BDCs, regulators confront compliance issues to save naira

It was not a conspiracy but a forum to cross-fertilize ideas. That was how to describe a meeting held by officials of the Central Bank of Nigeria (CBN), Department of State Service (DSS), the Police and over 3,000 directors of Bureaux de Change (BDC) operators.

After several months, these powerful bodies found themselves under one roof and the purpose of the gathering was to save the local currency. During the meeting, BDC directors were advised on the need to follow sound corporate governance practices and take direct charge of their businesses as they will be liable for any breach of CBN’s operating guidelines.

The meeting, organised by the Association of Bureaux De Change Operators of Nigeria (ABCON), at the Glover Hall, Lagos, on Monday, April 10, 2017, was focused on how to strengthen the naira against world currencies, especially the dollar.

The participants condemned the activities of foreign exchange (forex) speculators in the currency market which saw the naira depreciating to all time low a few months ago. It is now exchanging at over N400/$ in the parallel market after improved funding of the BDCs helped it to strengthen to $380/$ in the last few weeks. The naira opened last year at N107/$ in the official market, and today, the official rate is at N306.05/$.

The ABCON President, Alhaji Aminu Gwadabe, who spoke on the theme: ‘Role of BDCs in Price Stability- Realities and Compliance,’ assured members that CBN was determined to raise liquidity in the forex market provided the BDCs operate within set guidelines.

“The CBN has assured us that it will continue to inject more liquidity into the forex market, but BDC operators must shun speculations and other malpractices. We are expected to comply with the Know Your Customer –KYC directive of the CBN.  Stiff sanctions await any operator that breach the CBN’s set rules,” he said.

Gap between Official/Parallel market rates

Gwadabe urged the directors to help CBN reduce the gap between the official and parallel market rates. “As a Nigerian, anytime I see the gap increasing, I become concerned. These gaps are created by currency speculators’ compromise. Speculators are the biggest challenge facing the naira,” he said.

One of the BDC operators, Folashade Adebayo, said the solution is that all operators should unite against the forex speculators. “The speculators are giving us bad name and killing the naira. Let’s unite and chase them out of the market and save the naira.

“The challenge is how we ensure that when speculators buy from us, they do not go to the back and sell to parallel market operators? We must devise means to stop them before they stop us,” she said.

The ABCON Acting president said BDCs are better positioned in networking, convenient and more effective than the conventional banks in the elimination of rates disparity.

Highlighting the dangers of speculation, he said any money made through such practices will not help the economy. “Speculation creates inflation, and the funds made through illegal means will also be spent on the problems they have created. Anytime the naira weakens, the economy suffers and there will be job losses and rise in crime rate,” he said.

ABCON executive agreed to continue to update all directors on CBN’s and other regulatory agencies’ forex sale requirements, as the body has taken it up as  a duty to reverse the negative perception many stakeholders’ have on its operations by complying with regulatory guidelines.

Gwadabe said the BDCs are in the watch list of the International Monetary Fund (IMF), World Bank and United States of America because of the critical role they play in economies of nations; citing cases where the BDC operators, had in the past, helped the CBN to strengthen the naira.

“We saw the naira appreciate from N520/$ in late January to about N380/$ after the CBN resumed sale of forex to BDCs. That  shows everyone  that BDCs have major role to play in naira’s stability.

We have chosen to support the CBN and be part of the positive story surrounding the naira. We are happy that our contributions are paying off,” he said.

According to him, fall in crude oil prices and exit of foreign investors, triggered drop in dollar inflows and adversely affected naira’s value.

The ABCON boss also called on Nigeria to build strong buffers that would protect it in times of crisis. “The United Arab Emirates has over $400 billion in their reserves, and that is a very big buffer for them as it protects their local currency at any given time. The working of the Lebanon economy is highly dependent on the activities of BDCs and these have shown how important the BDCs are to every economy including Nigeria,” he said.

Gwadabe said the BDCs urged BDC directors to know the gains of price stability, rate harmonisation and regulatory compliance.

Speaking on rate convergence, he said the BDCs had in 2006, when the BDC window was first opened, helped the CBN to narrow the gap between official and parallel market rates and are ‘ready to do it again.’

Support for CBN

ABCON as a body agreed to continue to be supportive of the need for rate convergence in a market that is transparent, accountable and secure for the economy, investors and Nigerians in Diaspora, with the aim to boost dollar inflows and strengthen the local currency.

He praised the CBN for giving each BDC $20,000 weekly and is confident that the apex bank will raise the allocations to $40,000 in the coming weeks and urged the CBN to continue to take steps that would help bring more foreign investors to the economy.

There were renewed hopes that the CBN was ready to further raise weekly forex sales volume and commission on transactions to BDCs as operators begin to help in driving down rates.  “We are looking at a very acceptable margin between the official and parallel market rates, say a maximum of five per cent,” Gwadabe said.

The CBN and security agencies are all out to ensure that sound corporate governance is followed. Based on this, he urged BDC directors to show commitment to good corporate governance practices, and be transparent in rendering their accounts to the CBN.

Other stakeholders speak

South West Zonal Chairman, ABCON, Taiwo Ebenezer, said BDC operators are willing and ready to get information that will improve their business and economy.

He said the overall interest of BDCs is to improve the status of the naira, because the decline in value of the naira leads to higher inflation.

Ebenezer however, urged the CBN to take steps that will ensure that only BDCs sell Personal Travel Allowances (PTAs) and Business Travel Allowances (BTAs). He said: “If the BTAs, PTAs, and tuition are left in the hands of BDCs, we will be held responsible for any abuse. But today, BDCs are not the only players in the market as the banks also operate. It is important to leave this segment of the forex market entirely for BDCs,” he advised.

Another BDC operator, Tony Emeka, praised ABCON leadership under Gwadabe for constructively engaging the CBN and helping to raise weekly allocations from $8,000 to $20,000 even as the volume is expected to hit $40,000 in the coming weeks.

“It is not a simple task. ABCON has made us proud, and we have confidence in this leadership. We also want ABCON to engage CBN to review transaction margin. We need more dollar allocations from the CBN to force rates down,” he said.

Equally, representatives of the CBN, DSS, and Police agreed that there was need for all stakeholders to stop forex speculators from destroying the naira.

Gwadabe said ABCON has reported to the CBN the need to increase commission on transactions. “The CBN has been informed on the need to review the margin upwards. The margin is small, and in many climes, it is 10 per cent. We want the CBN to review the margin to N10 per dollar. We have told the CBN that the margin is small,” he said.

He said that BDCs operators under his leadership will continue to show that there is big difference between CBN-licenced operators and parallel market operators.

Gwadabe called on security agencies to curb illegal currency transactions at Nigerian borders to strengthen the naira adding that recent surveillance of the nation’s boarders by combined teams of security agencies helped to cut frivolous demand for the dollar by 80 per cent.

He believes that eliminating hot money circulation in the economy will help naira recovery, promote transparency and accountability in the market. He called for harmonization and effective linkages among security agencies and between regulatory agencies and policy makers for effective and speedy naira recovery.

Gwadabe praised CBN for the unveiling Small and Medium Enterprises (SMEs) Forex Window but recommended that BDCs be involved in the transactions between $5,000 and $10,000 as practiced in other climes. This, he said, will boost dollar liquidity and enhance the value of the naira against world currencies.