Market News

 by Chike Olisah

The Bureau De Change (BDC) operators have attributed the recent strong performance of the naira to the implementation of the Central Bank of Nigeria (CBN) policy which allows authorized dealers to sell foreign exchange directly to these licensed currency traders.

The BDC operators revealed that there is a lot of forex inflow coming into the interbank window with growing investors’ confidence and huge portfolio investments coming into the banks.

The apex bank had in December 2024, introduced a revised guideline that permits licensed BDC operators to purchase foreign exchange directly from Authorized Dealers as part of its move aimed at streamlining Nigeria’s forex market enabling the naira to reflect its true value.

However, the BDCs highlighted the significant challenges they faced with complaints about the reluctance of the banks to follow through with its implementation and then appealed for its extension by the CBN. It said that the attitude of the banks affected the takeoff of the policy which was expected to end on January 31, 2025.

In response to the pleas of the BDC operators, the CBN extended the deadline for the weekly forex purchases to May 30, 2025.

A lot of liquidity in banks

Speaking exclusively to Nairametrics, the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, who acknowledged that the FX market is improving, stated that many of the banks have started the implementation of direct forex sales to the licensed BDCs which has impacted significantly the forex market.

When asked why the naira has been showing strong resistance recently, Gwadebe said, ‘’On Thursday it came to about N1,555/$1, it was over N1,560/$1, and on Friday it came to N1,545, N1,540/$1. One, this CBN circular, a lot of many banks have started the implementation of the CBN circular in terms of interbank proceeds, so that has a significant impact.’’

Throwing more light on the circular, the ABCON boss said, ‘’The BDCs have sources, one of the sources is the CBN intervention, then you also have the interbank, like was done during Sanusi time. So, any time the CBN is withdrawing its own direct intervention, they normally direct banks out of their own inflows, is it direct remittances, export proceeds, you know they are the custodian of those funds, so the CBN normally gives them a kind of prudential target out of those inflows so they can distribute or sell to the BDCs according to the market rate.

‘’So that is the purpose of that circular because one time the CBN suspended that window for banks to be selling to the BDCs, we requested for the revisiting of that window which the CBN granted in late December 2024 and reactivated it in this February.

‘’This is the reason BDCs can now buy from the interbank window and you know there are a lot of inflows coming into the interbank window, there is increasing investors’ confidence. So I’m sure the banks are awash with portfolio investments coming in, which is giving them the muscles to at least have a kind of where to offload their surpluses.’’

Speaking to another BDC operator, Mallam Adamu, on what could be responsible for the recent appreciation of the Naira in the last few days, he said,

‘’I think the FX can sometimes be like that. It goes up and comes down. In the morning it was around 1570 and fell to about 1560 later on Friday. That’s how the market works.

On whether it can be linked to the recent CBN policies, Adamu said, ‘’Well, that can be but I’m not so sure. We observed that many people are selling recently as they are buying. I don’t know if this has to do with specific policies of CBN.

Chinese holiday factor

Gwadebe, who admitted that the Chinese holiday could be a factor, however, said he would not want to rely on that analysis as he believes that actions such as panic buying, speculation and currency substitution put more pressure on the naira than the Chinese holiday.

He said, ‘’Well, the Chinese holiday is part of it, but then sometimes I don’t want to rely on that analysis because what drives it mostly is perception which kills our currency, when people perceive that there is going to be volatility, the volume that is being bought as a result of fear outweighs even what people buy to travel to China or pay for their goods. So, this is the issue here, panic buying, currency substitution, speculation, these are the things that put more pressure than the China holiday. Yes, China holidays can play a part but not as influencing the fundamentals of demand and supply.’’

Gwadebe noted that when they are on holiday, most of the transactions and transaction volume are reduced drastically as some of the companies will not even be there to confirm your money.

What you should know

Recall that in December 2024, Gwadebe, during an exclusive chat with Nairametrics, said that the Central Bank of Nigeria (CBN) does not automatically permit BDCs to purchase foreign exchange directly from authorized dealers.

• He stated that participation is subject to meeting the new capitalization guidelines and requirements of BDCs introduced by the CBN in May 2024, which is N500 million for Tier-2 operators and N2 billion for Tier-1 operators.
• Gwadebe had commended the CBN for lifting the suspension of sales of interbank foreign exchange to its members nationwide, saying this would tame the country’s inflation, lead to job creation, boost FX liquidity at the retail end of the market, among other benefits.
• Also, earlier in February, after the extension of the policy of forex sales directly to licensed BDC operators by authorized dealers, the CBN issued new guidelines stating that currency traders are only allowed to purchase their weekly $25,000 from a single authorized dealer bank.

This restriction is aimed at preventing speculative activity and ensuring better oversight. Any BDC found violating this rule will face appropriate sanctions from the CBN.