Market News

The latest in the series of measures by the Central Bank of Nigeria (CBN) – the stoppage of forex sales to BDCs outlets my well be the missing link in the series of measures taken over the years by the leadership of the apex bank to give the nation’s economy the breather from its many years of undulating movement.

Godwin Emefiele, who is spending his seventh year at the helm of affairs as the CBN as governor, will perhaps take time off to recoil on his swivel chair this time to relax and reflect, as he turns  60 this week. The apex bank has been under strain and considerable pressure over the years on how to reposition the economy through its several interventionist programmes and resolve the intractable challenge of finding an acceptable dollar-naira exchange rate.

The problem got to a crescendo where it appeared that all options to putting an end to the menace (as it had turned out) were exhausted. In the uncertainty that followed around the forex market and its management, forex traders and speculators had a field day, as the $/N exchange rates defied all economic permutations, with the exchange rate gap widening by the day.

But the unrelenting Emefiele continued his forex crisis resolution drive by reaching out to all concerned, appealing to them to play by the rules. He never gave up neither did his enthusiasm wane by the continuous flouting of the rules of the game by forex traders – whether they were institutional, private or autonomous and licensed entities. He kept his cool, applying the carrot-and-stick option at times, but kept driving what he considered laudable and feasible ways and means to rein-in what was fast becoming a dangerous trend, and if left unchecked, has the tendency to call to question his achievements in the past seven years as CBN helmsman.

In the meantime, the $/N exchange rate was assuming an uncontrollable ascendancy, and having crossed the N500 margin, the next question and expectation was, when it would hit N1000 to the dollar. For the CBN governor, it was now time to act and move the battle to the battlefield. He has not only moved fast, but swiftly against the BDCs that many have fingered as being part of the problem rather than the solution.

A fuming Emefiele slammed the ban on forex sale to BDCs and stoppage of further licensing and registering of the BDC operators at the end of the CBN’s Monetary Policy Meeting in Abuja, last week. He was emphatic, saying for promoting graft and corruption, and providing a platform for money laundering, the CBN stopped the sale of forex to the BDCs.

He pointed out that the decision to stop the sale of forex to BDC operators had to be taken because “BDCs have turned themselves into agents that facilitate graft and corrupt activities of people who seek to conduct illicit funds flow and money laundering in Nigeria and we will go after all of them,” adding that the CBN has also resolved that it “will no longer process or issue new licenses for BDC operations in the country. This stoppage extends to all licenses being currently processed regardless of the stage of that processing.”

He said the CBN “will henceforth channel significant portion of its weekly allocations currently meant for BDCs to commercial banks to meet legitimate FX demand for ordinary Nigerians and businesses whether for small scale imports, medical bills, educational expenditure, personal and business travels or any other legitimate needs as prescribed by the CBN’s Foreign Exchange Manual,”  and consequently directed all commercial banks in the country to “with immediate effect create a dedicated teller point in designated branches for sale and disbursement of foreign exchange to customers who desire FX for legitimate purposes.”

Not mincing words, Emefiele insisted that “once a customer provides the basic documentation to purchase foreign exchange, all banks must immediately either on demand or within a stipulated time frame, sell foreign exchange to the customer. Any customer who does not receive foreign exchange along these lines must report this to their bank and where they are unsatisfied with the resolution, they are required, indeed they must contact the CBN on our toll-free line number 07002255226, or email – [email protected] to lodge a complaint with details of the bank transaction.”

Emefiele accused BDCs of deviating from the original objective for which they were established, saying Instead, their activities have resulted in unintended and unfortunate consequences for the country. He said there is an “avalanche of rent seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of prevailing rates in the market.

HE lamented the “gradual dollarisation of the Nigerian economy with attendant adverse consequences on the conduct of the Monetary Policy and subtle subversion of the cashless policy initiative of the Central Bank of Nigeria.”

He said going forward, the bank would only supply the greenback to banks to meet genuine retail needs of Nigerians. 

According to him, “This time around, there is going to be stricter monitoring and the banks themselves know what is on their shoulders now, looking at where we are coming from in terms of taking it off the BDC segment because of distortion and irregularities and arbitrages we saw in that market.

“So, the banks know that this is a more serious burden on them and it is something that has to do with their reputation and the fact that the CBN has enough tools within its purview to monitor those banks and also penalise those that fall off the line.”

DMBs comply

In compliance with the CBN’s directive, Deposit Money Banks (DNBs) immediately announced their readiness to implement the new rule governing forex sale to end users in respect of Basic Travel Allowance (BTA), as well as for personal travels (PTA), school fees and medicals, among others.

The Chairman, Body of Banks’ Chief Executive Officers and the Group Managing Director Access Bank Plc, Herbert Wigwe, said the banking industry  was ready and prepared to carry out the CBN’s directive on dollar sales to end users, adding that banks will take necessary measures to ensure compliance with foreign exchange sales guidelines set by the apex bank.

He assured that banks have more than enough capacity in terms of branch network, manpower and technology to sell dollars to end users, stressing that “banks have very strict compliance rules in terms of ‘Know Your Customer’  and making sure that people who apply are eligible. The banks more than any other institution are ready to do it. So, we are going to provide this service and make sure that we have various branches across the country and meet the requirements.”

The Managing Director/CEO, Guaranty Trust Holding Company, Segun Agbaje, agrres with Wigwe, pointing out that issues of documentation and checks for documents integrity will be handled by banks’ Chief Compliance Officers to ensure that only people with genuine demands get dollars from the banks.

He said: “We imagine that there could be some compliance issues that may come up.  It is also important for us to state that if we see those things happen, we will report to the CBN and to the law enforcement agents.  If people are coming with things like a second passport and all of that, they will be reported to the law enforcement agents,” adding that customers interested in buying dollars can start going to the banks for their dollars.

“We are going to run a very transparent process and the heads of compliance will ensure that everything works according to regulation. We are putting infrastructure in place to ensure we make success of the process,” Agbaje said.

Refund of licence fees

To add bite to its resolve to end its romance with the BDCs, the CBN has commenced the immediate refund of capital deposits and licensing fees to promoters who have pending BDC licence applications with it. In a CBN circular ref: FPR/DIR/PUB/CIR/001/019 dated July 28, 2021 and signed by Ibrahim S. Tukur for Director, Financial Policy And Regulation Department, the regulator said the decision to commence the refund of the minimum capital deposit and licensing fees from BDC operators, is a fallout of its resolve to halt the sale of foreign exchange to BDCs.

 BDCs down but not out

The leadership of the umbrella body of BDCs, the Association of Bureau de Change Operators of Nigeria (ABCON), has come out with a bold face assuring its members that it is not over yet. In acquiescing to the CBN’s accusation of its members as albatross in the forex trading value chain, ABCON President, Aminu Gwadabe, said the association will undertake a soul searching and house cleansing exercise.

He said in a condescending note that BDCs that violated CBN’s guidelines on forex sales will be identified and sanctioned, adding that despite the current challenges, BDCs were still in business and urged the public to continue with their patronage of the foreign exchange market.

He said ABCON will engage with the CBN to address and resolve all the issues that led  to the recent action, including, as he puts it, “the identification and sanctioning of erring BDCs, where necessary,” stating that the  recent pronouncement of the apex bank does not stop BDCs from providing forex services as allowed by  their operating licences and also in their operating guidelines.

He admitted that “while the dollar sale from CBN had helped in enhancing supply, the fact remains that BDCs are empowered to source foreign exchange from other sources and also to provide various services to members of the public.”

Gwadabe, short of saying: ‘we are down but not out’, reminded the public that “while the CBN has stopped dollar sale to BDCs, it has not cancelled their operating licences, or banned them from providing foreign exchange services to members of the public. “At ABCON, we urge our members to see the CBN pronouncement as a wakeup call and opportunity to widen their customer base and deepen their business,” Gwadabe said.

 Exchange rate movement

The initial forex market reaction to the CBN move was, expectedly, a spike in the dollar-naira parity. The news came as a jolt to many, resulting in a panic response. However moderation has set in and the response from users is gradually becoming moderated leading to a firmer naira against the dollar. The development has also pushed manufacturers to look the way of the official market, given the high prevailing exchange in the parallel market.

If the CBN stays its course on this measure and insists on seeing this policy to the end, then the possibility of eventually getting both the official and parallel margets attaining a unified exchange rate would be just a matter of time.