Economy
Has Naira-settled OTC FX Futures Stabilized Naira Exchange Rate?
By Quantitative Financial Analytics Ltd
To stem the continued devaluation of the Naira and to breathe some air of stability into the ever-volatile Naira/Dollar relationship, the Central Bank of Nigeria (CBN) introduced some far-reaching measures at different times.
One of such measures was the launching of the Naira-settled OTC FX Futures Market. That “history making” event which commenced on June 27, 2016 made the CBN “the pioneer seller of the Naira-settled OTC FX Futures contracts on the FMDQ OTC Securities Exchange (FMDQ)”.
Before the advent of the Naira-settled OTC FX Futures, various governments in Nigeria had been tinkering with the Naira exchange rate management using different policy driven methodologies at different times.
In 1986, the Exchange Rate Liberalization Policy was introduced and with it, the Naira was devalued officially for the very first time on September 26, 1986 to be specific. From that day till today, the Naira has been heading south.
Economic and financial historians have it that Nigerian governments have tried to manage the exchange rate with the Foreign Exchange (Monitoring & Miscellaneous Provisions) (FEMM) Act of 1995, the two-way Quote System (market making) in the inter-bank FX market in 1996 and the Wholesale Dutch Auction System (WDAS) in 2006.
Unfortunately, it seems none of those worked. It is therefore not surprising that the currency futures market has been put in place as a way to “stabilize” the Naira.
It is now almost two years since the Naira-settled OTC FX Futures market was introduced and the question is ‘how far it has gone in stabilizing the Naira/Dollar exchange rate?’
Though the Naira/Dollar exchange rate continues to remain high, it is a bit comforting that the new FX currency risk exposure management instrument, (the Naira-settled OTC FX Futures), has been able to curb or curtail the speed at which the Naira depreciates relative to the Dollar. At least, for over six months the rate has remained in the N360s to the $.
When used properly, Currency Futures are a veritable instrument of managing foreign currency risk exposure. This works well when there are buyers and sellers and probably not so well when there are buyers with the CBN as the only seller.
By definition, a futures contract is an agreement between two parties where one (the buyer) agrees to buy and the other, (the seller) agrees to sell a given amount of the underlying asset or subject of the contract, at an agreed price on future date.
A futures contract entails a long position by one party and a corresponding short position by another. It does look like the CBN is the seller or the short position party in the Naira-settled OTC FX futures contracts although it is not apparent who the long position parties are.
By their nature, futures are zero sum games. Futures do not involve an initial cash flow, meaning that money does not change hands at the initiation of the contract except where commissions are charged but subsequently, it becomes apparent how much the parties to a contract will pay/receive as the price of the underlying instruments change from day to day.
The method of determining the amount payable/receivable by either party is called marking to market, (the technicalities involved in mark to market calculation will not be part of this discuss).
Market Activity
It is noteworthy to point out that the Currency Futures market in Nigeria has been very active and vibrant since inception although the momentum seems to be reducing as rates converge.
On the date that the market went live, it recoded $26.73 million in open interest. As at April 6, 2018, the open interest had increased to $3,278.43 million, an increase of 12176 percent. This underscores the extent of Nigeria’s dependence on and demand for the dollar, among other implications.
The implication of this is also that, if the CBN is the only party that holds the short positions, it means that the CBN has contracted to sell $3,278.34 million to various parties over a range of period depending on the maturity dates of the contracts.
However, the Naira-settled OTC FX Futures are non-deliverable, meaning that the CBN is not going to sell or deliver $3,278.34 million to the long position holders; rather, the CBN will pay them the difference between the contract price and the NIFEX/NAFEX rate as at the maturity date of each futures contract.
It will be recalled that the first futures contract matured on July 27, 2016, and the CBN had to pay N962.23 million to the long position holder.
For the almost two years of existence of the FX Futures market in Nigeria, 21 of such contracts have matured. Looking at the contract prices of the open trades in relation with the current exchange rate, there is indication that the CBN will be at the paying end of the contracts.
According to analysis by analysts at Quantitative Financial Analytics, the total notional value of all contracts from inception to date is $11.743 billion while total matured contracts stand at $8.464 billion, leaving current outstanding open interest at $3.278 billion.
Out of the matured contracts, the short position holders (probably the CBN) have paid an estimated $503.8 million to the long position holders, according to the analysis.
As said before, currency futures are derivatives, and derivatives are high risk instruments, if used properly, they are beneficial but when misused, they can lead to catastrophe.
To a large extent and in most recent times, the FX currency futures market has helped in stabilizing the Naira Dollar exchange rate although the decreasing momentum arising from convergence of rates may diminish its role in managing the currency risk exposure of Nigerians. We are watching
By Adedapo Adesanya
The World Bank has approved a $500 million facility for Nigeria to expand longer-term lending to small and medium sized businesses.
Approved under the Fostering Inclusive Finance for MSMEs in Nigeria (FINCLUDE) project, the package comprises a $400 million International Bank for Reconstruction and Development (IBRD) loan and a $100 million International Development Association (IDA) credit. Both IBRD and IDA are members of the World Bank Group.
The scheme will be implemented by the Development Bank of Nigeria (DBN), with credit guarantees provided through DBN’s subsidiary, Impact Credit Guarantee Limited (ICGL).
FINCLUDE is designed to address constraints faced by micro, small, and medium enterprises (MSMEs) in Nigeria which despite accounting for most businesses and nearly half of gross domestic product (GDP) face long-standing barriers to formal finance.
Fewer than one in 20 MSMEs have access to bank credit; loans are often short-term and costly; and collateral requirements exclude many viable firms. Women-led enterprises, which make up a substantial portion of MSMEs, are disproportionately affected, facing higher rejection rates and limited tailored products. Agribusinesses, central to food security and rural livelihoods, similarly struggle to obtain more extended‑tenor financing for equipment, processing, storage, and logistics.
However, FINCLUDE seeks to address these constraints by expanding access to affordable, longer-term finance and tailored solutions for segments with the most significant development impact.
Speaking on this, the World Bank Country Director for Nigeria, Mr Mathew Verghis, said, “FINCLUDE is about jobs, opportunity, and inclusion. By expanding access to finance for viable MSMEs—particularly women-led firms and agribusinesses—Nigeria can accelerate growth and deliver tangible benefits across communities nationwide.
“The project will make it easier for deserving small businesses to get the finance they need to grow and hire workers. With better support for lenders that practice inclusive finance and fairer, longer-term loans for entrepreneurs, we are backing the people who power Nigeria’s economy—especially women and those in agriculture.”
The FINCLUDE project will help to mobilise private investment and expand access to and usage of inclusive, innovative financial products for MSMEs nationwide.
Through DBN, the operation will strengthen the capacity of banks, including microfinance banks and non-bank financial institutions such as financial technologies (fintechs), to provide larger loans with more reasonable repayment periods, and—through ICGL—will scale partial credit guarantees so that lenders can extend credit to businesses they might otherwise consider too risky.
Targeted technical assistance will modernise loan appraisal by leveraging AI-enabled digital platforms to accelerate decision-making, improve data quality, strengthen impact measurement, and build capacity for both MSMEs and participating financial institutions.
According to the World Bank, a strong emphasis on inclusion will ensure that women-led businesses and agribusinesses benefit from these improvements.
Also commenting, Task Team Leader for FINCLUDE, Mrs Hadija Kamayo, said, “FINCLUDE will help to mobilize approximately $1.89 billion in private capital, expand debt financing to 250,000 MSMEs—including at least 150,000 women-led businesses and 100,000 agribusinesses—and issue up to $800 million in guarantees to catalyse lending.
“By extending the average maturity of MSME loans to about three years, it will help firms invest in equipment, factories, staff, and productivity, translating finance into jobs and growth.”
By Dipo Olowookere
The local stock market firmed up by 1.13 per cent on Friday as appetite for Nigerian stocks remained strong.
Investors reacted well to the 2026 budget presentation of President Bola Tinubu to the National Assembly yesterday, especially because of the more realistic crude oil benchmark of $64 per barrel compared with the ambitious $75 per barrel for 2025. This year, prices have been between $60 and $65 per barrel.
Business Post observed profit-taking in the commodity and energy sectors as they respectively shed 0.14 per cent and 0.03 per cent.
But, bargain-hunting in the others sustained the positive run, with the consumer goods index up by 3.82 per cent.
Further, the industrial goods space appreciated by 1.46 per cent, the banking counter improved by 0.08 per cent, and the insurance industry gained 0.04 per cent.
As a result, the All-Share Index (ASI) increased by 1,694.33 points to 152,057.38 points from 150,363.05 points and the market capitalisation chalked up N1.080 trillion to finish at N96.937 trillion compared with Thursday’s closing value of N95.857 trillion.
A total of 34 shares ended on the advancers’ chart, while 24 were on the laggards’ log, representing a positive market breadth index and bullish investor sentiment.
Austin Laz gained 10.00 per cent to close at N2.42, Union Dicon also jumped 10.00 per cent to N6.60, Tantalizers increased by 9.80 per cent to N2.69, Aluminium Extrusion improved by 9.78 per cent to N12.35, and Champion Breweries grew by 9.71 per cent to N16.95.
Conversely, Sovereign Trust Insurance dipped by 7.42 per cent to N3.87, Royal Exchange lost 6.84 per cent to trade at N1.77, Omatek slipped by 6.84 per cent to N1.09, Eunisell depreciated by 5.88 per cent to N80.00, and Eterna dropped 5.63 per cent to close at N28.50.
Yesterday, traders transacted 1.5 billion units worth N21.8 billion in 25,667 deals compared with the 839.8 million units sold for N32.8 billion in 23,211 deals in the preceding session, showing a surge in the trading volume by 76.61 per cent, an uptick in the number of deals by 10.58 per cent, and a shrink in the trading value by 33.54 per cent.
By Adedapo Adesanya
Three stocks stretched the bearish run of the NASD Over-the-Counter (OTC) Securities Exchange by 1.21 per cent on Friday, December 19, with the market capitalisation giving up N26.01 billion to close at N2.121 billion compared with the N2.147 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropping 43.47 points to 3,546.41 points from 3,589.88 points.
The trio of FrieslandCampina Wamco Nigeria Plc, Central Securities Clearing System (CSCS) Plc, and NASD Plc overpowered the gains printed by four other securities.
FrieslandCampina Wamco Nigeria Plc lost N6.00 to sell at N54.00 per unit versus N60.00 per unit, NASD Plc shrank by N3.50 to N58.50 per share from N55.00 per share, and CSCS Plc depleted by N2.91 to N33.87 per unit from N36.78 per unit.
On the flip side, Air Liquide Plc gained N1.01 to close at N13.00 per share versus N11.99 per share, Golden Capital Plc appreciated by 70 Kobo to N7.68 per unit from N6.98 per unit, Geo-Fluids Plc added 39 Kobo to sell at N5.50 per share versus N5.11 per share, and IPWA Plc rose by 8 Kobo to 85 Kobo per unit from 77 Kobo per unit.
During the trading day, market participants traded 1.9 million securities versus the previous day’s 30.5 million securities showing a decline of 49.3 per cent. The value of trades went down by 64.3 per cent to N80.3 million from N225.1 million, but the number of deals jumped by 32.1 per cent to 37 deals from 28 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc finished the session as the most active stock by value on a year-to-date basis with 5.8 billion units valued at N16.4 billion, followed by Okitipupa Plc with 178.9 million units transacted for N9.5 billion, and MRS Oil Plc with 36.1 million units traded for N4.9 billion.
The most active stock by volume on a year-to-date basis was still InfraCredit Plc with 5.8 billion units worth N16.4 billion, trailed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.7 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
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