Tuesday, 27 February 2024 04:48

Standard Chartered Bank’s Naira trading gives glimpse of how banks make a killing in Nigeria’s FX market. This is what happened

Rate this item
(0 votes)

Standard Chartered Plc had a wild 2023 with Nigeria’s volatile currency as the African nation struggled with foreign-exchange rules to attract investment from overseas and boost the supply of dollars.

The London-based lender, in its corporate filings last week, said it made almost $120 million in a single day on June 1, in anticipation of new policies including an impending naira devaluation.

By November, its position whipsawed as it made around $40 million only to lose more than $20 million later after the government announced a crackdown on the black market, where the US dollar at one point commanded a premium of as much as 60% over the official rate.

The gap, which has now narrowed, resulted from too little capital inflows and a severe dollar scarcity that’s plagued the continent’s most-populous country despite currency reforms and a sharp devaluation. As of Monday, the dollar fetched 1,540.40 naira, compared with roughly 1,590 on the street, where most residents source their forex needs.

The naira slumped 49% last year against the dollar, making it the third-worst performer among 150 currencies tracked by Bloomberg. The wide spread between the rates have also discouraged investments from abroad.

Standard Chartered’s one-day currency gains on June 1 came after Nigeria’s newly elected President Bola Tinubu took office in late May and immediately proposed to unify the exchange rates and let the naira trade more freely.

“After announcement of planned potential economic reforms in Nigeria, there were sharp movements in the offshore naira FX market in anticipation of Naira devaluation,” StanChart said.

But those gains were put at risk in November when Nigeria announced that it would be introducing new foreign-exchange rules, including a crackdown on the black market in a bid to narrow the spread. The plan was for the currency to reach a “fair price” by the end of 2023.

After the government’s announcement on Oct. 30 that it planned to target an exchange rate of 750 naira per dollar, “the onshore spot market became more volatile on low volumes,” StanChart said.

In a matter of days, the bank recorded a profit of about $40 million followed immediately by a loss in excess of $20 million, according to the corporate filings that accompanied the lender’s full-year earnings on Feb. 23.

The gains and losses came after the Nigerian authorities took steps to clear a backlog of matured foreign-currency forward contracts with some banks that they said had hampered dollar inflows. The announcement by the Central Bank of Nigeria on Nov. 2 that it cleared the matured foreign-currency contracts for some lenders had prompted some speculators to offer their dollars for sale.

“Standard Chartered operates in over 50 markets that are periodically subject to currency movements that breach value at risk thresholds in line with the pillar 3 disclosure,” a representative for the bank said.

Despite the currency volatility in Nigeria, StanChart’s Africa and Middle East region last year posted its highest annual pretax profit since 2015, with earnings climbing 66% to $1.3 billion, as higher income and a net release in credit provisions offset an increase in expenses.

 

Bloomberg

April 18, 2024

CBN’s new monetary tightening measures starve banks of loanable funds, with dire consequences for the…

Commercial banks, grappling with the Central Bank of Nigeria's (CBN) monetary tightening measures aimed at…
April 12, 2024

At cost totaling the 2024 budgets of the 36 states plus FCT, Lagos-Calabar project is…

Presidential candidate of the Peoples Democratic Party (PDP) in the 2023 election, Atiku Abubakar, has…
April 14, 2024

I've spent 25 years studying the brain—I never do these 4 things that destroy our memory as we age

As a neuroscientist, I've spent the last 25 years researching the science of memory. A…
April 13, 2024

A new camera can undress people almost in real time—to send a message about AI

Nuca, a new deepfake camera, is an art project that shows how artificial intelligence can…
April 18, 2024

10 passengers killed as vehicle runs into explosives planted by roadside in Borno

At least 10 passengers in a commercial vehicle have reportedly died after the automobile encountered…
April 18, 2024

Here’s the latest as Israel-Hamas war enters Day 195

Hezbollah launches missiles and drones at northern Israel, wounding 14 Israeli soldiers Lebanon's Hezbollah said…
April 15, 2024

Winning funding proposals written by generative AI: Should that matter to you?

Generative AI is getting better every day. We now have ChatGPT4, Claude 3, Gemini, Perplexity,…
April 10, 2024

Nigeria’s Super Falcons qualify for 2024 Olympics at South Africa’s expense

Super Falcons of Nigeria have qualified for the women’s football event of the 2024 Olympics…

NEWSSCROLL TEAM: 'Sina Kawonise: Publisher/Editor-in-Chief; Prof Wale Are Olaitan: Editorial Consultant; Femi Kawonise: Head, Production & Administration; Afolabi Ajibola: IT Manager;
Contact Us: [email protected] Tel/WhatsApp: +234 811 395 4049

Copyright © 2015 - 2024 NewsScroll. All rights reserved.