Forex: CBN Plans To Rename I&E Market To NFEM; Banks Prohibited From Writing Off Loans To Directors

The acting Governor of the Central Bank of Nigeria (CBN), Folashodun Shonubi, has announced a significant shift in the country’s foreign exchange market, stating that the Investors and Exporters (I&E) window will be renamed the Nigerian Foreign Exchange Market (NFEM).

The revelation came during Shonubi’s Distinguished Personality lecture on “Diaspora Remittances and Nigeria Economic Development” delivered to members of the Executive Intelligence Management Course (EIMC) 16 at the National Institute for Security Studies, Abuja.

This decision follows the CBN’s recent move to eliminate segmentation within the foreign exchange market, consolidating all segments and rates into the I&E window, which is now recognized as the sole official forex market. Established in 2017, the I&E window serves investors, exporters, and end-users, allowing forex trades at exchange rates determined by prevailing market conditions.

Shonubi emphasized that the market’s new name, the Nigerian Foreign Exchange Market, reflects its singular acknowledgment by the CBN. This decision coincides with ongoing challenges in the foreign exchange market, with the naira facing a record low against the dollar in both parallel and I&E markets. Shonubi indicated the CBN’s intention to sanction commercial banks involved in illegal forex sales, introducing a commission to conduct unscheduled visits to banks accused of unauthorized dollar sales.

Despite the CBN’s efforts to encourage formal market transactions through the Naira 4 Dollar scheme, the initiative’s effectiveness proved limited, leading to its discontinuation. Shonubi acknowledged the role of incentives in attracting individuals to the formal market.

In a related development, Shonubi linked the devaluation of the naira against the dollar and challenges in managing the foreign exchange market to the diversion of diaspora remittances to unofficial markets, like the parallel market. He highlighted the risks associated with unregulated parallel markets, as they facilitate criminal activities due to their lack of oversight.

Furthermore, the CBN has instituted stricter regulations on banks, particularly regarding insider-related loans and corporate governance. Directors and associates of banks are no longer allowed to write off loans without CBN approval. Directors with underperforming facilities for over a year will be disqualified from their board positions and banned from participating in other financial institutions under CBN supervision.

Banks are required to create a Code of Business Conduct and Ethics, reflecting practices to ensure integrity and stakeholder expectations. This code must be reviewed every three years. Banks are also mandated to establish policies on insider trading and related-party transactions by directors, executives, and employees, with these policies published on their websites. Internal audits will review compliance and policy effectiveness.

The CBN also granted bank boards the authority to appoint managing directors, chief executive officers, executive directors, and senior management staff, subject to approval. Succession plans for these roles must be reviewed every two years. The board’s composition must include more non-executive directors than executive directors, and members must meet qualifications and integrity criteria.

The new regulations also prevent more than two extended family members from serving on a bank’s board, with only one member of an extended family allowed to hold key positions simultaneously. The policy accommodates instances of mergers, acquisitions, or takeovers involving legacy institutions’ directors, considering their tenure both pre- and post-combination.