The Central Bank of Nigeria (CBN) has issued a circular stating that international oil companies (IOCs) operating in Nigeria are no longer allowed to immediately send 100% of their foreign exchange (forex) earnings to their parent company abroad.
This practice, known as “cash pooling,” has been found to have an impact on liquidity in the domestic forex market.
Under the new guidelines, IOCs will only be able to repatriate 50% of their earnings immediately, with the remaining 50% to be repatriated 90 days after the funds are received.
According to the apex bank, “The Central Bank has observed that proceeds of crude oil exports by International Oil Companies (IOCs) operating in Nigeria are transferred offshore to fund parent accounts of the IOCs (otherwise referred to as cash polling). This has an impact on liquidity in the domestic foreign exchange market”
“In line with the ongoing reforms in the foreign exchange market, it has become necessary to take measures to address this trend. Consequently, the CBN hereby directs as follows;
“Banks are allowed to pool cash on behalf of IOCS, subject to a maximum of 50% of the repatriated export proceeds in the first instance.
The Balance 50% may be repatriated after 90 days from the date of inflow of export proceeds.”
The central bank has implemented new regulations for “cash pooling” by IOCs. These rules include obtaining approval from the CBN before repatriating funds under the cash pooling framework.
Additionally, the parent company of IOCs must reach an agreement with the CBN before engaging in cash pooling.
Furthermore, IOCs are now required to submit a statement of expenditure for the period prior to cash pooling.
Others are- “evidence of the source of foreign exchange inflow.”
“Completion of relevant forex form(s) as required under extant regulations.”
The Central Bank of Nigeria (CBN) has required all banks to notify their customers and adhere to the regulation.
