Black market exchange rate of N385/$ threatens BDCs’ operation

Bureau De Change (BDC) operators seem to be losing out in the latest foreign exchange policy that has seen the naira appreciate to a record high of N380 – N385 since February.

This follows the disparity in exchange rate between the International Money Transfer Operators (IMTOS) and the banks, which the Central Bank of Nigeria (CBN) has pledged to converge soonest.

Investigation of rates reveals that as of Friday, the naira traded at the rate of N385 per dollar at the black market in Festac area of Lagos State. At the Lagos International Airport, it was quoted at between N385 and N390, while at Apapa it closed at N387 per dollar, also at the unofficial parallel market.

However, the BDCs buy at the rate of N381 per dollar from the IMTOs and sell at between N399 and N400 for one dollar.

The central bank has been intervening on the official market to try to narrow the currency spread with the black market rate, which was N520 to the dollar a month ago after it devalued the naira for retail customers to N375.

Aminu Gwadabe, acting president, Association of Bureau De Change Operators of Nigeria (ABCON), told BusinessDay that licensed BDCs were to incur regulatory losses of N130 million for this week dollar allocation.

The losses are as a result of the CBN’s directive to operators to sell dollars at different prices, Gwadabe said. The directive to the banks is to sell with a margin of 20 percent above interbank rates resulting at N375/$, and the BDCs are buying at N381/$ and sell at N399/$.

The present parallel market rates at N380/$ make its very difficult for BDCs to sell at breakeven point at interbank rates resulting to N375/$, and the BDCs are buying at N381/$ and to sell at N399/$. The present parallel market rates at N380/$ make it very difficult

This he said was as a result of disparity in the applicable exchange rates among players in the market. “The insistence of the public not to buy dollars for allowable invisible transaction above the N375/$ from the BDCs and a rate that is lower for the BDCs purchasing rates of N381/$ is part of the challenges facing the BDCs,” he said.

Speaking further in a text message, he said, “This development has already been communicated to the CBN and relevant agencies for necessary intervention, and the CBN is giving its highest necessary attention. If the scenario is not reversed immediately the CBN licensed BDCs of over 3,000 with 30,000 employment will be technically edge out of the market.”

The CBN should as a matter of urgency harmonise the different applicable exchange rates for both banks, Travelex and BDCs to avoid the stifling of the huge success on naira appreciation and sovereignty. The volumes of the weekly allocation to BDCs should also be reviewed upwards. Thirdly, the CBN should enhance moral persuasion to IMTOs and foreign investors to generate more buffers to sustain liquidity injection.

However, analysts at Afrinvest Securities Limited said with rates converging towards the N375/$ retail intervention rate, the apex bank may be eyeing unified FX rates at N380/$ – N370/$ before cutting intervention to give way for a well-functioning interbank market. Nonetheless, this remains unlikely in the interim given the absence of the political will and overarching implication of this on price-level and public welfare.