Extract of CBN’s new guidelines on Foreign Exchange

CBN Governor Godwin Emefiele

The newly released CBN guideline has been justified as part of the efforts to continue to ensure FX availability and ease the difficulties faced in obtaining funds for some invisible transactions. By the policy release, CBN announces plans to commence the sale of FX to banks for the purpose of Personal Travel Allowance (PTA) and School Fees, the sale of which shall be on Tuesdays.

 PTA rules

The CBN has, by the circular, modified the rule governing the eligibility criteria for PTA as follows:

 · Age Limit – Age of eligibility has been raised from 12 years to 18 years. Therefore, individuals younger than 18 year can no longer access PTA.

· Type of Passport – Only Nigerian passport holders can access PTA

· Compulsory Account Ownership – Interested customers can only purchase PTA from banks where they have accounts. In other words, no walk-in customers or non-account holders can obtain FX for PTA any more. Also, an account holder can only buy the PTA for self and in own name. Besides, the old practice of family members or relatives (i.e. couples, children, parents etc.) purchasing on a common account will no longer be feasible. By inference, the only exemption would be where couples operate a joint account. For the avoidance of doubts, interested individuals can only purchase PTA from banks where they have accounts opened.

· Travel Time to Trip Destination – As a rule previously not active, the new guideline permits only trip of 5 hours or longer to access PTA. Hence, destinations with travel time shorter than five hours are no longer eligible. The travel itinerary will be a way to check this for processing. Hence, travels to neighbouring African countries like Benin republic, Ghana, etc. with travel time less than five hours shall no longer be eligible.

· Time to Trip – Eligible and interested individuals can only access PTA from 14 days or less to their travel or flight time i.e. 2 weeks or less before travel.

· Tax Clearance – Presentation of a tax clearance certificate is now made a mandatory requirement for PTA. Only individuals who present their tax clearance certificate can access PTA.

· BVN – Only accounts with verifiable BVN can access PTA.

· Amount Accessible – The amount accessible via the window remains $4,000 per quarter.

 School Fees Rules

The guideline also outlines rules to guide the access to FX for the purpose of school fees remittance as follows:

 * Level of Education – Only University Education is eligible for FX for the purpose of foreign school fees payment. Therefore, contrary to the practice, it excludes primary and secondary education from access FX via this window. Therefore, such disadvantaged individuals are limited to the access via other markets other than the official market.

* Beneficiary Account – Remittances shall only be to the University account and not individual’s or student’s account. Invariably, the payment for living expenses shall not be eligible via this window.

* Amount Limit – The maximum allowable as school fee payment accessible is pegged at $15,000.00 per term/semester. Where individual school fee exceeds $15,000.00, the applicant may need to source the balance via other means.

* Applicant – only parents or recognized guardians of University students can access FX for such payment on behalf of their wards. Therefore, there exists the burden on recognized guardians to prove relationship with the beneficiary; most likely by way of sworn affidavit or other acceptance measures.

* BVN – Applicants (i.e. parents or recognized guardians) must have verifiable BVN to be eligible to access the FX for school fees remittance.

* Other Documents Required – The applicants, as before, would:

 complete a form A

Present the Admission letter from the University

Provide the relevant school invoice.

present a valid tax clearance certificate (new requirement).

 Reporting

· All banks are mandated to render daily returns to CBN on the sale of FX for PTA and School Fees.

· Such reports to reach the Director, Financial Markets Department latest by 4.00 p.m daily in both hard and soft copies.

· Reporting shall have headlines below:

§ Applicant Name

§ Amount Purchased

§ Applicable Rate

§ Purpose of Purchase

§ Beneficiary Name and

§ Passport Number.

· Noncompliance with the circular – both the rules and reporting – is a sanctionable offence.

 Implications

Ø The CBN is expected to provide FX to banks on weekly basis

Ø The financial institutions will be required to provide cash which will usually come at a cost and this has to be on the table in determining pricing for PTA. i.e. swap cost.

Ø For funded accounts, it would translate to cash outflows as the bank will make payment to CBN on weekly basis. Assuming $1m per bank at N375/$, it will translate to a weekly outflow of N375 million or monthly minimum of N1.5 Billion.

Ø The guideline may have a temporary and minimal dent on the price divergence between the parallel and official markets, bringing rates below N500/$. However, this is expected to be short lived as other categories remain excluded. Such categories include the non-university school fees, living expenses payment, medicals etc.

Ø As a matter of priority, sustainability will depend on the CBN’s capacity to meet the demand on a going concern basis as thoughts will be given to the national foreign reserves.

Ø The good side is that it presents an income making opportunity.