BDCs Send Message to CBN on Use of Foreign Currency for Collateral as Naira Opens Strong Against USD
- Bureau de Change operators have applauded the decision of the CBN to stop the use of forex as collateral for naira loans
- The currency dealers noted that the move was in order as it would improve foreign exchange liquidity in the markets
- The Nigerian currency, afterwards, opened very strong against the US dollar on Friday, April 12, 2024, in the currency market
Legit.ng’s Pascal Oparada has reported on tech, energy, stocks, investment and the economy for over a decade.
The Association of Bureaux De Change Operators of Nigeria (ABCON) has backed the Central Bank of Nigeria's (CBN) latest order to stop commercial banks from using foreign currency as collateral for naira loans.
CBN’s order banning non-export domiciliary accounts for naira loans will boost FX liquidity, slow reserve accumulation, and strengthen the services sector.
Source: Getty Images
CBN stops using FX as collateral
ABCON president Aminu Gwadabe said the apex bank’s move is in order as the FX market will have a breather and boost liquidity.
Legit.ng earlier reported that the CBN’s latest circular to commercial banks banned the use of foreign currency-denominated collateral for naira loans, except in cases where the collateral is in the form of Eurobonds issued by the Nigerian government or guarantees provided by foreign banks, including Standby Letters of Credit.
The ABCON boss said that CBN’s policy and its impact on the FX market are welcome developments. They are expected to rein in the excesses of big firms and manufacturing companies, putting unnecessary pressure on the Forex market.
Gwadabe said:
“ABCON members are bewildered that some companies and manufacturers with billions of dollar balances in their non-oil export domiciliary accounts use it as collateral for naira loans and still source forex in the official window, thereby depleting what is available for other operators”.
“The stoppage of this unprofitable practice will not only add to the dollar's liquidity in the market but also help in the accretion of foreign reserve buffers.”
ThisDay reports that Gwadabe advised the CBN to review foreign currency holding guidelines for non-export domiciliary account proceeds and establish a maximum of 48 hours with a minimum balance of $5,000 for individuals and $50,000 for companies in holding positions, as is the case in South Africa.
Naira appreciates in the parallel market
ABCON’s stance came as the naira opened very strong against the US dollar after the holidays on Friday, April 12, 2024, with traders quoting the dollar at N1,130 per dollar at the parallel market.
The development represents a 0.88% drop over the N1,120 per dollar quoted during the holidays.
According to reports, traders attributed the fluctuation in exchange rates to irregular trading volumes during the holiday period.
Currency dealers ask CBN to reduce dollar's buying rates
Legit.ng reported that the Association of Bureaux de Change Operators of Nigeria (ABCON) has instructed the Central Bank of Nigeria (CBN) to reduce its buying rate for the US dollar to hasten recovery.
ABCON revealed that the N1,251 per dollar buying rate that the CBN pegged for the dealers would result in losses for its members, as the naira currently trades at N1,235 per dollar in the open market.
The currency dealers disclosed this in a letter signed by ABCON President Aminu Gwadabe, addressed to CBN’s trade and exchange department director.
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Source: Legit.ng
