Nigerians’ Condition As Banks Stops Naira-Denominated Cards For Foreign Transactions

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Nigerian banks have informed their customers in a mail that their naira-denominated card would no longer be allowed for foreign transactions from December 31, 2022.

The mail which was sent by GTbank reads, “Dear customer, we write to inform you that you will no longer be able to use your Naira Mastercard for international online and POS transactions effective 31st December 2022. Kindly note that you can use your GTBank dollar card for all your international spending requirements.”

Also, other banks like Standard Chartered Bank and First Bank have earlier sent emails to their customers informing them of the suspensions of foreign transactions on their naira debit card, virtual card, and credit card, which would take effect from 30th September and August 1st, 2022 respectively.

Although banks have given their customers the option of dollar-denominated cards to enable them to process international transactions, this was not the usual way things were before. Users of naira-denominated cards were formerly allowed to spend up to $150,000 per annum ($12,500 per month) for international transactions. But in April 2015, the spending limit on naira-denominated cards for international transactions was reduced to $50,000 per person per annum or $4,166.7 per month.

This later dropped to $500 per month and then $100 per month, and then in the first quarter of 20222, naira-denominated cards were later reduced to $20  for international transactions before the final ban on all international transactions on naira-denominated cards in December 2022.

However, fintechs are also going through the same challenges, just as banks are trying to provide a solution to international transactions so also fintech platform like Flutterwave, etc. have introduced solutions like virtual dollar card and every other fintech that keeps coming on board the Nigerian space promises a solution to how Nigerians can perform international transactions on their naira debit card or their various proposed platform. Most of the solutions provided or proposed have been futile.

An expert in the tech space who did not want to be named shared his experience, he said “I was using Gomoney but it stopped working. I just discovered Grey, which was launched recently.

“I used it to pay for my apple music, software subscriptions, and Google. The other option was to open a domiciliary account, which is stressful. You have to get referrals, like two reference letters. I would stick to this alternative until there is another one.

“Also, there is Aboki Africa. They have a mobile app. They have a dollar card too, and there is Chipper Cash. But it is all black market rates, which is expensive. All my naira cards are not working again.”

This is the situation of millions of Nigerians who depend on or require to make international transactions daily either for work or business or for personal use. Several apps or platforms which are subscription-based such as streaming services, application fees, magazine subscriptions, domain renewal, etc. can not function on naira debit cards.

This leaves Nigerians with the parallel market as their only hope if they want to enjoy their subscription services.

The managing Director of Cowry Asset Management Limited, Johnson Chukwu was able to shed a little light on the problem. He said “The basic reason is that they are not getting reimbursement from the Central Bank. It is coming from the Central Bank of Nigeria. They cannot provide the dollar cover to fund those cards.

“When the CBN denies them access to or does not allocate FX for funding of naira-issued dollar transactions, the banks have no choice but to suspend foreign currency payment on those cards. The banks are at best what you call intermediaries.”

While adding that “We don’t have liquidity. The banks cannot manufacture FX, what matters is what kind of flow comes into the economy. The CBN is the recipient of about 90 per cent of the inflow that comes into the economy. The CBN is the market marker when it comes to the FX market.”

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Tajudeen Ibrahim, Director of Research and Strategy at Chapel Hill Denham also gave his two cents on this issue and said ” “The major reason is the sustained illiquidity in the exchange market. Do not forget that we are barely one week into the new year, and this problem started last year, around the second quarter.

“Since then, we have not seen any improvement. If we are not seeing inflows from foreign borrowings and the government, or we see inflows from portfolio investors or foreign direct investment or diaspora remittances into the official channel of the market.

“Liquidity will not improve if these sources do not improve. The consequence of this is what we are witnessing now. Banks are suspending their naira cards for foreign transactions because we have not seen improvement in inflows or we have not even seen inflows from the channels I mentioned earlier.”

While noting that investors are also struggling to repatriate their funds out of Nigeria as the country has run out of dollars, this implies that liquidity in the market would go down and demand will outweigh supply due to the shortage of dollars to sell to the banks by CBN.

Ibrahim added, “If foreign portfolio inflow, which has been a major component of forex, improves we should be better positioned in terms of the CBN’s ability to supply liquidity to the market.

“Importantly, if Nigeria can sell more crude oil in terms of volume, if we can produce more, and sell more, we would generate enough and the CBN would no longer struggle to supply forex to the market. What I think is going to happen is that a lot of people would have to depend on the parallel market where rates are substantially high for their transactions.”

We are not oblivious to the woes of the CBN on several fronts, in June, the International Air Transport Association stated that the Federal Government was blocking foreign airlines from repatriating ticket sales revenue running into $450m and this was because CBN being the largest supplier of FX, gets most of its FX from oil earnings, diaspora remittance and foreign investment in form of Foreign Portfolio Investment and Foreign Direct Investments while 90% the earnings come from oil revenue.

According to the World Bank reports, Nigeria’s Nigeria’s foreign portfolio investments fell by $2.08bn from $2.15bn in 2010 to $72m by 2021. It added that FDI inflows into the country depreciated from $5.97bn in 2010 to $2.45bn in 2021.

And in its recent reports, it said that “FDI and FPI flow into Nigeria do not compare favorably with similar economies of the world, reflecting difficulties with FX availability, security concerns and other structural challenges in recent years.”

Despite the $60.22bn diaspora remittance, which was received from 2019 to 2021, which has been largely spent on consumption, and was supposed to serve as a lifeline for households in developing countries and help alleviate poverty according to the World Bank.

The country’s major source of FX – crude oil is on a steady decline, this is due to oil theft and denying it the benefit of the recent surge in crude prices. Nigeria’s external reserves sit at $37.09bn from $40.52bn as of December 29, 2022, and now Nigeria can not even export oil even during the crude oil price surge.

Nigeria will continue to feel the impact of this decision by Nigerian banks but it is believed that Nigerians will soon find a way around the challenges that the stoppage brings.