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ABCON backs CBN’s prohibition of non-export domiciliary account collateral for Naira loans

The Central Bank of Nigeria’s (CBN’s) directive stopping the use of non-export domestic account collateral for naira loans will boost dollar liquidity, support reserve accretion, and strengthen the financial services sector, President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji (Dr.) Aminu Gwadabe, has said.

According to the CBN directive to banks, the use of foreign currency-denominated collateral for Naira loans is now prohibited, except in cases where the collateral is in the form of Eurobonds issued by the Federal Government of Nigeria or guarantees provided by foreign banks, including Standby Letters of Credit.

In a statement on the apex bank policy and impact on the forex market, Gwadabe described the move as a welcome development, expected to put the excesses of big businesses and manufacturers putting unnecessary pressure on the forex market on check.

He said: “ABCON members are bewildered that some companies and manufacturers with billions of dollar balances in their non-oil export domiciliary accounts use it as collateral for naira loans and still source forex in the official window, thereby depleting what is available for other operators.”.

“The stoppage of this unprofitable practice will not only add to the dollar liquidity in the market but also help in the accretion of foreign reserve buffers,” he added.

Gwadabe advised the apex bank to review foreign currency holding guidelines for non-oil export domiciliary accounts proceeds and entrench a maximum of 48 hours with a minimum balance of $5k for individuals and $50k for companies in holding positions as practiced in South Africa.

ABCON chief further advised the CBN not to approve forex requests by manufacturers and other business applicants with billions of dollars holdings in non-export oil proceeds domiciliary accounts at both the NAFEM and NAFEX window.

ABCON boss explained that unfortunately, the BDCS are most times seen as crude but remain an effective market control mechanism with the potent transmission mechanism tool in achieving the CBN’s mandate of price stability and liquidity in the markets.

“We, therefore, urge the CBN to continue to drive and expand its operations to ensure that the best results now achieved in the last 15 years are maintained and also ensure exchange rate convergence, market calmness, and the confidence of the public and foreign investors,” he said.

ABCON leadership, he added, has also called for and advocated for the separation of ownership and operational structures at FMDQ Exchange. The move, he said, would ensure more transparency and effectiveness in market operations and price control mechanisms.

Furthermore, ABCON’s boss urged the CBN to allow legislative decisions on the planned reforms in the BDC sub-sector to boost foreign investors’ confidence and guarantee sectoral transformation.

“We also want to pledge our continuing support for the CBN’s proactive and effective policies, which are meant to address volatility and headwinds in the forex market. As a self-regulatory body, ABCON is currently engaging all stakeholders and players in the retail end market to deepen, liberalise, democratise, and centralise the retail end segments of the market for price discovery, market efficiency, transparency, accretion of buffers, and a healthy balance of payments,” Gwadabe said.

“We applaud the CBN management for the reconsideration and reinstatement of the BDC sub-sector as the third leg of the forex market to put hoarding and speculation under check, and we have seen faster results than expected,” he stated.

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