The total balance in the domiciliary accounts in Nigeria’s commercial and merchant banks rose by more than a fifth in June, an analysis of data from the Central Bank of Nigeria (CBN) shows.
The foreign currency deposits, a chunk of which are in dollars, stood at N17.65 trillion in June, up from N10.72 trillion in May, according to the CBN data. When converted to the greenback, it rose by 21 percent to $28.92 billion (using the average exchange rate of N610.17/$ in June) from $23.20 billion; the naira averaged 462.01/$ before the devaluation in mid-June.
A further breakdown of the data also showed that the increase was driven by more deposits and devaluation, which boosted the naira value of the foreign currencies in the domiciliary accounts.
The naira has plunged to record lows across markets since the central bank allowed it to weaken by as much as 40 percent against the dollar in June.
Adeola Adenikinju, a professor of economics and president of the Nigerian Economic Society, said the boost in the naira value of deposits in domiciliary accounts was the major factor driving banks’ deposit growth.
Domiciliary accounts constitute more than a third of deposits in the banking sector and a large portion is sitting idle, according to him.
“There is a lot of money there. If we create dollar-denominated assets, some people can buy them and move that money from savings to some value that will be available to the economy that the government can then use to help build accretion [to external reserves] and the value of the naira,” he said.
The country’s external reserves stood at $33.41 billion as of November 7, down from $37.08 billion at the end of last year, according to the CBN.
Adenikinju disagreed with the suggestion in some quarters that the government should convert the money in domiciliary accounts to naira. “I think that will do a lot more damage to the economy because it will just hamper the free flow of dollars.”
On June 18, the central bank announced the lifting of restrictions on domiciliary accounts after an extraordinary Bankers’ Committee meeting as part of measures to promote transparency, liquidity, and price discovery in the FX market in order to improve supply, discourage speculation, enhance customer confidence, and ensure overall stability.
“Ordinary domiciliary account holders shall have unfettered and unrestricted access to funds in their accounts,” it said. “Domiciliary account holders are permitted to utilise cash deposits not exceeding $10,000 per day or its equivalent via telegraphic transfer. Deposit money banks shall provide returns to the CBN, including the ‘purpose’ for such transactions.”
The apex bank said in May 2021 that only a maximum of $5,000 monthly would be allowed for transfers if the source of funds was a cash deposit into a domiciliary account.
“Cash deposits of foreign currencies other than USD may be paid into domiciliary accounts (subject to an equivalent $5,000 monthly limit) but will not be allowed for transfer purposes,” it said at the time.
Nigeria’s five biggest banks have seen their customer deposits grow at a faster pace this year, even as the money supply in the country has risen by more than a quarter.
The lenders are Zenith Bank Plc, United Bank for Africa Plc, Access Holdings Plc, FBN Holdings Plc, and Guaranty Trust Holding Company Plc.
Their combined deposits grew by N15.7 trillion in the first nine months of this year to N53.34 trillion, compared to an increase of N4.47 trillion in the same period of 2022, data compiled by BusinessDay from their financial statements show.
Economic and financial experts attributed the surge in bank deposits to several factors, including the federal government’s borrowing from the CBN, the push for financial inclusion as well as the boost in the naira equivalent of the dollars in domiciliary accounts and increased federal allocations to states following the devaluation of the naira.(BusinessDay)
