The failure of 22 commercial banks to comply with the Central Bank of Nigeria’s (CBN’s) directive to sell $50,000 weekly to Bureaux De Change (BDCs) is worrisome. Also disturbing are their alleged breach of the Treasury Single Account (TSA) and international money transfers. Besides, they also engage in round-tripping. Stakeholders are urging CBN to stop banks from selling dollars and give the job it to an independent distributor so as to make the Diaspora funds accessible to BDCs, writes COLLINS NWEZE.
That dollar scarcity has hit an alarming rate is no longer news. What is source of concern to stakeholders is how the billions of dollars coming into the country, especially from Nigerians in the Diaspora, are utilised by the commercial banks that warehouse such funds.
If well managed, the funds, estimated at $21 billion annually by the World Bank Migration and Remittances Factbook 2016, are huge enough to save the naira which has come under heavy pressure from speculative attacks and the prevailing dollar scarcity.
The naira closed at the weekend at N420 to the dollar at the parallel market. It has lost over 40 per cent of its value since June. But the Central Bank of Nigeria (CBN) is taking drastic measures to protect the national currency by bringing Bureaux De Change (BDCs) into its market calculation.
According to the apex bank, the BDC remains a critical agent in the stability of the forex market and economic turnaround for the country. Besides, the operators are also key partners of the CBN in meeting of customers’ forex needs at the retail end of the market.
The CBN has, therefore, directed commercial banks to sell $50,000 weekly to each of the nearly 3,000 BDCs from the estimated $21 billion inflows from Nigerians resident overseas.
Over the years, the Money Deposit Banks (MDBs) have been the sole recipient of the Diaspora funds, unlike in other countries where the cash went directly to the BDCs. But recent occurrences, and abuses of regulatory processes, question the suitability of the lenders to continue the disbursement of Diaspora remittances to BDCs as directed by the CBN.
The first doubt was raised with the publicised indictment of nine lenders by the CBN for failure to remit $2.3 billion belonging to the Nigeria National Petroleum Corporation (NNPC)/Nigerian Liquefied Natural Gas (NLNG) Company into the Treasury Single Account (TSA) as required by law.
The affected banks were banned from trading in the forex market but were re-admitted the weekend after they presented repayment plans for the funds in their custody.
The CBN has also accused the banks of violating international money transfer rules by establishing private and company accounts to harvest dollar inflows from abroad without following the Know Your Customer (KYC) requirements.
Despite CBN’s directive to banks to sell $50,000 weekly from Diaspora remittances to BDCs, the MDBs are adamant, even with from the apex bank that they disburse the funds to the BDC operators to boost liquidity in the forex market and boost the state of the local currency naira against the dollar.
The CBN also accused the banks of engaging in round-tripping, taking advantage of the huge forex gaps between the official and parallel markets. About 20 to 25 per cent of the volume of forex traded in the country is from autonomous sources, usually diverted into the parallel market through round-tripping.
According to the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, only 10 per cent of BDCs from the Lagos market have so far accessed dollars from banks since the CBN gave the directive almost a month ago.
Gwadabe explained: “The proceeds of the international money transfer funds are not CBN money. It is not from the foreign reserves of the CBN. This is money that Nigerians in Diaspora send into the economy. Before, this money came through unofficial means; some send through hands, and at the end of the day, the beneficiary will not even get the money. And in other countries, the Diaspora funds are strictly for BDCs.”
The ABCON chief has, therefore, called on the CBN to outsource the dollar distribution role to an independent distributor since the banks have failed in the assigned role.
Involved in the dollar sales are: FirstBank, Ecobank Nigeria, Fidelity Bank, United Bank for Africa (UBA), Unity Bank, Diamond Bank, Zenith Bank and Stanbic IBTC Bank.
He lamented that none of the BDC operators in Port Harcourt, Kano, Abuja, Onitsha, Maiduguri, Benin and Enugu has received a single dollar from the designated banks.
Gwadabe also accused the banks of selling the dollar far above the interbank rate. The banks, he said, have a mandate to sell to the BDCs on the same day within the week, but they have failed to do so.
He said: “Instead of staggering the payment, the banks should sell to the BDCs on the same week day, so that the impact will be felt in the market.
“Our members across the country have funded their accounts but the banks are not selling to them. The BDCs that met the CBN’s policy guidelines on the disbursement and cleared by the banks have still not received a dime from the banks.
“I think the banks are compromising the policy and CBN’s directive on the matter. And like I said earlier, since the banks are not cooperating, I expect the CBN to take that role from them and assign it to a reputable independent dollar distributor that will comply with the terms of engagement.”
The ABCON chief got an ally in the former President and Chairman of Council, Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, also backed the operator’s suggestion that the dollar selling role from the Diaspora funds be taken away from the banks.
Unegbu explained that the rising dollar scarcity and the banks’ desperation to declare huge profits would make it difficult for the lenders to handle the Diaspora funds with the desired integrity.
“This is not the right time to give banks custody of Diaspora remittances because they will always want to abuse the opportunity. The banks are like lions looking for the next available prey to devour and leaving the Diaspora funds with them is not in the interest of the naira and wider economy,” he said.
Unegbu said he was not surprised that banks are not selling dollars to BDCs because they are also not selling to manufacturers who need the funds to import raw materials and machines to create jobs for the population.
His words: “I think the banks want to maximize their profits by selling the dollar to end users and make wider margins. I even understand that bank employees want the BDCs to ‘settle’ them before they can even release the dollars to them. This is something the CBN should look into. It should give the dollar to a reputable international money distributor to ensure that the dollars get to the BDCs as such would help strengthen the naira and bring down the soaring dollar price.”
The former CIBN chief said that with the devaluation of the naira, Nigerians in the Diaspora now have incentives to send home more dollars to build houses, start businesses or even pay school fees of their families and relations at home.
He said the banks will continue to put pressure on the CBN not to relieve them of the Diaspora funds, even though they lack the integrity to handle the funds.
The World Bank has identified Nigeria as the third largest destination country for migrants from other African nations. The bank states that a quarter of a billion people around the world are migrants, and over $600 billion in remittances are sent annually.
The global lender says international remittances to developing countries reached over $441 billion last year, more than foreign direct investment and thrice more than official aid flows. It says 34 per cent of all international remittances are sent between developing countries.
CBN’s Acting Director, Trade & Exchange, W.D. Gotring, had directed through a circular to authorised dealers that all agents to approved International Money Transfer Operators (IMTOs) sell $50,000 weekly foreign currency accruing from inward money remittances to licensed BDCs.
The directive was meant to ensure stability of the exchange rate and encourage participation of critical stakeholders in the forex market.
Gotring, in a circular to authorised dealers titled: “Re: Transactions in ‘Free Funds’ by authorised dealers”, also accused the banks of buying and selling forex without following stipulated guidelines.
“The CBN has noticed that some authorised dealers have continued to buy and sell foreign exchange referred to as ‘free funds’ despite the provision of the circular of March 4, 2004 on the subject”, he said.
Gotring, who cautioned MDBs of the consequences of violating the extant regulations, said: “against the background, authorised dealers are to note that dealing in forex without appropriate documentation, which includes relevant entries, blotters, physical documents and non-disclosure to the regulatory authorities is a breach of extant regulations.”
He reiterated that as provided in the laws and regulations governing dealings in forex, authorised dealers shall not sell forex without appropriate documentation and disclosure to the regulatory authorities irrespective of the source of the funds. “Accordingly, authorised dealers shall deal in eligible transactions only, and not to engage in any foreign exchange transactions on terms inconsistent with the extant laws and or regulations”, he said.
Banks abuse international money transfer rules
The CBN has also accused MDBs of compromise in the ways they handle proceeds from international money transfer inflows into the country.
A circular to banks titled: Illicit international money remittances through the banking system, and signed by Gotring, accused the lenders of opening multiple illegal company and personal accounts where they harvest dollar proceeds for onward disbursements to local recipients.
The practice, he said, is against the September 26, 2014 guidelines for the operation of International Money Transfer Service (IMTS) in Nigeria, warning the lenders to desist from such unwholesome practices.
He said: “Further to the guidelines for the operation of International Money Transfer Service (IMTS) in Nigeria of September 26, 2014, we have observed that some DMBs are operating accounts either as companies or companies masking themselves as individuals for the purpose of illegally receiving money transfer flows into the accounts for onward disbursements to recipients in Nigeria.”
Gotring therefore ordered the lenders to carry out Know Your Customer’s Business (KYCB) checks on all their customers to ensure that they do not transact in illegal/illicit flows and also freeze compromised/ identified defaulting accounts.
His words: “The CBN therefore reiterates that the MDBs have the absolute responsibility to conduct KYCB checks on all their customers to ensure that they do not transact in illegal/illicit flows. Consequently, DMBs are hereby directed to identify and freeze accounts receiving illicit flows, submit the mandate and account details of these accounts held in naira or foreign currency to the CBN for onward reporting to the security agencies.”
Impact on the naira
Ecobank Nigeria’s Head Currencies, Market, Olakunle Ezun, said in an e-mailed report that the naira weakened significantly to N420 to the dollar in the parallel market despite CBN’s decision to increase dollar sale to $50,000 for BDC operators.
The local currency has been under constant pressure on the black market for months, where it has consistently faced chronic shortages. The naira was however quoted at N317.09 to the dollar on the interbank or official market.
Analysts insist that at this time of strong dollar demand during low oil prices, only a liquid market will help naira’s recovery. The Diaspora funds if well managed, they said, could help the out of the forex crisis.
Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, agreed in an e-mailed report that the rise in inflation to 17.1 per cent in July from 16.5 per cent in June, a 0.6 per cent increase was driven mainly by supply shocks, forex scarcity, speculation and uncertainty premium.
New IMTOs approved
To remove oligopoly in the money transfer business, the CBN has licensed 11 new IMTOs to join Western Union, MoneyGram and Ria, which were previously cleared by the apex bank.
The new entrants include: Trans-Fast Remittance LLC; WorldRemit Limited; UAE Exchange Centre LLC; Wari Limited; Homesend S.C.R.L and Small World Financial Services Group Limited among others.
Gwadabe has praised the CBN’s decision, describing it as a right step in the right direction and in line with ABCON’s campaign that new operators should be allowed into the market.
CBN’s Acting Director, Corporate Communications, Isaac Okorafor, said the new entrants was in line with the apex bank’s efforts to liberalise the forex market, ensure liquidity and make forex more readily available to low end users.
WorldRemit, one of the licensed digital remittance service companies, has applauded the apex bank for the action. Its Founder and Chief Executive Officer, Ismail Ahmed, informed that the firm has received a CBN approval to continue with its digital money transfer services in the country.
WorldRemit launched its service to Nigeria in 2011 when it pioneered low-cost instant deposits to all bank accounts. The service provided Nigerians in the Diaspora with an easy, fast and secure way to send money home as well as bringing in the much-needed forex into the local economy. Supporting the country’s move towards a cashless economy, 100 per cent of transactions were either bank deposits or airtime top-ups.
Ahmed said: “We commend the CBN for reaffirming the country’s commitment to building an enabling environment and level-playing field for IMTS to Nigeria. The environment will help to bring the estimated 50 per cent of remittances to Nigeria that currently go through unregulated, informal networks into the formal channels.”
Fine dangles on nine erring banks
The nine commercial banks barred by the CBN from the interbank forex market may be fined, analysts at Lagos-based CSL Stockbrokers Limited predicted. Other financial experts also estimated that although there was no precedence of the case, the apex bank may impose a fine of abot N450 million on all the nine lenders, (representing N50 million each).
A former Executive Director with Keystone Bank, Richard Obire, said: “The CBN may want to demonstrate to the banks that it took their offences very seriously and make it painful to them. The regulator may want to make the fines painful to them as a deterrent to others. I see not less than N50 million fine on each of the affected banks, and that’s N450 million in all.”
Obire said although the banks are already facing hard times, but letting them go without a fine, could provide a wrong precedence for the industry.
The banks that breached the TSA rules are: UBA ($530 million); FirstBank ($469 million); Diamond Bank Plc ($287 million); Sterling Bank Plc ($269 million); Skye Bank Plc ($221 million); Fidelity Bank ($209 million); Keystone Bank ($139 million); First City Monument Bank ($125 million) and Heritage Bank ($85 million).
Stakeholders insist that with controversies surrounding banks’ handling of forex transactions, the lenders should be relieved of the role of disbursing the Diaspora funds to BDCs.
BDCS and the economy
To Gwadabe, BDCs can be strengthened to meet the forex demand at the retail end of the market to boost employment generation.
The ABCON chief believes that despite the challenges facing the economy, the CBN and BDCs can work together and find sustainable solutions to lift the country out of the ongoing forex crisis to full economic recovery.
Besides, ABCON has reached the final stage of automation of BDCs’ operations. The association has applied for CBN’s certificate of no-objection on the project. According to Gwadabe, the automation plan has been accepted by the CBN, pointing out that the comprehensive reforms of the BDCs sector were unveiled earlier in the year.
ABCON under Gwadabe has also assured that purchased funds would be disbursed to end-users at the approved rate, and for eligible transactions only.
His members, he assured, will render weekly returns on dollar purchases to the Trade and Exchange Department of the CBN.
He further stated that the operators will ensure strict compliance to the provisions of the anti-money laundering laws and observance of appropriate KYC principles in the handling of forex transactions.
