The Central Bank of Nigeria (CBN) has instituted new regulations affecting international oil companies (IOCs) operating within the country, aimed at managing liquidity in the domestic foreign exchange (forex) market.
In a circular signed by the Director of Trade and Exchange, Hassan Mahmud, the CBN disclosed measures to curtail the practice of “cash pooling,” which involves IOCs immediately remitting 100% of their forex proceeds to their parent companies abroad.
The CBN’s directive restricts IOCs to repatriating only 50% of their proceeds immediately, with the remaining 50% to be repatriated 90 days after the inflow.
This move is part of broader reforms in the forex market to address liquidity concerns and promote stability.
Explaining the rationale behind the decision, the CBN emphasized the adverse impact of cash pooling on domestic forex liquidity.
By limiting the immediate repatriation of proceeds, the CBN aims to ensure a more balanced and sustainable forex market.
Key provisions of the new guidelines include:
Cash Pooling Limitation: Banks are permitted to pool cash on behalf of IOCs, but only up to 50% of the repatriated export proceeds initially. The remaining 50% can be repatriated after a 90-day period from the date of inflow.
Regulatory Approval: IOCs must obtain approval from the CBN before repatriating funds under the cash pooling framework. Additionally, the parent entities of IOCs must reach an agreement with the CBN before engaging in cash pooling activities.
Documentation Requirements: IOCs are required to submit a statement of expenditure incurred prior to cash pooling, along with evidence of the source of foreign exchange inflow. Completion of relevant forex forms as per extant regulations is also mandatory.
The CBN has mandated all banks to inform their customers and ensure compliance with these regulations.
