BDC Operators Back CBN’s Move to Halt Foreign Currency Collaterals for Loans

The Bureau de Change Operators’ Federation in Nigeria has voiced its agreement with the Central Bank of Nigeria’s mandate instructing financial institutions to cease using foreign currency accounts as security for loans in naira.

Aminu Gwadabe, the Federation’s President, announced this endorsement through a statement on Thursday. He highlighted that such a mandate would enhance liquidity within the foreign exchange market and reinforce the country’s financial safeguards.

OduNews earlier on Monday disclosed that the CBN had issued a notice, designated ‘The use of foreign-currency-denominated collaterals for naira loans’ and marked BSD/DIR/PUB/LAB/017/004, ordering Nigerian banks to discontinue accepting foreign currency deposits as loan security.

This top banking institution has disallowed this practice and has provided a three-month timeframe for the cessation of all related activities.

Discussing the tendency of corporations to leverage their foreign currency earnings from non-oil exports as loan collateral, Gwadebe expressed, “We are bewildered that some companies and manufacturers with huge billions of dollars balances in their non-oil export Dom account source their FX needs in the official window and use same for naira loans.

“We therefore advise for the review of the guidelines on holding currencies on non-oil export accounts to a maximum of 48 hours, to borrow from the South African policy on the operations of non-oil exports dom account proceeds. The CBN should also not make applicants of huge billions of dollars holding in their non-export oil proceeds dom accounts eligible for FX request at both the NAFEM and NAFEX windows.”

Furthermore, Gwadebe advocated for the conversion of CBN’s Bureau de Change operational policies into laws to enhance investor trust.

He urged, “We urge the CBN to upgrade its policies and circulars to legislation regarding the impending BDCS new reforms to give comfort and guarantees to would be investors in the transformation of the BDC industry’s sub sector and allowing only the existing stakeholders the grandfather’s right for merger and acquisition to meet the expected reviewed financial requirements as suggested by ABCON.”

Gwadebe conveyed that ABCON and its affiliates are committed to ongoing dialogues with all market participants to promote a more open, competitive, and transparent retail foreign exchange market. This initiative aims to facilitate price determination, market effectiveness, transparency, financial stability, and a positive current account balance.

He expressed his appreciation towards the CBN for reinstating their sector as a crucial component of the financial market, aimed at combating stockpiling and speculative trading with anticipated rapid results. He remarked, “The BDCs, though unfortunately perceived sometimes as crude but effective, will always remain the potent transmission mechanism tool of achieving the apex bank’s mandate of price stability and liquidity in the market.

“We therefore urge the CBN to continue to drive and expand its thought mechanism to maintain the feat so far achieved in more than 15 years; as we have not only achieved the convergence of both rates, but market calmness and confidence of the public and foreign investors,” he stated.

Recently, the CBN facilitated a sale of $10,000 to qualified Bureau de Change operators at a rate of N1101/S1, with a strict instruction that these transactions should not exceed a 1.5% markup from the buying price.