Foreign Currency

ABCON Backs CBN Prohibition Of FX Collateral For Naira Loans


The President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji (Dr.) Aminu Gwadabe has said Central Bank of Nigeria (CBN’s) directive stopping the use of Non Export Domiciliary Account Collateral for naira loans will boost dollar liquidity, support reserves accretion and strengthen 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’s 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 on check.

He said: “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.” “The stoppage of this unprofitable practice will not only add to the dollar liquidity in the market but also help in the accretion of foreign reserves buffers,” he added.

Gwadabe advised the apex bank to review foreign currency holding guidelines for non-oil export domiciliary account proceeds and entrench maximum of 48 hours with a minimum balance of $5k for individual and $50 k for companies in holding positions as practiced in South Africa.

The ABCON chief 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. He explained that, unfortunately, the BDCs were most times seen as crude but remains an effective market control mechanism with the potent transmission mechanism tool in achieving the CBN’s mandate of price stability and liquidity in the markets.



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