It’s over two weeks that the Central Bank of Nigeria suspended forex allocation to bureau de change operators and adopted weekly supply to commercial banks with a view to rescuing the value of the naira and maintaining its integrity. Gauging the forex market, using customer experience, shows how the apex bank has fared in pursuing the desired goals and objectives for the system. Kunle Aderinokun reports
After more than two weeks of Central Bank of Nigeria’s decision to suspend forex allocation to bureau de change (BDC) operators, customers have been patronising commercial banks to satisfy their forex needs.
As soon as the apex bank cut off supply to the BDCs, it released $200 million to the commercial banks and has continued to serve them forex liquidity, weekly. This was part of efforts to meet dollar demand for legitimate end users in the country.
Already, the banks now armed with the CBN’s mandate to accept cash deposits of foreign exchange from their customers, have taken up more responsibilities to open forex desks in their branches nationwide, to serve end-users.
However, as activities revved up, some of the banks have started flouting the forex rules by actively conniving with unscrupulous customers to defraud the system. This set of customers and banks have been warned to desist from such nefarious act or risk stiff sanction by the banking regulator.
Rising from the 357th Bankers Committee meeting, which was held virtually last Thursday, bank CEOs, who reported the unwholesome practices by some customers, noted that they would adopt digital means to detect fraud in the forex system.
Managing Director of First City Monument Bank (FCMB), Yemisi Edun, and Group Managing Director of Guaranty Trust Holding Company (GTCO), Segun Agbaje, spoke on behalf of the banks.
The customers, who had cause to visit the banking hall to secure forex for their various needs under the new forex regime, have a mixed bag of tales to share.
Narrating his experience as a bank customer, Chief Executive Officer, Global Analytics Derivatives, Mr. Tope Fasua, said: “All banks have implemented the policy to create FX tellers and initially queues have disappeared. I was in a bank on Monday and I saw people paying dollars in their DOM accounts which is a sign of confidence in the system.”
Another bank customer, who craved anonymity, said, “As one who uses forex so much for my business, because I import gold and other jewellery, this CBN suspension of forex to the BDCs has only made it difficult for me to access dollars and at a reasonable rate. Since the suspension, the price has gone up as we can see; from the N420 I used to get to N515-N520 today. That is not fair!
“The CBN policy has only been able to alarm the market and made the dollar far more expensive than it was before the new directive.
“So, what is the benefit now? You go to the banks and they tell you they don’t have dollars, but if you don’t mind, they can arrange some other options for you; which always end up with the Mallam on the street selling dollar.
“With the BDCs, the business was always direct, easier and cheaper plus the fact that you can get it at any time. They have their offices and they are registered with an association they call ABCON or something like that.
“So, if I have an issue with any of their members, I know who to hold and where to go without all that red tape and plenty grammar the banks used to speak when you come to complain to them. Why can’t the CBN just work with that body to solve the problem?”
Besides, a Lagos-based businessman, Mr. Jide Thomas, who is a bank customer, said, the CBN should work with the BDCs group to effectively regulate their activities and refine their operations by drawing up guidelines for them to follow.
Thomas suggested that the apex bank empowers the forex traders’ body to discipline erring members, while it can also descend on the association, if their members commit infractions that threaten to damage the system. According to him, suspending allocation to the BDCs is not the solution. Working with the BDCs association to curb their excesses is the way to go.
The decision by the CBN to suspend allocations to bureau de change (BDC) operators was a welcome development to some while it came as a rude shock to others. Howsoever it is taken or whichever way it is viewed, the CBN’s intended consequence is to save the naira, the national currency, even though, just like every decision, there are unintended consequences.
The Central Bank cited various regulatory infractions and other unwholesome practices, as part of the reasons for discontinuing the forex sale to the BDCs
Following the decision, which was announced by its Governor, Mr. Godwin Emefiele, and the apex bank noted it would no longer process or issue new licences for BDC operations, pointing out that all licences being currently processed regardless of the stage of processing had been suspended. He said the CBN would channel weekly allocations, meant for BDCs to commercial banks.
According to the apex bank, these measures were taken to enable it more effectively and efficiently carry out its mandates and guarantee preservation of the shared commonwealth and the hard-earned financial system stability for the benefit of Nigerians.
Twenty four hours after the announcement, the naira-dollar exchange rate at the parallel market climbed up to N525/$1from N495/$1, as result of the panic created by the policy change. But that was not to last long as the naira thereafter gained with the greenback exchanging for N510. Pressure, however, continued to mount on the naira as demands from manufacturers and forex end-users were sustained.
As soon as the CBN made public its decision, the BDC operators assured their customers and the general public that they were still in business. The BDCs that operate under an umbrella body called Association of Bureau de Change Operators of Nigeria (ABCON), said in a statement that they were still providing foreign exchange services.
ABCON, which gave the assurance through its President, Dr. Aminu Gwadabe, stressed the recent CBN pronouncement did not stop BDCs from providing foreign exchange services as allowed by their operating licences and also in their operating guidelines.
CBN has since been supplying commercial banks forex. Stemming from CBN’s intervention, the value of the naira improved, but the national currency has continued to be under pressure as it lost N5 last Tuesday at the parallel market as the dollar, which exchanged for N505 moved up N510 in the face of rising volatility.
While analysts believed the CBN was right in taking the decision, a section of them said the new policy direction left much to be desired.
An economic analyst and Professor of Capital Market at Nassarawa State University, Keffi, Prof Uche Uwaleke, believed the forex rate at the parallel market would drop in the long term as long as CBN ensures forex liquidity at the official end of the market. He stressed that juxtaposed with other expected development, CBN’s capacity to intervene in the forex market would be reinforced.
Uwaleke, who is a former commissioner for finance, expressed the belief that, “As a matter of fact, the downward journey of the parallel market rate has commenced. Currently, the volatility in that market can be blamed on activities of speculators who are betting that the CBN may not be able to match the level of forex demand now re-directed to Commercial Banks.
“But I think they will be disappointed given gradual accretion to external reserves noticed recently, especially since the suspension took effect, the plan by the FG to issue Eurobonds in the International capital market and prospects of crude oil price staying strong in the near-to-medium term.”
A retired CBN director, who was in charge of commercial banking, Mr. Abiodun Sopitan, believed, the CBN should work with the BDCs association and manage their affairs by monitoring their activities through ensuring the BDCs do proper documentation.
In his view, Fasua said, “Since the policy decision the market has calmed a bit. Naira has strengthened to about N510 to the dollar from N525 with promises for more cooling down as the policy takes hold.”
He, however, pointed out that, “BDC operators are coming together to contemplate the future and organise themselves for mergers where necessary,” adding, “The ‘Mallams ‘ on the road as we know them are doing business as usual because the banks cannot match their speed of service delivery and the drive thru advantage.”
“Also very significantly, some bank MDs have expressed confidence in the policy and projected further strengthening of the naira. Mr. Rewane, one of Nigeria’s top economists also complemented this yesterday (Wednesday). So the future looks bright. All invisible trade transactions are currently being seamlessly met,” he also said.
But the former CBN Deputy Governor, Dr. Obadiah Mailafia, has a different opinion. To him, the new CBN forex policy may worsen the value of the naira. Besides, he cautioned the apex bank against trusting the commercial banks with dollars.
“If we are not careful, that decision will actually worsen the naira value because normally you could walk into any BDCs, anywhere and within five minutes, they will attend to you, but the banks, you have to drive to your nearest bank, you have to queue most of the time.
“The CBN has not told us the rate; the banks will want to make a profit over the official rate, we don’t know whether they will make a decent profit or they will profiteer,” he said, pointing out that, “Bankers were the biggest experts in round-tripping. Old habits, I don’t think they change. Leopards are very unlikely to change their spots.”
Mailafia also advised the CBN not to trust the banks with the forex allocations meant for the customers. “How can you totally trust these commercial banks because most of them will want to corner the dollar for themselves and whatever is left, then they can now share with the market at a rate they want?
He added: “On the naira, it is not just the underlying economic fundamentals that matters like interest rate, inflation and so on, these things matter and the level of debt affect it, but there are the non-quantifiable elements like violence, instability, rural banditry and terrorism, those things undermine the productive capacity of the economy. They also destroy social capital, the trust that holds the community together to do businesses together.”