ABCON welcomes CBN move against domiciliary account collateral for naira loans

Business a.m.

The recent move by the Central Bank of Nigeria (CBN) to ban the use of non-export domiciliary accounts as collateral for naira loans has received a positive nod from the Association of Bureaux De Change Operators of Nigeria (ABCON). 

Aminu Gwadabe, president of ABCON, said the directive will have a positive effect on the Nigerian economy, bolstering dollar liquidity, aiding in the accumulation of foreign reserves, and ultimately fortifying the financial services sector.

According to the CBN directive to banks, the use of foreign currency-denominated collaterals for Naira loans is now prohibited, except in cases where the collateral is in the form of Eurobonds issued by the Federal Government of Nigeria or guarantees provided by foreign banks, including standby letters of credit.

In a statement on the apex bank policy and impact on the forex market, Gwadabe described the move as a welcome development, expected to put the excesses of big businesses and manufacturers putting unnecessary pressure on the forex market  in check.

Gwadabe stated: “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”. 

He added that the stoppage of the unprofitable practice will not only add to the dollar liquidity in the market but also help in the accretion of foreign reserves buffers.

The ABCON president advised the apex bank to review foreign currency holding guidelines for non-oil export domiciliary accounts proceeds and entrench maximum of 48 hours with a minimum balance of $5,000 for individuals and $50,000  for companies in holding positions as practised in South Africa.

Gwadabe further advised the CBN not to approve forex requests by manufacturers and other business applicants with billions of dollars holdings in non export oil proceeds domiciliary accounts at both the NAFEM and NAFEX window.

Addressing the preconceived notions surrounding Bureaux De Change (BDCs), the ABCON president elucidated that while BDCs are often perceived as rudimentary, they play a vital role in stabilising prices and maintaining liquidity in the market, making them an effective tool in fulfilling the CBN’s mandate.

“We therefore urge the CBN to continue to drive and expand its operations to ensure that the best results now achieved in the last 15 years are maintained and  also ensure exchange rate convergence, market calmness and confidence of the public and foreign investors,” he said.

Gwadabe also highlighted the need for structural changes within the FMDQ Exchange, Nigeria’s foremost financial derivatives market. The ABCON leadership, he explained, has urged for the decoupling of ownership and operational structures within FMDQ Exchange, a move aimed at promoting greater transparency and efficacy in market operations and price control mechanisms.

The ABCON president further urged the CBN to allow legislative decisions on the planned reforms in the BDCs sub-sector to boost foreign investors’ confidence and guarantees in the sectoral transformation.

“We also want to pledge our continuing support to the CBN’s proactive and effective policies meant to address volatility and headwinds in the forex market. As a self regulatory body, ABCON is currently engaging all stakeholders and players in the retail end of the market to deepen, liberalise, democratise and centralise the retail end segments of the market for price discovery, market efficiency, transparency, accretion of buffers and healthy balance of payments,” he said.

Gwadabe commended the CBN for reinstating BDCs as a vital third leg in the forex market, citing the sector’s effectiveness in reining in the challenges of speculation and hoarding.