4 August 2014

Nigeria: Recapitalisation - Bureau De Change Operators Get Lifeline

Although the deadline given to bureau de change operators in Nigeria to recapitalise closed last week Thursday, there are indications that the Central Bank of Nigeria (CBN) would not withdraw the licenses of BDCs that failed to raise enough capital before the stipulated time frame.

A source within the CBN told LEADERSHIP at the weekend that BDCs operators who could not raise enough fund to comply with the new requirements as at the time the deadline elapsed, would not have their licenses revoked, but would no longer be able to access the CBN window to source for foreign exchange.

LEADERSHIP had reported last week that up to 70 per cent of the over almost 5, 000 BDCs in the country failed to meet up with the deadline of the CBN for them to be recapitalised. The CBN had in June raised the minimum capital base from N10 million to N35 million. It also increased the mandatory cautionary non-interest deposit from $10,000 to N35 million with an initial July 15 deadline.

However, interventions by the House of Assembly as well as series of meetings with the Association of Bureau de Change Operators of Nigeria (ABCON) had prompted the CBN to shift the deadline to July 31, whilst adding interest on the cautionary N35 million deposit based on the banking industry savings account rate.

The CBN sells foreign exchange to banks and BDCs at its twice weekly auctions, a move it said was helping to deplete the nation's external reserves. According to the CBN circular on the extension, the apex bank would on the expiration of the deadline of July 31, 2014 cease to fund any BDC that fails to comply with the new requirements.

"Only BDCs that meet the new requirements will qualify to be engaged as agent by the licensed International Money Transfers Operators for inward and outward money transfer business in Nigeria, " the circular said.

A CBN source noted that while the licences of those who could not meet up with the requirement would not be withdrawn, they would not be able to buy dollars at the CBN auctions.

"The BDCs will still have their licenses but they would no longer be able to buy dollars from the CBN. They can continue to do their business but they have to source their foreign exchange from the autonomous market," the source said.

ABCON had recently sent a 40 -week recapitalization timetable proposal to the CBN, a move which seemed to have been ignored by the apex bank as the president of the association Alhaji Aminu Gwadabe said ABCON is yet to receive any acknowledgement of the proposal from the CBN.

Gwadabe admitted that compliance with the CBN deadline had been difficult for the more than 4000 BDCs operating in the country adding that the "two weeks deadline given by the CBN is too short and even with the extension to July 31, I am sure that we cannot have more than 30 per cent which is about 1000 BDCs who will meet up with the deadline."

According to him, most of ABCON's members had sold off their properties at give away prices and some even had to go and obtain loans at cutthroat rates to meet the deadline, while some BDCs had gone into mergers without meeting the statutory and legal requirements of such arrangements in a bid to beat the deadline.

"We have appealed to the CBN governor to allow the minimum capital base to be at N35 million and the caution deposit at N5 million so as to source the caution deposit from the capital base of the company and the balance of N30 million be used as working capital of the BDCs.

"We have also appealed to the CBN to consider paying treasury bills interest rates on caution deposit to the BDCs, and because of volatility of the rate, an annual average rate could be used when crediting the interest due on the caution deposits.

"Also, in cognisance of the fact that all BDCs may not be able to either secure merging partners, source for new investors and or raise money internally to meet the capital requirement, we have recommended that CBN should allow BDCs with N10 million capital to continue to exist but be denied access to the weekly CBN dollar sales. This means they can trade but would not be allowed to buy dollars from CBN," he said.

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