Nigeria’s Liberalized Foreign Exchange Regime: Current Impacts And The Near Future

3. Sales of Foreign Currency to Bureau-De-Change Operators

As indicated above, a new role has recently been designated for the BDC operators. By a Circular No: TED/FEM/FPC/GEN/01/004 issued to all Authorized Dealers and BDC Operators and titled “Sales of Foreign Currency Proceeds of International Money Transfers to Bureaux De Change Operators”, the ban from participation in the NIFEM earlier placed on the BDC operators has been lifted.

In effect, International Money Transfer Operators are now mandated to remit foreign currency to their agent banks for disbursement in Naira to the beneficiaries while the foreign currency proceeds are to be sold to the BDC operators. In doing this, full compliance with the extant Anti-Money Laundering Laws and the CBN’s regulatory frameworks such as the Know-Your-Customer principles, including BVNs, is to be observed. Furthermore, Authorized Dealers and BDC operators are required to give daily and weekly returns on their operations to the CBN’s Director of Trade & Exchange.

Further to this, the CBN on August 9 issued a supplementary Circular to all Authorized Dealers and BDC operators (Ref: TED/FEM/FPC/GEN/01/006), setting some limits to the BDCs’ trading in FX.

In line with the provisions of the supplementary Circular, Authorized Dealers are now to buy FX from approved IMTOs at a maximum of 10% above the inter-bank rates and sell to the BDC operators at a margin not exceeding 1.5%. The BDCs, in turn, shall sell the FX cash bought from the Authorized Dealers to end-users at rates not exceeding 2% of the rates for which the FX were bought. Additionally, all funds being retailed by BDC operators (regardless of source) shall henceforth be at a maximum margin of 2%.

4. Provisioning for Loss on Foreign Currency Loans

In enforcing compliance with the Prudential Guidelines for Deposit Money Banks in Nigeria, issued by the CBN on 1st of July, 2010 (“Prudential Guidelines”), the apex bank released a Circular dated July 27, 2016 (Ref: BSD/DIR/GEN/LAB/09/037), titled “Provisioning for Foreign Currency Loans”, which mandated all deposit money banks in Nigeria to review their loan portfolios latest by August 3, 2016.

By the date mentioned, all banks were to; 1) make additional provisions in their income statements in respect of the ‘unprovisioned portion’ of all Non-Performing-Loans (“NPL”) in their loan portfolios; 2) forward evidence of the additional provisions to the CBN’s Director of Banking Supervision; and 3) review all foreign currency-denominated loans and make adequate provisioning on all the delinquent ones, in line with the Prudential Guidelines.

Essentially, as a result of the "devaluation" of the Naira, which came with the introduction of the new FX regime, it has become more expensive for most borrowers to source FX to repay their foreign currency-denominated loans (which were executed and provisioned for, at the old CBN-pegged rates). Indeed, for those who may even be able to afford to buy FX at the liberalized inter-bank rates, the illiquidity in the market has led to an increase in defaults, hence the need for lenders to make new loss provisioning in their income statements in respect of their NPLs.

Since this directive was made, the banks have been calling on the CBN to amend the provisions of section 3.21 (a) of the Prudential Guidelines, which mandates that the banks retain in their records, fully provided NPL for a period of one year before write-off. Whilst the CBN has turned down this request by the banks, it has however granted a one-off permission to the banks to write off the said NPL only for the year 2016. It is generally believed that this would reduce the pressure that has been brought on the banks by the implementation of the new floating FX rates policy.