More hurdles as banks’ suspension of BDC accounts lingers

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NOT a few financial market experts are shocked by the banks’ suspension of Bureau de Change (BDC) operations over taxes on turnover volumes. But, many of the BDCs that have faced tougher challenges, including the battle for margin raise, which the Central Bank of Nigeria (CBN) has granted, the new war will, like others before them, give way.

It was learnt that many banks are writing to BDCs and implementing a ‘Post No Debit’ order on the operators’ accounts making it difficult for them to sustain their businesses. The Association of Bureau De Change Operators of Nigeria (ABCON) described the suspension of BDCs accounts as illegality that must be addressed in the interest of the economy and financial system stability.

According to ABCON President, Aminu Gwadabe, the banks, acting on the directive of the Federal Inland Revenue Service (FIRS), have been demanding that the BDCs pay taxes on bidding funds used for dollar collections. The funds are sent through the commercial banks to the CBN weekly.

He said: “The BDCs are a high turnover sector and their funding cash for dollar collections cannot be subjected to taxes. An average BDC does over N30 million weekly turnover and paying taxes on such funds will affect their cash flow and ability to meet their statutory role of foreign exchange supply to the retail-end of the market.”

Other challenges before BDCs
The increasing difficulties arising from over regulation and complex documentation requirements that licensed BDCs are facing in carrying out their daily legitimate operation is more worrisome, as the hitches have negative impact on BDCs’ ability to comply with the statutory and regulatory requirements and have to be tackled by the apex bank.

For instance, six units within the CBN are involved with BDC regulations, supervision, licensing and monitoring. A BDC operator is expected to render daily, monthly, quarterly, half yearly and annual returns to the various departments of the same corporate body, which could be very cumbersome, repetitive and time-consuming for both the operator and the regulator.

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The operators are also under obligation to render same returns to the Economic and Financial Crimes Commission (EFCC) /Nigeria Financial Intelligence Unit (NFIU) and at the same time, report to other statutory government establishments, including the FIRS and Corporate Affairs Commission (CAC), among others.

Gwadabe said: “These constitute multiple regulation of a unit of the financial sub-sector that is only involved as a small market player. Unfortunately, some operators have had to pay high penalties to different departments where instant regulations are violated.

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“The result of this is heavy burden on the BDCs which have continued to challenge their operations. We urge the CBN to take critical look at these challenges and tackle them in the interest of the financial sector and economy.”

Capacity building for BDC operators
ABCON has for years been an active group in financial services sector, concentrating more on the BDC segment of the market and ensuring that global best practices are followed in BDCs operations.

On its own, the association has organised trainings for its members. It has also partnered with NFIU and the EFCC to build capacity for operators on how they tackle money laundering, terrorist financing and the benefits of keeping records of their transactions.

The ABCON chief said: “The anti-money laundering training that ABCON organised last month with NFIU in Lagos was meant to familiarise BDCs with the process of money laundering – the criminal business used to disguise the true origin and ownership of illegal cash – and the laws that make it a crime”.

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“The NFIU/ABCON goal is to ensure that BDCs are not used to launder funds by Politically Exposed Persons (PEPs) especially at this period of electioneering. Their target was also to upscale BDCs’ compliance with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) for Banks and Other Financial Institutions in Nigeria, Regulations 2013.”

At the end of the training, BDCs were taught how to raise and submit both the Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) to regulators. Besides, ABCON will in the coming months partner with National Drug Law Enforcement Agency (NDLEA) to train BDC operators on how on record keeping and ways of tackling illicit financial flows into the country through BDCs.

BDCs roles in forex
According to Gwadabe, the BDCs have over the years, remained a potent monetary policy tool for exchange rate stability. The operators have helped the government in creating over 30,000 jobs for Nigerians, thereby reducing unemployment rate in the country. The BDCs have continued and will continue to make forex available to the critical retail end-users, thereby deepening forex access.

The BDCs have also been enhancing price discovery and transparency in the forex exchange market. The operations of BDCs have equally raised the level of investors’ confidence and Diaspora remittances in the country.

For instance, the World Bank data showed that Nigerians living abroad (Diaspora) sent home $22 billion in 2017, the highest in the sub-Saharan region and the fifth highest in the world. This represents 10 per cent increase when compared to the $19.64 billion sent home in 2016. Gwadabe said the Diaspora remittance figures could double in few years if the CBN gives the BDCs all the necessary support as being requested.

He said: “While we commend the CBN for reviewing the rate at which the dollar is sold to BDCs thereby creating uniform competitive environment between the banks and BDCs, we also like Oliver Twist, ask for a better regulation that gives BDCs more time to concentrate on their core business of making forex available to retail-end users and attracting huge investment inflows into the domestic economy.”

Operators new demands
The ABCON has further put up new requests before the CBN, which are meant to further deepen liquidity in the market. ABCON had urged the CBN to approve disbursements of the Renminbi (Yuan) to its members to deepen the China-Nigeria swap deal, following the implementation of the $2.5 billion currency swap agreement between the CBN and the People’s Bank of China (PBoC).

Gwadabe explained that the approval would enable BDCs sell Personal and Business Travelling Allowances (PTA/BTA) to its customers in Yuan.

According to him, the sale of BTAs and PTAs to China-bound businessmen would acquaint them with the authentic features of the Yuan to avoid being issued fake currencies for transactions. The ABCON chief applauded the CBN for taking proactive measures in prosecuting the deal and the stability of the naira at the nation’s foreign exchange market.

He said the currency swap deal was part of the CBN’s plan to keep the naira stable and protect the foreign reserves domiciled in dollars. Gwadabe said the 15 billion Renminbi (RMB)/Yuan or N720 billion deal, would provide adequate local currency liquidity for Nigerian and Chinese industrialists and reduce difficulties they face in searching for the greenback.

The ABCON boss said BDCs would benefit from the swap deal given that a stable and strong naira is good for the economy and operators. For him, the increased use of Yuan in trade deals will also open a new business opportunity for BDC operators.

According to Gwadabe, ABCON will continually support CBN in achieving its exchange rate stability mandate and promoting economic growth through increased global partnerships and collaborations. He said the association is taking strategic steps to ensure that it benchmarks global best practices in currency dealings as seen in the ABCON co-ordination, automation and digitization projects.

The tough regulatory policies and environment, including the N70 million licencing fee for BDCs being championed by the CBN are source of concerns to ABCON. The fee, Gwadabe said, “is not only outrageous, but has reduced the funds available to BDCs to successfully run their operations.”

Other challenges being faced by the BDC include exchange rate, abnormal bank charges, Value Added Tax (VAT) and Commission on Turnover (COT), parallel market operators and illegal International Money Transfer Operators (IMTOs), porous international boarders, complex documentation requirements and poor capacity/ skills of operators.

Contributions to exchange rate stability
Nigeria is one of the countries practicing multiple exchange rates regime. The market is divided into many different segments, each with its own forex rate, whether fixed or floating. Many financial experts have been wondering when the CBN will finally revert with single exchange rate regime.

Hence, when the apex bank announced that BDC operators and commercial banks will buy dollar at same rate and sell within same margin, market watchers saw it the masterstroke needed to eliminate multiple exchange rates in the industry.

For two weeks after the BDCs’, banks’ rate unification, market response was positive, with the local currency making massive gains against the greenback. The policy has effectively ended frivolous dollar demand, exchange rate spikes, speculations, hoarding and rent seeking in the forex market.

Analysts believe that the rate unification also captured CBN’s commitment and readiness to end the multiple exchange rates that have remained a plague to the industry, and in its place, entrench single exchange rate regime that serves the interest of all stakeholders.

Speaking on the development, Gwadabe, said the speed at which the naira recovered against the dollar after the CBN’s announcement, buttressed the BDCs’ massive influence in the market and economy.

He said the BDCs have so far stamped their role as key players in the forex market, where they remain major economic drivers creating employment and wealth for the people. These contributions, he said, require that the operations of BDCs be supported to sustain ongoing market rally and stability.

“We commend the CBN’s bold move in unifying the BDCs’, banks’ rates. We can safely say that the threat of distortions of market rate by election anxiety have been mitigated by the policy. And the BDCs are committed to supporting the CBN’s policy direction and actions to sustain ongoing market stability,” he said.

The ABCON boss described the impact of the rate unification as massive, including raising foreign investors’ confidence in the domestic economy, boosting the foreign exchange reserves position and creating opportunity for a better foreign reserve management by the apex bank. He assured that the BDCs will continue to meet the critical forex needs of the retail end-users and stick to allowable transactions limits as approved by the regulator.

Earlier in the month, the CBN approved an upward review of the trading margin available to BDCs. The approval allowed BDCs to buy dollar from the apex bank at N357/$1 and sell at N360, thus enabling them to earn a positive margin of N3 on every dollar sold.

CBN Acting Director, Corporate Communications Department, Isaac Okorafor, said the decision was aimed at giving BDCs a level playing field to enable them compete favourably with other authorised forex dealers.

Okorafor urged the BDC operators to abide by the new guidelines and not exploit eager customers by selling above the N360 band. He warned that erring BDCs would be sanctioned in any case of infraction established against them.

Before the review, the BDCs were buying dollars at N360 to a dollar, while selling same to customers at no more than N361.5/$1 while banks were buying at N357/$1 and selling at N360/$1. The CBN has come under severe criticisms from international economists and analysts, who deride the multiple exchange rates regime, currently in place in the country. Most prominently, the International Monetary Fund (IMF) urged CBN to scrap its multiple exchange rate regime to revive its economy.

Renaissance Capital (RenCap), an investment and research firm, said foreign investors prefer to invest in countries with exchange rate, as against the single exchange rate.

The investment and research firm said that many foreign investors are still worried about the multiple exchange rates operating in Nigeria, which remain a big challenge to foreign capital inflows.

Speaking at RenCap’s ninth annual Pan-Africa 1:1 Investor Conference in Lagos, RenCap’s Global Chief Economist Charles Robertson said Nigeria will be better of adopting a single exchange rate. He said that although the foreign investors have increased their interest in the economy, the level of capital inflows would have been better were the country to adopt a single exchange rate.

Robertson said: “The main challenges for investors are on the front of liquidity: how can Ghana and Nigeria increase liquidity in the near future?

“Nigeria is looking better on most metrics, having accelerated growth, a stable currency and rising forex reserves, but needs to improve on bank lending which remains weak.” Gwadabe further described the development as reflection of the apex bank’s commitment to achieving a single exchange rate regime.

He said that ABCON had earlier expressed concerns about rate disparity and is now pleased with the review which will ensure transparency and stability in the forex market.

An IMF report, however, insists that the exchange rate regime to be adopted by a country is dependent on many factors, which will come with benefits and consequences.

The report titled: “Exchange rate regimes in an increasingly integrated world economy”, obtained from the Fund’s website, said the choice of an appropriate exchange rate regime – floating, managed or fixed arrangements-for individual countries will have social and economic implications.

It said the changes include the general increase in capital mobility and the abrupt reversals of capital flow to developing and transition economies.

The IMF report said there cannot be a single exchange rate regime that will be suitable for all countries in all circumstances.

“Member countries continue to have scope to choose the type of exchange rate regime that best suits their needs always with the proviso that the chosen regime must be credibly supported by policies consistent with the choice,” the report said.

Continuing, the IMF document, which was posted on its website, said the exchange rate regime and associated policies appropriate for a country will depend on the particular circumstances.

“While increased capital mobility has been leading an increasing number of countries to either end of the spectrum between firmly fixed rates (or monetary unification) and free floating, intermediate regimes are likely to remain viable and appropriate in many cases,” it IMF document said.

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