The Central Bank revealed guidelines for its new flexible exchange rate policy on Wednesday following the press conference by the CBN Governor, Godwin Emefiele. One of the key detail of the policy was the introduction of FX Primary Market Dealers (FXPDs) who shall be registered Authorised Dealers designated to deal with the CBN on large trade sizes on a two-way quote basis amongst others.
This is obviously a restricted club of market participants who accordingly to the CBN must meet the following criteria to even qualify as FXPD’s.;
- Minimum Shareholders Funds (Net Worth) unimpaired by losses of least ₦200.00 billion;
- Minimum of N400.00 billion in Total Foreign Currency Assets; and
- Minimum Liquidity Ratio of 40 percent.
There are very few local financial institutions who by our records meet this criteria and here they are;
| In millions of Naira | Foreign currency assets | Shareholders funds | Liquidity ratio |
| FBNH | 1,549 | 575 | 55.80% |
| Zenith | 1,324 | 621 | 47.70% |
| UBA | 1,160 | 347 | 50.00% |
| GTB | 972 | 434 | 36.10% |
| Access | 794 | 382 | 37.60% |
| Diamond | 575 | 199 | 52.40% |
| FCMB | 346 | 163 | 38.20% |
| Fidelity | 329 | 184 | 37.50% |
| Sterling | 224 | 94 | 46.00% |
From the data above, only FBNH, Zenith, UBA and GTB meet these criteria and thus currently qualify as FXPD’s. Other banks may well have to raise additional capital to stand a chance of joining this esteem club. Will this lead to a race to raise capital for most banks? We are in interesting times.
The CBN guideline stipulates that the banks must meet at least 2 out of 3 of the benchmark as at May 31, 2016. That is why during the Q&A section, the CBN governor stated about 8 – 10 institutions will be FXPD.
Based on the aforementioned criteria, GTB should miss out since the Financial Institution does not meet the 40% liquidity ratio criteria. But if this is ignored, then it means banks meeting two of the three criteria are eligible. Therefore First Bank, Zenith, UBA, GTB, Access, and Diamond bank meet these criterias.