Will BDCs meet recapitalisation deadline?

The Central Bank of Nigeria has granted an additional six-month extension for all Bureau de Change (BDC) operators to recapitalise their operations, moving the deadline from December this year to June of next year. This move has sparked discussions and debates on whether the BDCs will meet the new guidelines set by the Central Bank. Aminu Gwadabe, President of the Association of Bureau de Change Operators of Nigeria, shed light on the reasons behind the extension in a recent interview on CNBC Africa. Gwadabe highlighted the challenges faced by BDC members in meeting the high recapitalisation requirements set by the Central Bank. Tier one operators are expected to have a capital base of two billion Naira, while tier two operators need 500 million Naira. These figures pose a significant financial burden, especially in the current economic climate where selling property or obtaining loans is challenging. The extension provides BDCs with the opportunity to explore different strategies such as acquisitions, margin adjustments, and outright upgrades to meet the capitalisation requirements. The President of the Association of Bureau de Change Operators of Nigeria expressed gratitude to the Central Bank for extending the deadline, emphasizing the importance of guiding members through the process and ensuring a seamless transition. The extension also allows for strategy sessions to help BDCs leverage the benefits of recapitalisation. One of the key objectives of the recapitalisation exercise is to reduce the number of BDCs in operation. The Central Bank had previously revoked over 4,500 licences this year before introducing the new capitalisation guidelines. By reducing the number of operators, the Central Bank aims to enhance supervision, monitoring, and corporate governance within the BDC sector to improve compliance. Despite the reduction in numbers, the new guidelines offer various benefits to BDCs, including participation in the United Market, becoming cash-out agents for International Money Transfer Operators, and expanding the sources from which they can purchase foreign currency. However, the guidelines also come with cash restrictions, limiting the amount of physical cash customers can receive in certain transactions. Gwadabe also touched on the Central Bank's intervention in the foreign exchange market by resuming dollar supply to BDCs to inject liquidity into the retail end of the market. The BDC sector plays a crucial role in maintaining exchange rate stability and closing gaps between official and parallel market rates. The President praised the BDCs for their contribution to mitigating volatility in the foreign exchange market. As the Naira continues to face pressure against major currencies like the US dollar, factors such as import dependence, seasonality, and inflation contribute to the widening spread between official and parallel market rates. The behavior of currency substitution and speculation further impact the exchange rate, highlighting the need for proactive measures to stabilize the Naira. Looking ahead to the upcoming festive season, Gwadabe emphasized the importance of collaboration between the Central Bank and BDCs to meet the anticipated increase in demand for foreign currency. While improvements in crude oil production and remittances provide some economic stability, maintaining a strong Naira is essential for Nigeria's financial sovereignty. In conclusion, the deadline extension for BDC recapitalisation presents both challenges and opportunities for operators in Nigeria's foreign exchange market. The crucial task now is for BDCs to strategize effectively, comply with the new guidelines, and align with the Central Bank's objectives to strengthen the sector's operations and contribute to a more robust economy.