5 Reasons Why Banks are Cutting Dollar Limits on Naira Cards

Nigerian lenders including Zenith Bank, First Bank, GTCO and United Bank for Africa (UBA) are cutting dollar limits on Naira Cards or suspending dollar spending limits on local currency cards over the past couple of weeks.

Banks Cutting Dollar Limits on Naira Cards include United Bank for Africa  which stopped the use of naira cards to withdraw dollars from automated teller machines outside the country or make international payments at point of sale (POS) devices.

Zenith Bank in a message to customers seen by MoneyCentral said: “Please be informed that the monthly international spend limit for your Zenith Bank Car has been reviewed to US$100 while the use of Zenith Bank Naira cards for international Automated Teller Machine (ATM) cash withdrawals is still temporarily suspended.”

Zenith attributed the decision to “today’s economic realities.”

Guaranty Trust Holding Company (GTCO), informed its customers that: “the monthly spending limit on your Naira MasterCard has been reviewed to $20 for international online and POS transactions effective 14^th March 2022.”

First Bank in its own message to its clients said : “Due to current market realities on foreign exchange, we’ve reviewed cross border transaction limits for the Naira MasterCard and the Naira Credit Card to $50 monthly.”

What all this means is that the Naira is becoming less of a convertible currency precisely at a time when the opposite should be happening as Government coffers are expected to be filled with petrodollars due to higher oil prices.

A convertible currency is one that can be freely exchanged into another currency for any purpose, without regulatory restrictions. Convertible currencies are generally associated with open and stable economies, and their prices are typically determined through supply and demand forces in the foreign exchange market.

Higher convertibility means that a currency is more liquid and, therefore, less difficult to trade.

Factors affecting convertibility include the availability of foreign currency reserves in a given country and domestic regulations.

Why banks are cutting international limits for Naira cards

Market sources tell MoneyCentral that the decision by UBA, GTBank, FirstBank and Zenith Bank to reduce the value of foreign currency transactions that can be done through Naira-denominated card is not peculiar to them, as other banks have either hitherto silently implemented similar decision in the past few weeks or just followed the same path.

Some major reasons why this is happening include:

1. Sources tell MoneyCentral that banks can no longer fund the foreign currency debits arising from use of Naira-denominated cards for FX transactions, so, they have decided to reduce the value of transactions to (US$20 – US$100) which they can afford to fund through their own foreign currency positions.

UBA’s plan is to cut down on those transactions that would require it to start looking for foreign-exchange, Chiugo Ndubisi, executive director said at an investor call in Lagos. “We want to encourage as much as possible situations where customers are able to access dollars that they have deposited in banks through their domiciliary accounts,” Ndubisi said.

2. The Central Bank of Nigeria (CBN) is no longer selling Foreign currency (FCY) to banks for this purpose. They would need to either cut dollar limits on Naira cards or risk having a negative FX position, which may badly hurt their profitability, especially if the risk of devaluation crystalises, sources tell MoneyCentral.
3. Remittances to banks remain weak as for instance despite the N5/USD incentive of the CBN and allowance to cash FCY remittances in cash, most remittances now come through informal sources due to the spread between the official and parallel market rates.
4. Other autonomous sources of foreign exchange through which banks fund the foreign currency debits arising from the use of their naira cards for FX transactions has significantly dried up.
5. The CBN won’t fund the transactions for the banks because the CBN sees some bank customers taking advantage of the window to fund transactions that are designated as “not valid for FX” by the CBN.

The Central Bank of Nigeria said last month it will stop selling foreign currency to lenders by the end of the year to encourage them to source their own dollars and also support the government’s target to lure $200 billion of inflows yearly by 2025.

The regulator has struggled to fulfill its dollar obligations to portfolio investors since 2020 after oil prices collapsed. The International Monetary Fund (IMF) estimates that the central bank has a backlog of $1.7 billion in unmet demand to investors.

While oil exports account for about 90% of Nigeria’s foreign-exchange earnings, higher prices have failed to boost foreign reserves for Africa’s largest crude producer due to lower than normal output even as part of the export barrels go to fund gasoline imports for local consumption at subsidized prices.