Surge in Domiciliary Account Balances as Naira Declines: A Boost in Forex Deposits
The total balance in domiciliary accounts across commercial and merchant banks in Nigeria experienced a significant increase of more than a fifth in June 2023, according to data sourced from the Central Bank of Nigeria (CBN). The data revealed that foreign currency lodgments, primarily in dollars, rose from N10.72 trillion in May to N17.65 trillion in June.
When converted to dollars at the exchange rate of N610.17 to a dollar as of June 2023, the amount surged by 21% to $28.92 billion from $23.20 billion. This rise was attributed to a combination of increased deposits and the devaluation of the naira. The naira’s exchange rate stood at about N462.01 per dollar before the devaluation.
The devaluation of the naira has been a key factor driving the growth in the naira value of deposits in domiciliary accounts. As of November 9, 2023, the naira reached its lowest point against the US dollar, exchanging for N996.75 per dollar. Despite interventions by the Federal Government, the naira experienced a decline to N1,170 in the parallel market, with a marginal recovery from the previous day’s crash to N1,180 per dollar.
Experts attribute the growth in domiciliary account deposits to the devaluation, emphasizing that these accounts make up more than a third of the total deposits in the banking sector. Domiciliary accounts, however, often remain underutilized, prompting suggestions for creative approaches to harness the potential liquidity.
Daniel Kanu, a banker, proposed the creation of dollar-denominated savings specifically for domiciliary account holders. This innovative approach aims to mop up the foreign exchange in these accounts without converting them to naira, providing the government with access to enhance liquidity in the system.
Nigeria’s external reserves, as of November 7, 2023, stood at $33.41 billion, a decrease from $37.08 billion at the end of 2022, according to CBN data. The apex bank had lifted restrictions on domiciliary accounts on June 18, 2023, as part of measures to enhance transparency, liquidity, and price discovery in the foreign exchange market.
The five leading banks in Nigeria—Zenith Bank, UBA, Access Bank, First Bank, and GTBank—have witnessed a faster rise in customers’ domiciliary deposits in 2023 as the money supply in the country increased by more than a quarter. This surge in domiciliary account balances reflects a complex economic landscape where the naira’s value decline contributes to shifting financial dynamics.