Manufacturers Raise Alarm Over Banks’ Mishandling of FX Forward Obligations

• The Manufacturers Association of Nigeria (MAN) has raised concerns over commercial banks’ mishandling of unfulfilled foreign exchange (FX) forward obligations, which is harming manufacturing businesses
• MAN urges the Central Bank of Nigeria (CBN) to intervene by directing banks to unfreeze affected manufacturers’ accounts and to expedite the resolution of unsettled FX forward contracts
• The association emphasises that manufacturers have fulfilled their financial obligations and should not be penalised for delays caused by banks after funds are remitted to the CBN

Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.

Concerns about certain commercial banks' unwholesome handling of their members regarding unfulfilled foreign exchange (FX) forward obligations have been raised by the Manufacturers Association of Nigeria (MAN).

FX forward commitments, which are used as a hedge against volatile exchange rates, are legally binding agreements to exchange currencies at a specified rate on a future date. Businesses generally utilise these contracts to safeguard themselves against currency risk while conducting business internationally.

In a statement released yesterday, MAN Director General Segun Ajayi-Kadir described a current pattern in which banks have handled the issue to the prejudice of manufacturing businesses, which should not have to deal with a problem they did not cause.

He said:

“As a vital sector of the economy, manufacturers rely heavily on access to FX for the importation of essential raw materials, machinery, and equipment that are not locally available.

“Recently, our members have reported significant unwarranted complexities and undue high-handedness by the banks. Many have faced stringent requirements that are not aligned with the Central Bank of Nigeria’s (CBN) guidelines, resulting in unnecessary bottlenecks and illegal freezing of their corporate and personal bank accounts, negatively impacting production, which could threaten the sustainability of manufacturing operations.”

Citing a specific instance of an ongoing FX forward-related issue involving KAM Industries Nigeria Limited, a prominent West African steel company, and one of Nigeria's commercial banks, Ajayi-Kadir said that numerous others are going through similar traumatic experiences.

“This should stop in the interest of Nigeria’s economic development, job security, and business sustainability,” he added.

Clarifying the position of manufacturers with respect to the subject matter involving commercial banks and CBN, the MAN DG said:

“As is the norm, commercial banks receive payments in Naira either through direct remittance from their customers or credit facilities for the purpose of securing FX for raw material importation. Upon receipt of these funds or grant of credit facility, the banks then remit the Naira to CBN on behalf of their customers. From that point, the funds are deemed to be held by the apex bank, thereby completing the customers’ obligations.

“Given this background, MAN asserts that its members are not liable for delays or complications arising after the remittance of funds to CBN by commercial banks. Our members have played their part, and the commercial banks should play theirs. Our members should not be harassed by the banks.

“To this end, we call on CBN to direct the concerned commercial banks to immediately unfreeze the accounts of innocent manufacturers in relation to the vexed issue of FX forwards. We reiterate our call on CBN to speed up the long-overdue redemption of the unsettled FX forwards as a lasting solution to the dilemma.”

Manufacturers shun loans, turn to other fund sources

Legit.ng reported that for the first time in two years, credit to the manufacturing sector declined quarterly in 2024.

Data from CBN shows that credit to the manufacturing sector fell by 6.67% quarter-on-quarter (QoQ) to N8.67 trillion in the third quarter of 2024 (Q3’24), down from N9.29 trillion in the previous quarter (Q2’24).

This marks the first quarterly decline in two years, with the last drop occurring in the third quarter of 2022 (Q3’22).

Source: Legit.ng