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CBN Achieving Rate Stability With Banks After BDCs Forex Sales Abuse

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Central Bank of Nigeria Governor, Godwin Emefiele

By EMMANUEL OKEZIE, Lagos

With only four months into the Central Bank of Nigeria’s (CBN) suspension of sales of dollars and other foreign currencies to the Bureau De Change operators (BDCs) and the commencement of channelling same through Deposit Money Banks (DMBs) for sales to the end users, the targeted objectives are incrementally being achieved. This was however, after initial or short term shocks and pressures associated with the timeframe needed for the banks to adjust and set up requisite structures to undertake the additional responsibility occasioned by the new Forex policy.

In resolving to sell to the banks, the  CBN believed that the Banks have more structures and systems in place to ensure compliance to the CBN’s directives given that CBN regulates these banks.

Unlike the case when the BDCs were in charge, anyone going to buy Forex from the banks must provide the documents required by the CBN. The outrageous number of BDCs which are estimated at over 5,500 BDCs as of July 27, 2021 made effective monitoring of their activities difficult for the CBN. The banks are fewer and with prior compliance templates that were put in place by the apex bank. This makes monitoring easier when compared to the BDCs.

In addition, the banks are able to do all the due diligence on their customers because they know that failing to do so will attract sanctions from the CBN. To a large extent, the CBN’s policy decision on sales of Forex through the Banks is achieving desired objectives.It is equally expected that there will be more improvements in the management of the foreign exchange over time.

When contacted, the Manufacturers Association of Nigeria (MAN) President, Mansur Ahmed, said the association supports the CBN’s decision to revert to use of banks for sale of foreign currencies. He, however, noted that the association is currently undertaking a review of the policy. “What you should know is that we are undertaking a review among our members. This should be over by the fourth quarter to ascertain what has been the impact of that policy decision. I think by end of November, we will have the report and it will then be more appropriate to comment on the policy. We support the policy, so we want to make sure that we have a fair assessment of the impact before we make further comments”, he stated.

On investigations, in terms of stabilizing the exchange rate, it was found that when CBN sells to the banks, the banks do not divert the Forex. If they had agreed on a margin to sell to the end users, the banks are adhering to the margin. So, it is no longer like pouring water into a leaking basket which was the case with the BDCs. The CBN knows now that it is dealing with people that are going to channel the funds to the right end users.

It is to be noted that at the commencement of the policy, the CBN Governor, Godwin Emefiele, had directed the banks to set up front desk officers and systems that will make the Forex available to the qualified buyers as long as they have the right documentation and will use the Forex for legitimate purposes.

To drive home this directive, the banks have started publishing names of people who bought Forex as BTA and did not actually travel.

This implies that there is little pressure on the reserve. So, whatever CBN sells to the banks now impacts on the market.
Considering that the CBN is not selling so much, the nation’s reserve is now gaining some level of accretion. This is because the CBN is managing the scarce resources, directing it to banks through which it has been able to achieve stability in the exchange rate.

Within the first two months, there was pressure on foreign currencies and, as expected, out of desperation, people resorted to going to the black market. And this triggered scarcity of Forex resulting to further depreciation of the Naira, to a large extent.

However, after the initial pressure, when the banks started publishing the names of those that bought Forex and refused to travel, the Naira started appreciating.
The hope now is that the Naira is likely to continue to appreciate for two reasons. First, the banks have effectively been able to channel the funds they are receiving from the CBN and, secondly, the CBN, on its part, now has more capacity to even sell Forex. Even though, people will continue to go to the ‘black market’, but that will reduce as CBN continues to sell to the banks and the banks discharge its responsibility well.

Again, following the continued appreciation of the Naira, those hoarding the dollars are beginning to bring them out to sell for the simple reason that they may lose as the Naira gains at the parallel market. As CBN continues to sell FX to the banks, with increasing inflows of foreign direct investments and FX receipts/transfers from the diaspora, the foreign exchange market will continue to witness  less pressure.

-Emmanuel Okezie Works With OPTIMUM TIMES

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