Prospects of closing the gap between the official and parallel markets rates brightened recently as dollar sales to Bureaux De Change (BDCs) by Travelex and First Bank of Nigeria Ltd strengthened the naira on the parallel market. TONY CHUKWUNYEM writes
From an all time low of N490 to the dollar on the parallel market a fortnight ago, the naira has staged a significant recovery in recent days, gaining N30 to close at N460 to the greenback on the unofficial market last weekend.
The consensus among financial analysts and foreign exchange dealers last Friday was that the local currency’s appreciation on the parallel market was triggered by the commencement of dollar sales to Bureaux De Change (BDCs) by global forex dealer, Travelex. Although speculation had been rife since early last month that Travelex had received Central Bank of Nigeria’s (CBN) permission to start selling dollars to BDCs, the process did not begin until October 7 when the global forex dealer sold the sum of $15,000 to each of the 3,000 licensed BDC operators in the country.
In a statement, in which he commended the CBN for giving approval to Travelex to commence the sale of forex to BDCs, the President, Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said that with each of the 3,000 BDC operators getting $15,000 each, $45million will flow into the system, thereby helping to ease the acute scarcity of forex that had led to a widening gap between the official and parallel markets’ rates.
$21bn Diaspora remittances
Prior to appointing Travelex as the supplier of forex to BDCs, the apex bank had given commercial banks the task of meeting BDCs’ forex demand.
In a circular dated July 22, 2016, the regulator directed agent banks to approve International Money Transfer Organisations (IMTOs) to sell foreign currency accruing from inward money remittances to licensed BDCs. It directed that all international money transfer operators would be required to remit foreign currency to agent banks for disbursement in naira to beneficiaries.
With Nigeria’s Diaspora remittances estimated at $21billion annually, industry watchers said the move was part of the banking watchdog’s efforts to ensure stability of the exchange rate of the naira. In fact, in a chat with journalists, the Special Adviser, Financial Markets to the CBN Governor, Mr. Emmanuel Ukeje, said that the directive for banks to sell dollars received via remittances was aimed at achieving exchange rate convergence.
He argued that the directive did not mean that the CBN had reversed the decision it announced last January to stop selling forex to BDCs. Ukeje explained: “Previously, we were allocating forex, but we decided that we were not going to be taking money from our reserves to be doing that. So it is those remittances that are going to banks that we want used to fund that market, so that rates can come down.
That market is very dry, that was why we decided to open the window. “So it is not a policy somersault because you remember that even when we decided to stop funding them, we said they could get their money from autonomous sources, and that the central bank will not sell dollars to them”, he added.
Ukeje emphasised that the banking watchdog was desirous of BDCs having access to funds that would enable them stay afloat, pointing out that this would help ease forex scarcity in the system. He said: “What happens is that if they are sure of more sources of forex, people would be calm. Now, if this other source, which is supposed to be supplementing the interbank market gets supply, no matter how small it is, we think it would reduce the panic in the system.”
However, with the exception of a few big banks such as First Bank of Nigeria Limited and United Bank for Africa (UBA), most lenders did not comply with the CBN’s directive to sell forex to the BDCs despite the Bankers’ Committee’s pledge to ensure compliance and its raising the maximum amount that banks could sell to BDC operators from $30,000 to $50,000 per week. The banks’ recalcitrance prompted protests from ABCON, which then complained to the CBN that led to the consideration of Travelex as a replacement for the banks.
FirstBank as sole FX dealer to BDCs
But not many industry watchers were surprised when reports emerged last week that the banking watchdog had suspended other banks and appointed First- Bank as the sole authorised dealer for foreign exchange proceeds to licensed BDCs in the country. A top CBN official who confirmed the development was quoted by a national newspaper as having said: “We discovered that all the banks were not selling to the BDCs, while a few that did so occasionally short-changed them by selling at higher margin.
The only exception was First Bank, which had 500 BDCs and sold to them on regular basis. So we decided that since the bank was selling the dollars as directed, we would allow it to continue to do so. But we have stopped the other banks and directed them to give up 25 per cent of the dollars received through international money transfer services to us.”
Similarly, in a message to registered BDCs, ABCON President, Gwadabe, said: “This is to inform members of the directive of CBN to Deposit Money Banks (DMBs) with the exception of First Bank, to suspend the sales of the proceeds of international money transfer to BDCs till further notice. Please be guided when buying through the bank window.
“Members should please note that the reason for the stoppage of other DMBs except First Bank in selling proceeds of IMTSOs is to mop-up the held dollar position by non-compliant banks and make it available to all BDCs nationwide soon. Please we advise members to be patient and await ABCON’s further directives soon,” New Telegraph gathered that First Bank was not affected by the CBN’s action because apart from its full compliance with the apex bank’s directive to sell dollars to BDCs, the Tier one lender was also considered because of the national spread of its branch network.
A BDC operator, who spoke on condition of anonymity, said: “Compared to other banks, First- Bank is clearly the best in the area of dollar sales to BDCs. In addition, it has more branches in the hinterland than other banks.” According to information on the Tier one lender’s website, it has more than 10 million customer accounts and over 750 branches, which provide a comprehensive range of retail and corporate financial services.
In a statement, the bank said the CBN’s pronouncement was a testament to its strong financial base and avowed support to the growth and development of a sustainable national economy. It pointed out that the announcement was coming on the heels of its strengthened money transfer services as well as its strict compliance to CBN’s rules and directives on the sale of foreign exchange.
The statement said, FirstBank “remains committed to corporate governance principles and would continue to ensure that dollar sales to the BDCs continue in a seamless manner for ease of distribution to the end users.” The lender’s Chief Financial Officer (CFO), Mr. Patrick Iyamabo, noted that the financial institution would continue to strive to maintain its position as the safest and most respected banking franchise in the country.
“We would continue to leverage our unique ability to grow and capitalise the institution – a testament to our solid track record. Our highest priority remains meeting the financing and banking needs of our customers, by providing world class services, knowledge and expertise to support them, even in very difficult times” he stated.
However, industry watchers told this newspaper that while BDCs’ access to forex may have improved due to the efficient services of FirstBank and Travelex, resulting in naira’s appreciation on the parallel market, it could still take a long time for the much desired convergence of the inter-bank and parallel market rates to be realised. An analyst noted: “Currently, forex inflow into the system is still far below demand. As long as this persists, there will continue to be a significant gap between the official and parallel markets’ rates.”