How illegal funds repatriation affects exchange rate, prices of goods – Experts

Emiefele
CBN Governor Godwin Emefiele

The illegal repatriation of foreign exchange to South Africa by MTN Nigeria aided by four banks has been contributing to the pressure on the exchange rate in Nigeria, financial experts have told Daily Trust.

The repatriation has also been having negative impact on production by manufacturing companies, and the prices of goods and services, the experts said yesterday.

The Central of Bank of Nigeria (CBN) on Wednesday fined Diamond Bank, Citi Bank, Standard Chartered Bank and Stanbic IBTC the sum of N5.87billion for aiding MTN Nigeria repatriated some funds back to South Africa without following due procedures.

The five of them were also asked to refund $8.1bn over the same infraction.

But speaking with Daily Trust yesterday, Prof. Uche Uwaleke, Head Banking and Finance Department, Nasarawa State University, Keffi, said the level of the infraction could not have been possible without collaborators both from within the deposit money Banks and the CBN.

He said “beyond the fines imposed on the banks, it is vital that the EFCC is involved to fish out the culprits with a view to prosecuting individuals or professional services firms that aided these banks to perpetrate the use of fake CCI, fraudulent conversion of investors’ loans to preference shares and rendering false returns to the CBN. The implications for the economy are anything but salutary.’’

He said “by sanctioning the affected banks, the CBN has demonstrated that the country’s financial markets have laws which must be complied with by all participants. The scale of the infraction could not have been possible without collaborators both from within the deposit money Banks and the CBN.”

According to him, the illegal repatriation of forex by these banks would have contributed to the pressure on the exchange rate which negatively impacted production and the general price level.

He noted that “according to the NBS capital importation report for Q2 2018, Standard Chartered Bank and Stanbic IBTC were responsible for the bulk of capital importation during the quarter. This development will no doubt change this narrative at least in the near term.”

He said the stock market will be worst hit because two of the affected banks namely Stanbic IBTC and Diamond Bank are listed companies on the stock exchange and the fall in their share prices could drag down the banking index as investors are most likely to shy away from banking stocks till this issue is sorted out.

“Also, this development could roll back the plan by MTN to list on the Nigerian Stock Exchange.  Be that as it may, the sanctions carry a positive signalling effect for the economy in the long run. Our regulatory agencies, should continue to ensure that the multinational companies operating in Nigeria particularly in the oil, banking and telecom sectors comply with extant laws’’, he said.

Also commenting, Mr. Kasimu Kurfi the CEO Apt Securities said “the only issue is for MTN to refund the sum of $8.1bn which is still her money and it cannot be taken away from MTN.  So it is the matter of it is following due process. Once followed it will be allowed to remit. This may prolong its listing into the market.’’

As regards the economy,  he said the process must be transparent to convince others that is not witch hunt as not to scare other investors.

The former acting MD/CEO at Unity Bank Mr. Rislanudeen Mohammed, said the action of the central bank is highly commendable and it should be an eye opener to regulatory and security agencies in ensuring those that do business in Nigeria comply with our laws or face severe sanction.

He said, ‘’What this has shown is that perhaps what was discovered may be a tip of an iceberg.”

He said offsite regulatory supervision needed to be further strengthened to deal with this and similar other infractions.

“Such kind of leakages is the reasons why our reserves will not get to reach its optimal potential of having the capacity to deal with shocks of price or output movements in crude petroleum market, our major foreign exchange earner” he said adding that “such kind of leakages do compel the government to borrow funds to finance critical infrastructure needs. This also has direct effect on capacity of real sector to grow as they face scarcity of foreign exchange to import critical inputs that will support growth and employment generation. The leakage also has negative effect on our nominal and real GDP. This is commendable effort by CBN. They should seek legal opinion as to any further action needed’’, he said.

However Christain Orajekwe, the Head,  Research and Strategy of Cordros Capital, in providing clarity around the actions of the CBN to our reporter  said: “ MTN Nigeria which had the needs to pursue an expansion and investment in Nigeria can either raise capital or Eurobond or as we have seen fall back on its parent company, MTN south Africa.

“The parent company in deciding how to pay back, and rather than put pressure on their cash flow, asked that the loan convert to preference shares which is entitled to dividend payment. So MTN Nigeria has been paying dividend on those by way of capital repatriation since the parent company is based outside Nigeria. The CBN is saying perhaps, some the approval for those repatriations were not appropriate.’’

‘We’re in talks with CBN’

Diamond Bank Plc yesterday in a notice to the Nigerian Stock Exchange stated that it was co-operating with the apex regulator to ensure the matter was resolved.

In its letter to the NSE, it wrote: “Stanbic IBTC Holdings PLC (a member of Standard Bank Group) has been informed by its banking subsidiary – Stanbic IBTC Bank PLC (the “Bank”) that penalties have been imposed on the Bank by the Central Bank of Nigeria (CBN) pursuant to a review of transactions relating to the remittance of foreign exchange on the basis of certain “irregular” capital importation certificates issued to MTN Nigeria Communications Limited.

“The Bank is holding further engagements with the CBN, in relation to the issues it has raised. Please be assured that the above does not impact on your ability to continue to conduct your various business and corporate transactions with Stanbic IBTC Holdings or any of its subsidiaries, including the Bank.”

MTN reacts

Mr Funso Aina, Public Relations Manager, Corporate Affairs/Corporate Relations of MTN also denied the claims by the CBN

Aina said:  “MTN Nigeria strongly refutes these allegations and claims.

“No dividends have been declared or paid by MTN Nigeria other than pursuant to CCIs issued by our bankers and with the approval of the CBN as required by law,” he said.

Aina said that the issues surrounding the CCIs had already been the subject of a thorough enquiry by the Senate of Nigeria.

He added that in September 2016 the Senate mandated the Committee on Banking, Insurance and other Financial Institutions to carry out a holistic investigation on compliance with the Foreign exchange (monitoring and miscellaneous) Act by MTN Nigeria & Others. (Daily Trust)

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