

As the deadline given to the 25 banks in the country to exchange their dealership licenses for new ones expires today, there are indications that about 12 banks may not be eligible to participate in the new foreign exchange regime which begins next Monday.

This development is coming just as the CBN yesterday released guidelines for the new foreign exchange regime (Wholesale Dutch Auction System) geared towards enhancing efficiency in the foreign exchange market.

The CBN, as exclusively reported last week by THISDAY, had stated in its circular announcing the issuance of a new dealership license to banks, that any bank that does not hold a new dealership license before February 17, 2006 (today) would be barred from the foreign exchange market.

The application for the new dealership license, the apex bank had also stated, should be accompanied with a non-refundable processing fee of N500, 000.00 in bank draft in favour of CBN.

It also listed requirements for issuance of authorised dealership licenses to include, among others: a dealing room fully equipped with Reuters dealing terminal; functional fax and telephone line; qualified and experienced dealers and payment of a license fee of N1.5 million.

Interestingly, with less than three days for the commencement of the WDAS, about 12 banks, according to THISDAY findings, are yet to complete the installation of a dealing room that is fully equipped with Reuters dealing terminal in their respective offices. This implies that the 12 banks may be shut out from the forex market given the fact that it takes between four to three weeks to fully install a Reuters dealing room.

Meanwhile, under the new forex regime, the CBN according to the guidelines released yesterday and exclusively obtained by THISDAY, shall intervene in the foreign exchange market through the Wholesale Dutch Auction System.

The WDAS replaces DAS that was re-introduced on July 22, 2002 to save Nigeria's depleting foreign reserves.

Titled 'Revised Guidelines for the Operation of the Foreign Exchange Market: Wholesale Dutch Auction System,' and dated February 16, 2003, the guidelines states:' Consistent with the objectives of enhancing efficiency in the Foreign Exchange Market through market determination of the Naira exchange rate, the Central Bank of Nigeria hereby adopts the Wholesale Auction System (WDAS).

'Consequently, the guidelines for the operating system are as follows:

1) Henceforth, the Central Bank of Nigeria (CBN) shall intervene in the Foreign Exchange Market through the Wholesale Dutch System,

2) The CBN shall announce on Monday and Wednesday the amount on offer for each auction at 8.30am. Copies of the announcement may be obtained from the Trade and Exchange Department of the Central Bank of Nigeria at either of the following braches: 9th floor, Wing C, CBN Head Office, Abuja, Central Business District or 4th floor, Atlas Building, CBN Head Office, Tinubu Square, Lagos.'

Under this system, the guidelines which were signed by CBN's Director, Trade and Exchange Department, Mrs. Omolara Akanji, states that authorized dealers shall submit their bids on Monday and Wednesday while the CBN has the right to reject bids that are deemed to be unrealistic.

The guidelines with reference TED/AD/35/2006 further states that 'the authorized dealers shall submit their bids as per the attached format between 9.00am and 12.00noon of the day of auction. The bids should be submitted in diskette (Ecel spread sheet) to CBN Lagos/Abuja. However, hard copies of bid request should be faxed to CBN Abuja.

'The minimum bid amount by an authorized dealer shall be $100,000.00 and the currencies of transaction shall be the Naira and United States dollar.

' The CBN shall announce the results of each Auction by 5.00pm on the day of auction. A copy of results may be obtained from the offices mentioned in (2) above.'

Successful bids, the CBN added, shall be advised by 5.00pm on auction day and authorized dealers shall be debited at the bid rates.

'Authorised dealers shall ensure that they have adequate Naira cover in the current accounts with the CBN. The Central Bank of Nigeria shall promptly debit the current accounts of banks the Naira equivalent of the foreign exchange purchased at the bid rate. The CBN shall deliver US Dollars to the banks to their CORRESPONDENT BANK ACCOUNT used for WDAS transactions. The Central Bank of Nigeria shall effect delivery of foreign exchange purchased by each authorised dealer with two business days after the auction result. A business day shall be defined as a day in which banking business is carried out in Nigeria,' the guidelines said.

It however, explicitly stated that funds purchased from the CBN at the auction shall be used for eligible transaction only, subject to stipulated documentation requirements. Such fund, the apex bank explained, shall be transferable within 15 business days after delivery, at the rate of purchase.

Under the new regime, the CBN also explained that it may purchase foreign exchange from authorized dealers and other participants such as oil companies, etc at their offer rates and deliver the Naira cover for US Dollar bought from the banks to the banks' Current Accounts at the CBN. The banks, it added, shall deliver US Dollars sold to CBN to the CBN Special FEM Account with Chase Manhattan Bank, New York.

While maintaining that the rate at the market shall be the prevailing exchange rate for the period, the guidelines states that 'authorised dealers shall quote two ways as displayed in their banking hall the buying and selling rate conspicuously,' adding that the spread between the buying and the selling rate shall not exceed 1 per cent.

The CBN however maintained that 'contravention of any of the foreign exchange regulations shall attract appropriate sanctions as spelt out in the provision of the relevant laws and CBN guidelines.

The WDAS is geared towards instilling transparency, liberalising of the foreign exchange market as well as reducing the documentation processes for end-users. Unlike the DAS where customers' names are used to bid for foreign exchange, under the WDAS, after collecting application from customers, respective banks are expected to proceed immediately to the CBN to buy the foreign exchange in bulk in the name of their banks. This, it is believed, would hasten the time frame within which banks would take delivery of their foreign exchange from the CBN.

Because of the long documentation processes and the attendant delays associated with procuring foreign exchange, most foreign exchange end-users usually prefer to patronise the parallel and Bureau De Change (BDC) markets.

The apex bank funded the foreign exchange market with a sum of $10.17 billion last year and purchased only $312.46 million from banks. Besides, the CBN held nine special auctions last year through which it offered a sum of $2.3 million out of which banks demanded $1.01 billion, while the banking watchdog sold only $71.76 million.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.