BDCs return CBN's order stopping use of domiciliary accounts as collateral

The Central Bank of Nigeria’s order to banks to cease using domiciliary accounts as collateral for naira loans has the backing of the Association of Bureaux de Change Operators of Nigeria.

In a statement released on Thursday, ABCON President Aminu Gwadabe outlined the organization’s position and said that the direction will fortify the country’s safeguards in addition to increasing currency market liquidity.

The CBN instructed banks in Nigeria to cease using foreign currency deposits as collateral for naira loans in a circular titled “The use of foreign-currency-denominated collaterals for naira loans” and bearing reference number BSD/DIR/PUB/LAB/017/004, according to a report published in The PUNCH on Monday.

The top bank outlawed the practice and given the banks a three-month deadline to stop doing business in this manner.

Speaking on how the practice of companies using their non-oil export domiciliary accounts as collateral for naira loans, Gwadebe said, “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.”

To increase investor confidence, Gwadebe also demanded that CBN policies on BDC operations be upgraded to laws.

“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,” he said.

According to the head of ABCON, the organization and its members have decided to keep interacting with all parties in order to develop and liberalize the retail sector of the market for price discovery, market efficiency, transparency, buffer accumulation, and a sound balance of payments.

“We express our profound gratitude to the management of the CBN for its reconsideration and reinstatement of our sub sector as third leg of the market to counter hoarding and speculation with faster results than expected. 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 said.

$10,000 was recently sold by the CBN to qualified BDCs at a rate of N1101/S1.

The BDCs must not sell at a spread of more than 1.5% above the buying price, the apex bank cautioned.