By Babajide Komolafe
The banking industry has extended its dominance to bureau de change (BDC) services, with the 24 banks selling $11.4 billion to retail foreign exchange end users through their BDC units.
In 2006, the Central Bank of Nigeria (CBN
) as part of its measures to liberalize the foreign exchange market commenced Cash Sale of Dollars (CSD) to BDCs. To complement this measure, the apex bank allowed banks to obtain licence to operate BDC services. Prior to this, BDC services were the exclusive preserve of private individuals licensed to operate the business.
Analysis of cash sale to BDCs by the CBN from April 2006 to May 2009 shows that banksâ€™ BDCs bought and sold to end users $11.371 billion. Though this represents less than 36.7 per cent of the $30.4 billion sold to all BDCs within the period. However, in average terms, each bank through its BDC units sold $458.3 million while each conventional BDC sold $28.06 million within the period.
In 2006, banksâ€™ BDCs dominated the scheme selling $2.581 billion, representing 55.3 per cent of the $4.7 billion sold by all BDCs. But despite selling more in 2007 and 2008, i.e. $2.9 billion and N3.22 billion respectively, the share of banks BDCs in total amount sold declined to 49 per cent and 24 per cent respectively. This was due to the increase in the number of conventional BDCs licensed and admitted into the scheme by the apex bank. Hence, the number of conventional BDCs rose from 292 at inception of the scheme in April 2006 to over 1000 at the end of 2008.
Prior to 2006, retail foreign exchange transactions were synonymous with street trading and something conducted in a rowdy atmosphere and with the operators mostly semi-illiterate people. Hence, retail foreign exchange was characterized by stress and fear. But this was because the retail foreign exchange transactions were dominated by illegal foreign exchange operators.
The 2006 foreign exchange liberalization measures of the CBN, however, ended the dominance of black market operators. First, to divert foreign exchange demand away from the black market, the apex bank removed restrictions hitherto imposed on the demand for foreign exchange in the areas of eligible transactions namely:
Business Travel Allowance (BTA), Personal Travel Allowance (PTA), foreign borrowing for on lending, Utilisation of Certificate of capital Importation, ECOWAS Travellersâ€™ Cheques, Foreign Trade finance facility, Foreign Guarantees/Currency deposits and collateral for Naira loans, Overseas medical treatment, Overseas School feesÂ etc.
Previously, foreign exchange end users patronized the black market for foreign exchange for these transactions as the stringent documentation requirement required by the authorities made it difficult to purchase foreign exchange from the official market. Thus, with the removal of the restrictions and the documentation requirement, end users can now easily purchaseÂ foreign exchange from BDCs to fund the transactions.
Secondly, the CBN admitted BDCs into the official market and introduced the Cash Sale of dollars to BDCs. Under the scheme, the apex bank sells dollars (subject to a maximum limit which has been severally reviewed) directly to each BDC at the official rate. The BDC in turn sells the dollars to the public at official rate plus the maximum margin allowed by the apex bank. This increased the supply of foreign exchange into the BDC market, a development that gave BDCs upper hand over the black market operators.
The ultimate aim of the CBN initiative was to halt the continued depreciation of the naira in the parallel market then as well as reduce the gap between the official and parallel market exchange rate, by increasing access to foreign exchange in the economy.
To ensure increased access to foreign exchange, the apex bank opened the BDC business to banks and granted them licence to operate BDC services. Vanguard investigation revealed that immediately the policy was introduced, all the banks put in place machinery to offer BDC services in some of the branches. Though a few banks established BDC subsidiaries to drive the operations, most banks just created BDC units within their existing structure.
According to Mrs Derinsola Onalaja, former managing director/chief executive, UBA FXmart, the entry of banks into the BDC business will bring professionalism and convenience into the business and also challenge conventional BDCs to improve on their service delivery. Inter-bankforeign exchange operators also said that the entry of banks into the business provides easy access to funds for end users and gives customers the option of using banksâ€™ or conventional BDCs.
The strong performance of banksâ€™ BDCs in the Cash Sale of Dollar scheme indicates wide acceptability and mark of approval on their services despite the late entry into the business. Vanguard investigation reveals that two factors were largely responsible for the dominance of banksâ€™ BDCs namely: the quality of their services and wider range of services offered.
Banks through their BDCs emphasize convenience and comfortable atmosphere, speed and professionalism in their services and operations.
â€œThe mission of our BDC operations is to ensure that retail foreign exchange end users enjoy seamless and prompt BDC services. We believe that BDC services can be rendered in a friendly and comfortable environment devoid of the hassles and stress usually associated with retail foreign exchange transaction in the BDC industry and that is what we offer to foreign exchange end users in all our BDC outletsâ€, saidÂ UnionÂ Bankâ€™sÂ Group Managing Director/Chief Executive, Mrs Funke Osibodu.
GTBank said that it runs a decentralized system and as such, a customer can transact business in any of its branches nationwide. This ensures that customers have their foreign exchange needs met without delay or stress that is associated with retail foreign exchange transactions.
In addition to the above qualities, banksâ€™ BDCs, as a result of their recent categorization into Class A and Class B BDCs, offer a wider rangeÂ of services. These include Personal Travel Allowance (PTA), Business Travel Allowance (BTA), School fees payment, Medical bills payment. Others are Mortgage payments, Credit card payments, Life insurance premium payments and Utility bills payments.
Banksâ€™ BDCs have leveraged on the combination of these factors to radically transform the BDC business and most importantly, complement conventional BDCs by increasing access to foreign exchange in the economy.