By G9ija

Naira and Dollar

With a high tendency of channeling a lot more businesses to the doorsteps of commercial banks in the country, the recent central bank’s decision to stop dollar sales to Bureau de Change (BDCs), is expected to impact the lenders’ profitability positively anytime soon. Although the apex bank has assured strict monitoring of compliance among the banks, which are now the only beneficiaries of its forex sales, many see the lenders undermining the regulator’s EX stability objective in their desperation to harness the huge business potential.

The Central Bank of Nigeria (CBN) had been supplying each licensed BDC $10,000 twice per week at the rate of N393 with the instruction that they should sell with a margin of N2.

But the governor, Godwin Emefiele, while announcing the end of forex sales and new licence approval after the Monetary Policy Committee (MPC) two-day meeting in Abuja, expressed the MPC’s disappointment over the BDCs’ continuous abuse of the privilege. Emefiele said the currency dealers had defeated their purpose of existence to provide forex to retail users, but instead, had become wholesale and illegal dealers.

He said, “Operators in the BDC have not reciprocated the gesture to help maintain price stability in the market since the CBN had been selling forex to them.

“They have remained renegade and so greedy, recalcitrant with abnormally high profit from these sales while ordinary Nigerians have been left to feel the pain and therefore suffer”, Emefiele stated. “Given this rent seeking behaviour, it is not surprising that since the CBN began to sell forex to the BDCs, the number of operators has risen from mere 74 in 2005 to over 2,700 in 2016, and almost 5,500 BDCs as at today.

“In addition, the CBN constantly receives nothing less than 500 new applications from BDC licences every month, and we therefore begin to wonder, what is in this business that everybody must be in it?”

Observing that BDCs had continued to make huge profits while Nigerians suffered in pain, Emefiele said the commercial banks would be monitored to provide forex for the legitimate use of Nigerians. “The central bank will henceforth discontinue the sale of forex to Bureau de Change operators,” Emefiele had said.

No sooner had the apex bank made the pronouncement than the banks, through their chief executive officers (CEOs), promised to support the new FX measures and the regulator’s effort to achieve stability. Chairman, Body of Bank CEOs, Herbert Wigwe, said authorised financial institutions in the FX market would ensure full compliance with the CBN directives to ensure FX stability. Wigwe, who maintained that the banks were ready to meet the mandate of the CBN, said they have more than enough capacity to deliver; assuring that the process would be centralised to avoid abuse.

measures in terms of Know Your Customer (KYC). For us at Access Bank, we will ensure that all our branches meet the requirements. “If you look at all the banks, you would agree with me that the banks have more than enough capacity to deal with the mandate of the CBN. “If we see non-compliance issues, we will report to the CBN and the law enforcement agencies. So if people intend to do things, such as coming with a second passport and other things, we will report them to the law enforcement agencies.”

The Access Bank’s CEO added, “We feel that what the CBN has done is worthy of commendation because people will have access to different channels to collect their BTAs and school fees required for their children. “The banks have a lot more channels to assist the customers get access to forex, depending on where they are, even if they are in Enugu or Port Harcourt.”

Although the assurance by bank CEOs to ensure full implementation of the CBN directives in their respective banks came as a boost to the apex bank’s policy change, industry watchers contend that the CEOs’ promise and the cooperation of banks’ staff assigned to interface with the potential forex buyers are two different things. For them, there is need to learn from the past when officials of commercial banks made a kill from FX sales by giving all manner of excuses to disqualify customers from forex sale while some bank officials indulge in forex round tripping.

Group Managing Director, Cowrie Assets Management Limited, Mr. Johnson Chukwu, warned that “the concern is that the new policy may bring about more problems than the CBN intends to solve. The fact is that you have a commodity that is in short supply. You have further constricted the supply channels, so it follows that unless you expand the supply channels you are going to have an increase in the arbitrage, so it’s expected.” Also, economist and former Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr Muda Yusuf, said what was happening in the foreign exchange market was a consequence of the CBN’s policy choice of a fixed exchange rate regime and administrative allocation of forex.

He said, “It is a policy regime that has created a huge enterprise around foreign exchange — round tripping, speculation, over invoicing, capital flight etc.

“The action of the apex bank amounts to tackling the symptoms rather than dealing with the causative factors, which is not a sustainable solution.

“It is regrettable that the CBN does not believe in the market mechanism. Yet market systems are time tested as instruments of efficient resource allocation in leading economies around the world.” He added, “Moving retail forex transactions from BDCs to the banks was like kicking the can doWn the road. The same issues would manifest even with the banks.”

According to him, the way out of the foreign exchange conundrum was for the CBN to allow the market to function.

Many others are, however, applauding the CBN’s move, citing the long-term benefits of the ban on the economy. A professor of capital market, Uche Uwaleke, among other supporters of the forex ban, has in his various interventions commended the CBN’s decision, advising that the BDCs should source their money having deviated from their core roles and resorted to undermining their privileges by embracing illegal dealings. “The ban is consistent with the move by the CBN to unify exchange rates and bring more transparency to the forex market”, Uwaleke said.

On his part, lead consultant, ECOWAS Commission, Prof Ken Ife, observed that at the heart of the forex problem is the fact that demand for dollar is far higher than the supply, an unfortunate disparity driven by the fact that Nigeria is a highly import-dependent nation.

In an AIT financial market programme, ‘MoneyLine’, monitored by our correspondent, the renowned economist said, “CBN’s decision is a step in the right direction, But the banks are not saints, They’re out there to make profit but the CBN should ensure strict monitoring of compliance.

“So, I don’t think the policy will stop forex crisis because there is every tendency that the banks may continue what the BDCs were doing. But they have to prove that they are the better evil.

think the lasting solutions will be for CBN to allow both banks and BDCs to go out there and source for dollar.”