Naira commences new week on recovery path

The exchange rate of naira to dollar has started the new week on strong footing both at the official and unofficial markets.

Data from the FMDQ showed that NAFEM rate on Monday strengthened to N1,582.94,  gaining N82. 56 when compared with Friday’s close of N1,665.50/US$.

The Nigerian Autonomous Foreign Exchange Market (“NAFEM”) is the market trading segment for Investors, Exporters and End-users that allows for FX trades to be made at exchange rates determined based on prevailing market circumstances, thus ensuring efficient and effective price discovery in the Nigerian FX market.

Similarly, the local currency on Monday, February 26, 2024 recovered as much as N160, as it settled at N1,700 compared to N1,860/US$ on Friday at the unofficial (parallel) market on Friday.

Some market watchers said the marginal apreciation of the Naira against the dollar is not unconnected to the recent initiatives of the Central Bank of Nigeria (CBN) aimed at restoring stability in the currency market.

Meanwhile, as contained In the latest guidelines , the  Central Bank of Nigeria is reportedly set to resume its weekly interventions in the foreign exchange (FX) market through Bureau de Change (BDC) operators as a move to enhance financial stability and bolster the naira.

The upcoming interventions, scheduled to start this week with collection, aim to support the subsector by injecting foreign exchange with the goal of stabilizing the naira’s value against major currencies, such as the US Dollar.

The collection of funds will take place at selected CBN branches in Lagos, Abuja, Kano, and Awka. Additionally, information regarding the specific naira accounts for funding bids will also be disclosed today.

CBN is anticipated to release the roster of qualified BDCs that will receive funding based on specific compliance standards.

The National Executive Council of the Association of Bureau De Change Operators of Nigeria (ABCON) discreetly provided its members with updates through a memo sent out over the weekend.

The association has informed its members that with the implementation of the central bank’s new supervisory regime, they should be prepared for a significant change in how business is conducted. Any breaches or violations will lead to immediate license revocation and legal action.

Through its involvement in various activities with the central bank and in collaboration with strategic partners, sources said ABCON has successfully secured an agreement with the CBN to inject liquidity into the market on a weekly basis.

Meanwhile, following the release of the reversed Regulatory And Supervisory Guidelines For Bureau De Change Operations in Nigeria, some stakeholders have applauded the CBN for taking steps to sanitise the sector, while others said as long as the country is not producing and earning dollars, no amount of guidelines will save the local currency.

Speaking to Nigerian Tribune, the Head, Financial Institutions Ratings at the Pan-African Credit Rating Agency, Agusto & Co. Mr. Ayokunle Olubunmi said though the guidelines are excellent, the fiscal authorities must be involved if the intended results are to be achieved.

He said going by the new rules, BDCs will become corporate bodies that will have designated office not shops, and that revamping this line of business is awesome rather than eradicating them. A herd of analysts has also said this is not an attack against any tribe, but battle for the survival of Nigeria’s economy.

On his part, a public affairs analyst, Tunde Morakinyo said it will  be easier to track all their transactions if these guidelines are fully implemented.

“I mean, how they get their money and who and who they sell their money to; everything will be documented and easier  to track. This will help to expose the bank officials who are part of the problem,” he stated.

The head of the Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, explained that the Bureau de Change operators are required to deposit naira into their accounts at the Central Bank of Nigeria in preparation for the upcoming transactions.

“Our members will fund their accounts with the CBN on Monday (tomorrow) to enable them transact at the official window,” he said.

He mentioned that the central bank had advised the Bureau de Change operators about the significance of submitting reports promptly and adhering to regulations against money laundering.

Gwadabe reassured the CBN that BDCs will comply with the policy regarding the submission of returns and will consistently furnish comprehensive reports on the utilization of previously acquired dollars from the market.

The naira’s exchange rate vis-a-vis the dollar is expected to decline in the future as additional BDCs gain access to dollar reserves, according to the ABCON chief.

According to Gwadabe, while BDCs welcomed the return of dollar sales to operators, they are also expressing their desire for the CBN to provide additional avenues for them to conduct business, such as enabling access to diaspora funds.

“We want more windows to be opened for BDCs instead of restricting BDCs to official market funds,” he said.

An X user (formerly Twitter) Zayyad @itz_zayyad1 said the potential resumption of foreign exchange activities by Bureaux De Change Operators at the official market, as indicated by Aminu Gwadabe, brings hope for improved liquidity and stability in Nigeria’s forex market.

“It is positive to hear about the measures being taken to ensure compliance with regulations and the emphasis on transparency and accountability. The willingness of BDCs to cooperate with the Central Bank’s policies is commendable and underscores their commitment to fostering a healthy forex environment, “ he said.

Additionally, he said, the call for more avenues for BDCs to conduct business, such as access to diaspora funds, reflects a proactive approach to addressing the needs of the forex market participants. It will be crucial for all stakeholders to work together collaboratively to achieve the desired outcomes and contribute to the strengthening of Nigeria’s economy.

Some currency dealers said the latest guidelines will make marketers to bring business for the operators with license, but  national license will help them to continue business as usual with opportunities to open several franchises.

Others like Umu Ojime do not see anything in the new rules. To him, Politicians will still bastardize it.

“We are not eliminating the root cause of this issue, we are not even addressing it. Politicians likes to deal in cash, and the Naira is too heavy to carry. Whatever you do, they will bastardize it.

“This is too simple, why can’t banks create an entirely BDC unit inside the banking hall. If CBN is really honest in the regulation and monitoring thing. Leave street trading, it’s only harlots that stay in the streets, “ he said.

 

The CBN’s guidelines

stipulated that: certain entities like banks, government agencies, NGOs among others are not allowed to have ownership stake in BDCs,;BDCs can buy and sell foreign currencies, issue prepaid cards, serve as cash points for money transfer operators etc. They cannot take deposits, grant loans, deal in gold or engage in capital market activities; BDCs can source forex from authorized dealers, travellers, hotels, embassies etc. Large transactions above $10,000 require declaration of source; BDCs can sell forex for travel, medical bills, school fees etc up to specified limits per customer annually. At least 75percent of sale must be via transfer, 25 percent can be cash; there are 2 tiers of BDCs – Tier 1 with national presence, branches and franchises -Tier 2 restricted to 1 state with maximum of 3 locations.

According to the CBN, there will be Minimum capital of N2 billion for Tier 1 and N500 million for Tier 2. Other fees and deposits specified; there will be two stage process – Approval in Principle and Final Licence, each with specified document requirements; corporate Governance: Board composition, assessment of propriety, fitness requirements for directors and senior management specified; BDCs must verify customer identity, keep transaction records, connect to CBN systems, display rates clearly among others;  Specified regulatory returns must be rendered, records available for inspection, compliance with guidelines required; franchising Standards: Standards specified for Tier 1 BDCs appointing franchises regarding policy, monitoring, branding; Prudential Requirements: Specified limits on open position, fixed assets, borrowings, dividend payment; AML/CFT Requirements: Must comply with AML/CFT regulations on policies, monitoring, reporting among others.

Non-compliance may lead to sanctions including revocation of licence the apex bank noted.

According to another X user, Wale Adebayo the total number of BDCs in Nigeria may not be more than 25 by the time the new guidelines of CBN are fully implemented.

From minimum capital requirements, to shareholders register requirements, to the MOA requirements, to the entire change in scope of business, the CBN is not just digitalizing BDC operations in Nigeria, they are now mandating them to run like a properly structured company for effective monitoring; a move which will discourage many street traders as it is currently obtainable.

Meanwhile, Peter Obi, the 2023 presidential candidate of the Labour Party, says the Economic and Financial Crimes Commission (EFCC) , raid on Bureau De Change operators across major cities in Nigeria is ill-advised.

Obi disclosed this in a statement on his official X account on Sunday.

However, reacting to the development, Peter Obi said the move by the President Bola Ahmed Tinubu’s government may worsen the country’s foreign exchange situation.

He stated that as long as Nigeria’s economy remains unproductive and corruption-fettered, the value of the country’s currency will continue to depreciate.

“The recent reported attacks and disruption of the business activities of Bureaux de Change (BDC) operators in different urban centres across the country by Government Agencies are ill-advised and wrongly directed.

“Rather than solve the problem, the action will further escalate and worsen the exchange rate situation in the country. The BDCs are not the primary suppliers of forex, nor do they create demand. They only provide a market to sellers and buyers of foreign currency.

“As long as Nigeria remains an unproductive economy and corruption continues unfettered with people possessing unproductive excess cash, the value of our currency will continue to depreciate.

“It’s important, therefore, that government authorities properly understand the workings of a modern economy and channel their efforts accordingly”, he stated.