A few weeks ago, the Central Bank of Nigeria issued a circular instructing commercial banks in Nigeria to start selling forex to BDCs believing that it will reduce the dollar scarcity at the retail end of the market where most Nigerians buy dollars from.
The forex sale was supposed to have been funded from foreign remittances routed through commercial banks by Nigerians in diaspora. The move was also expected to bridge the disparity between the exchange rate at the parallel market and the interbank.
It’s over two weeks now and we now understand why it hasn’t worked out as planned.
According to the President, Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, most banks are yet to comply with the CBN’s directive to sell $50,000 from diaspora remittances to bureau de change (BDC) operators on a weekly basis.
Fidelity Bank Plc
United Bank for Africa Plc
Unity Bank Plc
Diamond Bank Plc,
Zenith Bank Plc
Stanbic IBTC Bank.
Gwadabe also disclosed that BDCs in the following locations were yet to get forex from banks
Why BDC’s are selling forex at a high premium to Interbank
Gwadebe further explained why dollars are being sold at rates between N345 and N355 to dollar because of a shortage in supply. According to him, banks are supposed to sell to the BDCs on the same day within the week, but failed to do so.
“Instead of staggering the payment, the banks should sell to the BDCs on the same week day, so that the impact will be felt in the market.
“We also want the CBN to license new International Money Transfer Operators (IMTOs) to deepen the market.
“Our members across the country have funded their accounts two weeks ago but the banks are not selling to them. The BDCs that met the CBN’s policy guidelines on the disbursement and were cleared by the banks have still not received a dime from the banks”
Introduce another layer?
The ABCON president also surprisingly suggested that the CBN introduces what he called an “independent distributor” in place of banks who are reluctant to sell to the BDC’s.
“I think the banks are compromising the policy and CBN’s directive on the matter. And like I said earlier, since the banks are not co-operating, I expect the CBN to take that role from them and assign it to a reputable independent distributor”
The above statements by the President of ABCON clearly confirms the original fears expressed by this website when the policy was introduced a few weeks ago. We believed that the CBN lacked the regulatory capacity to impose the right oversight on some of these banks who profit more by probably arbitraging the market.
By not selling to BDC’s across the country and limiting sales to only just 5 banks, banks are creating an artificial scarcity and an imbalance in the system that fetes more price disparity between the inter-bank and parallel market. For example, the Inter-bank closed at N305 on Monday while the parallel market closed at about N397/$1.
Most Nigerians are yet to benefit from the introduction of the flexible exchange rate policy since it was introduced in June. Rather, commercial banks have been reporting higher profits mostly from foreign exchange transactions .
Parts of this article was culled from Reuters