BDCs struggle with CBN’s recapitalisation rules amidst economic uncertainty

The recent recapitalisation rules issued by the Central Bank of Nigeria (CBN), which took effect on June 3, 2024, have sparked concern among Bureau de Change (BDC) operators, who argue that compliance is currently unfeasible due to lack of clarity and various economic challenges.

Aminu Gwadabe, president of the Association of Bureau De Change Operators of Nigeria (ABCON), voiced his concerns in response to BusinessDay’s question.

“The financial requirements amid policy uncertainty, lack of clarity, and increasing naira depreciation make compliance with the new rules unattainable,” Gwadabe said.

He warned that the stringent new requirements could have severe unintended consequences. “I am worried that the unintended consequences might lead to throwing more formalized operators to the informal sectors.”

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Gwadabe pointed to the experience of Algeria as a cautionary tale. “This lesson can be learnt from Algeria where stringent policy requirements on the retail end market pushed the sector into obscurity and volatility challenges.”

In an appeal to the Central Bank, Gwadabe urged reconsidering the new guidelines. “On behalf of our members, we appealed to the management of the apex bank to review and reevaluate the conditions in the new guidelines to avoid driving existing players into extinction, facilitating money laundering, increasing unemployment, and worsening the fragile insecurity situation in the country.”

He emphasised the role of BDCs as vital players in Nigeria’s foreign exchange market. “We are entities that embrace reforms over time and have remained the most potent mechanism tool of the central bank’s foreign exchange policy. The BDCs are like the feeder roads of the foreign exchange ecosystem,” Gwadabe explained. He cautioned that “strangulating them will continue to create panic, uncertainty, and loss of confidence in the market.”

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Gwadabe stressed the importance of balancing international obligations with national objectives. “We warned that balancing international obligations with national objectives is important.”

The CBN recently reviewed the minimum capital requirements for Tier 1 BDC operators to N2 billion while for Tier 2 BDC operators is N500 million.

“All existing BDCs shall re-apply for a new licence according to any of the tiers or licence category of their choice as provided in the guidelines,” the apex bank stated in a recent document titled, Regulatory and Supervisory Guidelines for Bureau De Change Operations in Nigeria’.

Blaise Ijebor, director of risk at the CBN, who represented Olayemi Cardoso, CBN governor, at a forum in Lagos recently, said the CBN’s directive is in line with their efforts to ensure BDCs focus on its initial vision of performing smaller transactions.