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Nigeria: Central Bank Releases $200m to Banks to Quell FX Speculation

The Central Bank of Nigeria (CBN) on Tuesday released a total of $200 million to all commercial banks in the country as part of efforts to meet dollar demand for

The Central Bank of Nigeria (CBN) on Tuesday released a total of $200 million to all commercial banks in the country as part of efforts to meet dollar demand for legitimate end users in the country.

This followed the decision by the regulator to henceforth discontinue foreign exchange (FX) sale to Bureau De Change (BDC) operators in the country.

THISDAY gathered from a senior central bank official all banks customers that require FX for legitimate transactions such as school fees, Personal Travel Allowance (PTA), Basic Travel Allowance (BTA) and medical payments would be required to undergo minimal documentation to assess the greenback.

However, CBN Governor, Mr. Godwin Emefiele, disclosed the end of FX sales to BDCs while briefing journalists at the end of a two-day meeting of the Monetary Policy Committee (MPC) in Abuja.

Emefiele directed all commercial banks to immediately create designated branches for the sale and disposal of FX to customers who deserve it for legitimate purposes. He said the CBN will no longer process or issue new licences for BDC operations in the country, adding that all licences being currently processed, regardless of the stage, had been suspended.

He said the CBN would now channel weekly FX allocations hitherto meant for BDCs to commercial banks.

Emefiele said commercial banks were now permitted to begin accepting FX cash deposits from their customers.

He explained that the measures were to ensure that the apex bank was better able to carry out its mandate in an effective and efficient manner as well as to guarantee preservation of the commonwealth and financial system stability.

Emefiele said the decision to eliminate the BDC operators from the FX market was necessitated by their dubious and unwholesome practices, adding that the operators have gone beyond their primary role of being retail dealers of FX to wholesale dealers.

The CBN governor stated that rather than catering for the retail users, who required about $5,000 to meet their FX needs, BDCs now transacted in millions of dollars. He said BDCs bought dollars from the CBN at N197 only to sell to their customers at N250.

Emefiele said it was no wonder that BDCs had risen “from a mere 74 in 2005 to 2,786 BDCs today. In addition, the CBN receives close to 150 new applications for BDC licenses every month.”

He said the move was inevitable as the drop in oil prices was depleting dollar reserves, which, according to him, had dropped from $37.3 billion in June 2014, to $28 billion presently.

The CBN governor expressed concern that Nigeria’s import bill now stood at N917.6 billion a month.

He said regarding the BDC operators, “They have turned themselves away from their objectives. They are now agents that facilitate graft and corruption in the country. We cannot continue with the bad practices that are happening at the BDC market.”

Emefiele added that there was evidence of prevailing ownership of several BDCs by the same promoters to procure multiple FX from the apex bank.

He said, “Several international organisations, embassies, patronise BDC through illegal forex dealers to fund their institutions. We will deal ruthlessly with Nigerian banks that deal with illegal BDCs and we will report foreign organisations patronising them.”

Emefiele added, “The public should note that once a customer provides basic documentation to purchase FX, all banks must immediately meet that on demand or within a stipulated timeframe sell foreign exchange to the customer.

“Any customer who doesn’t receive FX along these lines must report this to their banks and where they are unsatisfied with the resolution, they are required to contact the CBN on out toll free line 07002255226 or email cbd@cbn.ng to lodege the complaints with details of the bank transaction.”

Shedding more light on the reasons for the stoppage of FX sales to BDCs, Emefiele explained that the CBN sold over $20,000 to more than 5,500 BDCs per day, adding that the amounts translated to about $110 million per week and $5.72 billion per year.

“The CBN and the government cannot continue to allow this unwholesome practice to continue in Nigeria,” he said.

According to him: “In total disregard for the policies that the CBN introduced to meet its mandate of safeguarding the value of the naira, we have continued to observe that stakeholders in some sectors have not been helpful in this direction.

“In particular, we have noted with disappointment and great concern that our BDC operators have abandoned the original objectives of their establishment, which was to serve retail end users who need $5,000 or less.

“Instead, they have become wholesale dealers dealing in forex to the tune of millions of dollars per transaction. Despite the fact that Nigeria is the only country in the world today where a central bank sells dollar directly to BDC operators.”

He added, “Operators in Nigeria’s bureau de change segment have not reciprocated the bank’s gesture to help maintain price stability to the large market.

“Whereas, the bank has understanding with BDC operators that they make small margins from the US dollar allocated to them, they have reneged and become somewhat greedy, recalcitrant with abnormal high profit sale while ordinary Nigerians have been left to feel the pain and therefore suffer.

“Rather than work to achieve the laudable objectives for which they were licensed, the bank has noted the following unintended but unfortunate outcomes.

“Increase in operators only interested in wider margins and profits from the forex market regardless of prevailing rates in the market.

“Gradual dollarisation of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subversion of the cashless policy initiatives of the CBN.”

He added that BDCs had resorted into financing of unauthorised transactions with FX procured from the CBN.

He stated, “Our examiners are currently looking at the books and we have reports that indict embassies, international organisations who instead of selling their FX to the recognised investors and exporters’ window have resorted into operating with illegal FX dealers in contravention of our laws.

“And we will deal ruthlessly with Nigerian banks who have acted as collaborators with these forex dealers because they’ve allowed their banking and payment systems infrastructure to be used to facilitate these illegal dealing in foreign exchange.”

Emefiele added, “As for those foreign organisations involved, we will report them to their regulators, we will write to those organisations. These unintended outcomes have placed unsustainable financial burden on the CBN and had limited foreign exchange.”

Emefiele expressed concern about the level of insecurity in the country, saying it has negative implications for business confidence and overall economic activities. He urged the federal government to intensify security surveillance in farming communities to ensure uninterrupted farming activities.

However, at the meeting, the MPC also resolved to retain Monetary Policy Rate (MPR), otherwise known as interest rate, at 11.5 per cent and the asymmetric corridor of +100/-700 basis points around the MPR.

The apex bank also left the Cash Reserve Ratio at 27.5 per cent and Liquidity Ratio at 30 per cent.

The MPR is the rate at which the CBN lends to commercial banks and it often determines the cost of borrowing in the economy.

Emefiele, who read the committee’s communiqué, explained that the decision to hold all the monetary policy tools constant was due to the need to stimulate the growth of the economy. He said the MPC decided to hold all policy parameters constant believing that it would enable the continued permeation of current policy measures in supporting the recorded growth recovery and macro-economic stability.

The committee also noted the marginal increase in the external reserves, which rose to $33.83 billion on July 22, 2021, from $32.78 billion as at June 30.

According to the CBN governor, aggregate credit as at the end of May 2021 stood at N24.23 trillion, compared to N22.68 trillion at the end of December 2020, representing a year-to date increase of N1.55 trillion.

He said under the central bank’s development finance initiatives, the sum of N756.51 billion was granted to 3,734,938 small holder farmers cultivating 4.6 million hectares of land, of which N120.24 billion was extended for the 2021 wet season to 627,051 farmers for 847,484 hectares of land, under the Anchor Borrowers’ Programme (ABP).

He said, “For the Agribusiness/Small and Medium Enterprise Investment Scheme (AGSMEIS), the sum of N121.57 billion was disbursed to 32,617 beneficiaries; and for the Targeted Credit Facility (TCF), N318.17 billion was released to 679,422 beneficiaries, comprising 572,189 households and 107,233 Small and Medium Scale Enterprises (SMEs).

“Under the National Youth Investment Fund (NYIF), the Bank released N3 billion to 7,057 beneficiaries, of which 4,411 were individuals and 2,646 SMEs.

“Under the Creative Industry Financing Initiative (CIFI), N3.22 billion was disbursed to 356 beneficiaries across movie production, movie distribution, software development, fashion, and IT verticals.”

Emefiele also said, “Under the N1 trillion Real Sector Facility, the Bank released N923.41 billion to 251 real sector projects, of which 87 were in light manufacturing, 40 in agro based industry, 32 in services and 11 in mining.

“On the N100 billion Healthcare Sector Intervention Facility (HSIF), N98.41 billion was disbursed for 103 health care projects, of which, 26 are pharmaceuticals and 77 are in the hospital services.

“Similarly, the sum of N232.54 million was disbursed to five beneficiaries under the CBN Healthcare Sector Research and Development Intervention (Grant) Scheme (HSRDIS) for the development of testing kits and devices for COVID-19 and Lassa Fever.”

Emefiele pointed out that the committee observed the gradual recovery in output growth following positive growth in the first quarter and improving Purchasing Managers’ Index in subsequent months. He expressed optimism that the second quarter output result would show further improvement.

According to him, the committee commended the continued effort of both the monetary and fiscal authorities as well as public health agencies to stem the COVID-19 pandemic and return the economy to the path of recovery.

He said, “While the economy has been gradually reopening, members noted that the pandemic was far from over and, therefore, continued to hinder the recovery.”

The MPC urged the Presidential Task Force on COVID-19 to intensify efforts towards procurement of more vaccines to ensure that more Nigerians are vaccinated.

Emefiele said the CBN would continue to release maize from its strategic reserve directly to feed-millers as part of its response to address rising food prices and moderate the price of maize across the country.

He stated, “Notwithstanding, the moderate decline in market indices, the Committee noted that the equities market remained in a good place, indicating sustained investor confidence in the Nigerian economy.

“The MPC applauded the continued resilience of the banking system in the face of severe shocks to both the domestic and global economies.

“Members noted management’s effort in maintaining a reasonably low level of non-performing loans ratio, even though aggregate credit moderated slightly.

“The Committee encourages Nigerian banks to extend more credit to consumers and firms to enhance consumption and production activities necessary to strengthen the recovery.”

James Emejo in Abuja