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FBN, Zenith, 2 Others Appointed Settlement Banks For Naira/RMB Currency Swap


*Deal valid for three years, renewable

First Bank of Nigeria Limited, Stanbic IBTC, Standard Chartered Bank (SCB) and Zenith Bank Plc have been appointed the settlement banks for the $2.5 billion bilateral currency swap agreed between the Central Bank of Nigeria (CBN) and the People’s Bank of China (PBoC) which was announced Thursday.

A reliable CBN source privy to the deal, said with the appointment of the four banks as the settlement banks for currency swap between China and Nigeria, they will be responsible for settling the trade transactions between importers and exporters from both countries, likely to take off just before next month.
The CBN Thursday announced that it had sealed the deal on the $2.5 billion (RMB 16 billion) currency swap with the Chinese central bank last Friday in Beijing, China.

CBN spokesman, Mr. Isaac Okorafor, said the CBN Governor, Mr. Godwin Emefiele, led CBN officials while PBoC Governor, Dr. Yi Gang, led the Chinese team at the official signing ceremony.

He said the deal was sealed on Friday after over two years of painstaking negotiations by both central banks.
According to the CBN, the transaction, which was valued at Renminbi (RMB) 16 billion, was aimed at providing adequate local currency liquidity to Nigerian and Chinese industrialists and other businesses, thereby reducing the difficulties encountered in the search for third currencies.

Providing more clarity on the deal, a CBN source said just as negotiations on the currency swap were being wrapped up, the central bank appointed FirstBank, Stanbic IBTC, StanChart and Zenith Bank to serve as the settlement banks for businesses and importers from both countries.

She said the reason the four financial institutions were chosen was because StanChart and Stanbic already have operational offices in China, while Zenith and FirstBank have representative offices in Beijing.

However, whereas StanChart and Stanbic can start operations immediately as settlement banks, Zenith and FirstBank will be required to upgrade their representative offices to full operations in China.

“While SCB already has a presence in China through its Standard Chartered Bank (China) Limited, Stanbic has been trading in the country through its affiliate, the Investment and Commercial Bank China (ICBC).

“However, FBN and Zenith Bank were also appointed because they already have representative offices in China.
“So, while SCB and Stanbic can start immediately, it would take FBN and Zenith Bank some time to join the settlement arrangement because they would have to convert their representative offices to operational offices.
“This whole swap agreement would kick off likely before June because we have to operationalise the settlement arrangement with the relevant institutions,” she added.

The settlement banks are expected to handle the trade obligations that would enable an importer in Nigeria, after filling the required documentation, to easily exchange the naira for the Renminbi (RMB) instead of resorting to third currencies such as the U.S. dollar, while the reverse will be the case for importers in China that trade with Nigerian businesses.
She explained further that the currency swap by the two central bank governors was partly facilitated by the improving economic environment in Nigeria.

“As you know, negotiations have been on-going for two years, so yes to some extent, the improvement in foreign reserves and government revenues, drop in the inflation rate, and the uptick in economic activities, played a role in getting the swap with the PCoB.

“But this was not the only reason factored into the negotiations, as there were other bilateral reasons which I am not at liberty to disclose,” she said.

When asked about the impact on the country’s external reserves, the source pointed out that China is Nigeria’s largest trading partner, accounting for about 35 per cent of trade.

However, the National Bureau of Statistics’ (NBS) Fourth Quarter (Q4) 2017 Foreign Trade Statistics put China’s trade with Nigeria at 22 per cent, making it a major trading partner. The total value of trade in Q4 2017 was put at N465.13 billion.

According to the CBN source, the currency swap will play a role in reserves management as pressure from Nigerian importers seeking to source dollars will now dissipate.

“Of course, this will help in terms of management of our reserves. What this means is that pressure on Nigerian importers seeking to source dollars to import goods from China will completely dissipate,” she explained.

Reinforcing the position, the statement from Okorafor Thursday said among other benefits, the agreement is expected to provide naira liquidity to Chinese businesses and provide RMB liquidity to Nigerian businesses respectively, thereby improving the speed, convenience and volume of transactions between the two countries.

“It will also assist both countries in their foreign exchange reserves management, enhance financial stability and promote broader economic cooperation between the two countries.

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