It is crunch time for the Association of Bureau De Change Operators of Nigeria (ABCON). Aminu Gwadebe, the association president is making a strong case for inclusion in the workings of the new Central Bank of Nigeria, CBN, FX policy and wants the association to be granted licence as one of the Primary Dealers in the FX market.
The CBN is expected to announce the names of the Primary Dealers soon with policy framework to guide their operations. These are expected to be the qualified lenders and registered authorised dealers designated to deal with the CBN on large trade sizes on a two-way quote basis. They will serve as the bulk traders dealing directly with the CBN on FX matters.
“It would be against standard business practice to exclude BDC operators from the workings of the new CBN FX policy,” Gwadebe said in a statement released weekend to the public.
He said as a major and critical stakeholder in the FX business, it would be against standard business practice to exclude BDC operators from the workings of the new CBN FX policy.
ABCON is also asking the CBN to grant it self-regulatory status that would enable it monitor and supervise its members’ compliance with the extant regulatory requirement on the new FX regime.
The group was heavily criticized recently for being behind the depreciation of the local currency from N265 per dollar to near N400 per dollar especially since January 12th, 2016, and the Central Bank of Nigeria (CBN) responded by stopping direct sale of dollars to BDCs. The CBN action brought a lot of pressure on the operators, putting many of them nearly out of business.
Gwadebe argued that such licence would enable BDC operators access Diaspora remittances estimated at $21 billion annually, and by extension, deepen dollar liquidity in the system.
ABCON is also asking the CBN to grant it self-regulatory status that would enable it monitor and supervise its members’ compliance with the extant regulatory requirement on the new FX regime.
There are about 3,000 BDCs under the ABCON umbrella.
CBN guideline for the FXPD stipulated that to qualify as an FXPD, a bank is required to have a minimum of N400 billion in total foreign currency assets; minimum shareholders fund unimpaired by losses of at least N200 billion and minimum liquidity ratio of 40 percent.
Gwadabe faulted the stringent conditions for qualification as an FXPD, saying it would establish a new cartel in the banking industry and place only a few banks in advantage positions. Based on banks’ 2015 and March 2016 financial results, only the Systematically Important Banks (SIBs) or tier-1 banks are going to qualify. The appointment of these banks as FXPDs could imply they control a relatively higher proportion of FX market volumes.
“I see the FXPD policy as formalising the operations of the black market operations unless more operators are licensed to run it. The policy has already created cartel and monopoly to select few in the financial market,” he said.
The broad framework and guidelines of the Flexible Exchange Rate Inter-bank Market was released by the CBN on June 15 during which it restored the automatic adjustment mechanism of the exchange rate with the re-introduction of a flexible inter-bank exchange rate market.
The CBN said the workings of this market will be consistent with its objectives of enhancing efficiency and facilitating a liquid and transparent Foreign Exchange Market.
According to the CBN, the market shall operate as a single market structure through the inter-bank/autonomous window while the exchange rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book.
The CBN would also participate in the market through periodic interventions to either buy or sell forex as the need arises. It said the FXPD would improve the dynamics of the market, and would be registered by the CBN to deal directly with the bank for large trade sizes on a two-way quotes basis.
