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Analysts support new capital requirements for BDCs

By BusinessNews Staff on July 1, 2014

Financial market analysts have expressed their support for the new capital requirements for bureau de change (BDCs) that was recently announced by the Central Bank of Nigeria (CBN).

According to them, the policy would in the long run, help in bridging the gap between the official market and other segments of the forex market, especially the BDC. It is also expected to strengthen the naira and halt the seeming dollarisation of the economy.

The CBN had announced a new minimum capital requirement of N35 million for the operation of BDCs in the country, up from the N10 million it was previously.

It among other requirements, also reviewed the mandatory cautionary deposit for BDCs upward to N35 million, adding that the fee shall be deposited in a non-interest yielding account in the CBN upon the grant of approval-in-principle.

However, the House of Representatives last Thursday kicked against the policy, just as it invited the CBN Governor, Mr. Godwin Emefiele, to appear before its banking and currency committee to provide “full brief on the policy somersault”.

But speaking in a chat with THISDAY at the weekend, the Head of Research at Sterling Capital Limited, Mr. Sewa Wusu, argued that the policy would help in sanitising the BDC sub-sector.

“What the central bank is trying to do is to monitor and ascertain the legitimate demand in the BDC segment so that they will not be spending so much in defending the naira.

“The premium between the BDC and official rate is still very wide and the CBN wants to bridge the gap and curtail the excesses of operators. Also, the CBN is being proactive in monitoring money laundering ahead of the 2015 elections,” Wusu explained.

He noted that the move by the regulator clearly shows that its resolve to defend the naira at all course, saying that the depletion of the country’s forex reserves calls for serious concern by all stakeholders.

“If our forex reserves continue to come down, the international rating agencies may downgrade Nigeria’s rating which may affect us negatively,” he added.

On his part, the Head of Investment Research at Afrinvest Securities Limited, Mr. Ayodeji Ebo said the policy was long over due, describing it as a welcome development.

To him, the move by the central bank will help in curbing infractions at the BDC segment.

“In view of the capital requirement, it will reduce the number of BDCs. When you look at how the spread between the BDC and interbank has narrowed down, with the policy it is going to reduce further,” he said.

He reiterated the need for the cashless policy to be extended to the naira/dollar forex market to check leakages of foreign exchange to unauthorised dealers and reduce the level of artificial demand in the sector.

The central bank had explained that it introduced the policy in a bid to correct observed deficiencies in the operation of BDCs in Nigeria, which it insisted had led to gross inefficiencies and sharp practices in the forex market, rent-seeking, depletion of the external reserves, financing of unauthorised transactions and dollarisation, among others.

[This Day]

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