Godwin Emefiele, Central Bank of Nigeria (CBN) governor, assumed office recently with a mission, and has demonstrated considerable commitment at ensuring that bank depositors take value for their deposits. Besides, he wants all forms of injustices against depositors, either through trapped funds in Automated Teller Machines (ATMs) or outright debits without explanations by banks, be redressed through refunds.
Analysts are of the opinion that his approach to developmental banking, which is aimed at empowering the youth to have access to loans and be gainfully employed, will be jeopardised unless he demonstrates his commitment to the achievement of these laudable goals.
This is why current moves by the CBN at sanitising the foreign exchange market and protecting the interest of depositors have been commended by the public, who say the action is capable of engendering confidence in the banking public and potent for the success of the financial inclusion.
They argue that for the world-wide cashless policy, which began yesterday, to be effective and achieve its desired goals, the CBN should be seen to be firm on policy issues affecting depositors and exchange rate, considering the fact that the economy is still import dependent.
Indeed, some analysts say that the Emefiele-led CBN should as a matter of urgency beam its searchlight on Commission on Turnover (COT) being charged by banks, which they regard as contrary to agreement it had with the Bankers’ Committee on the revised charges. Some banks are charging above N2 per mille as agreed for this year, N1 per mille next year, and zero COT by the year 2016.
BusinessDay’s investigations show that some banks still charge above the N2 per mille, and therefore calling on the CBN to investigate the matter and punish banks still indulged in higher charges.
One area Emefiele has expressed concern, in accordance with his close associates, is the area of exchange rate. His argument, according to them, is that since most items are imported, the onus is on the CBN to ensure that there exist a realistic exchange rate regime and that the foreign exchange be made available to genuine entrepreneurs and importers.
Consequently, determined to sanitise the forex market and correct observed lapses in the operations of Bureax De Change (BDCs), the CBN last week increased their minimum capital requirement and mandatory cautionary deposit to N35 million each, and also banned multiple ownership of BDCs.
Although the action is generating a lot of controversy as expected, the truth of the matter is that the BDCs need close supervision and regulation. A situation where forex is collected at the official rate from the CBN and sold at black-market rate leaves much to be desired.
In recent times, the BDCs have become easy tools for money laundering and destabilising the forex market through connivance with some banks to embark on round-tripping.
It is also argued in some quarters that the segment of the forex market thrives because of patronage from government officials, politicians and in some cases, some CBN officials.
For instance, the Aigboje Aig-Imoukhuede-led verification committee of the oil subsidy scam in 2012, had identified one of the BDCs as being used by some banks to launder money out of the economy and recommended close supervision by the operators.
If the CBN must continue to fund the operations of the BDCs, it must be effective in its supervisory role and to also look inwards for likely perpetrators.
Hajia Khadijat Kazeem, deputy director, consumer protection department, CBN, said last week that the bank had, through its intervention, ensured refund of about N14.6 billion to customers of various banks that lodged one complaint or the other about the services of such banks from 2010 to May 2014.
Friday Ameh, a financial analyst, said last week also that depositors were behind any action being taken by Emefiele to protect their interest and ensuring that financial inclusion was enhanced, but advised that he should be wary of some ‘beneficiaries’ pretending to be against the new policy, as “some of these people are used to the old order and will naturally resist change.”
Bolade Agbola, executive director, Cashcraft Asset Management, said: “It is a positive move that will prune down the number of BDC operators considerably and facilitate closer supervision of the operations of the survivors by CBN.”
Speaking further, Agbola said: “Those who ate their profits during the lax supervision that characterised Sanusi era would fizzle out, while those who invested it would remain in the business. Many would raise additional capital and bring in new investors to share in the government largess, which weekly sales of foreign exchange through the BDC invariably amount to.”
Ayodeji Ebo of Afrinvest said: “The ability of the CBN to follow through with this policy will be tested. We recalled that the weekly sales limit of $250,000 earlier imposed on BDC operators in January this year by the CBN was later suspended amid significant demand-supply mismatch within the BDC segment. This broadened the spread between interbank and BDC rates to N13.00 levels in January.
“Following the repeal of the dollar supply limit to the BDCs nonetheless, the gap between the interbank and BDC market eased to N3.90 in June, and remains at benign levels currently.
“In view of the deadline for the compliance of the policy slated for July 15, 2014, we anticipate further widening between the “street rate” and interbank rate. We maintain our earlier position that the CBN’s “Cashless Policy” should be extended to the naira/dollar FX market, to check leakages of foreign exchange to unauthorised dealers and reduce the level of artificial demand for foreign exchange. “Consequently, the counter reaction of the CBN will no doubt chart the course of the future performance of the naira.”
Looking at the policy implications, Ebo said: “The new requirement, which increases the entry barrier, was introduced to curb the tendency of rent seeking by market operators, financing unauthorised transactions, money laundering and other predictive behaviours within the market.”
The increase in the minimum capital requirement will no doubt weed out BDCs with low volume of transactions and reduce market infractions, which will further strengthen the market as only viable highly capitalised BDCs will legally operate.
Also, the increase in the cautionary deposit to N35 million creates further incentives for BDCs to conform to CBN’s rules and regulations. However, the policy will in the short term lead to an increase in demand at the illegal “street” unauthorised dealers who often pay higher rates to both buyers and sellers of foreign exchange, and also serve the underground economy.
According to a banker, “there is need for the BDCs to play according to the rules of the game, but the CBN should ensure that the playing field is levelled.”
John Omachonu
