CBN Conducts Retail Dutch Auction System to Stabilize FX Market
To meet the growing demand and stabilize the foreign exchange (FX) market, the Central Bank of Nigeria (CBN) recently concluded a Retail Dutch Auction System (RDAS). In this auction, Zenith Bank, Access Bank, FBN Holdings, and seven other financial institutions received significant FX allocations, leading to a 5.1% increase in the NGX Banking Index.
Breakdown of FX Allocations
The CBN allocated a total of $876.26 million to 26 qualified banks at a rate of N1,495 per dollar during the auction, which aims to enhance price discovery in the FX market. The system allows commercial banks to bid for foreign currency on behalf of their customers, with the CBN providing the currency through an auction. Of the 32 banks that participated, six were disqualified due to incomplete bid submissions. The remaining 26 banks shared approximately 75% of the total bid amount, which was $1.18 billion.
Zenith Bank received the highest allocation of $267.86 million after submitting bids ranging from N1,500 to N1,650 per dollar. Despite recent board changes under regulatory scrutiny, First Bank secured $228.99 million with bids between N1,500 and N1,600 per dollar. Access Bank followed with an allocation of $79.09 million.
Fidelity Bank, which is steadily expanding its market presence, received $43.62 million. GTCO was allocated $29.54 million, and Standard Chartered Bank, known for its international banking operations, secured $28.43 million after bidding within the N1,500 to N1,600 per dollar range.
Additionally, Taj Bank, Jaiz Bank, Sterling Bank, and Union Bank received $19.11 million, $16.71 million, $14.4 million, and $13.27 million, respectively. These FX allocations not only reinforced the financial stability of these banks but also boosted the Nigerian Exchange Limited (NGX) Banking Index by 5.1%, bringing the year-to-date returns of the domestic bourse to an impressive +31.7%.
Significance of the Auction Under CBN Governor Olayemi Cardoso
This auction represents one of the most significant FX interventions under the leadership of CBN Governor Olayemi Cardoso, who has been actively working to stabilize the naira and address ongoing volatility in the FX market.
Expert Reactions and Insights
Victor Chiazor, Head of Research at FSL Securities, highlighted the importance of FX allocations through the RDAS for banks to meet the demands of importers, businesses, and other entities requiring foreign currency for international transactions. He noted that banks with higher allocations typically have a larger customer base or more significant demand for foreign currency, reflecting their ability to bid effectively in these auctions.
Chiazor also praised the CBN’s commitment to transparency and efficiency, citing the exclusion of six banks due to incomplete bid submissions as a sign of the CBN’s determination to uphold stringent standards in future auctions. This move is expected to encourage banks to adhere strictly to submission deadlines and accurately complete bid templates.
