FT Queries Questionable Move By CBN’s New Forex Policy. It Will Create a Cartel!

The Central Bank of Nigeria (CBN) will end up creating a cartel by choosing only 10 banks as FX Primary Dealers (FXPD) under its new forex regime, industry experts have warned.

Godwin Emefiele, the CBN governor, on Wednesday, announced the movement from the official exchange rate to a market-determined system.

The central bank also rolled out guidelines for primary dealers – banks that will play directly in the market – with conditions that they must have at least N200 billion in shareholders’ funds, N400 billion worth of forex assets and 40% liquidity ratio although those who meet two of the requirements will qualify.

In the event that more banks meet the conditions, the CBN said only 10 will be registered.

The Financial Times of London welcomed the flexibility introduced by the central bank but warned about the consequences of licensing primary dealers.

“Wednesday’s decision by the CBN to float the naira came later than it should have and at a price that was needlessly high,” it said.

“It was also accompanied by a questionable move to limit the number of primary traders with access to foreign exchange at the central bank. The regulator is effectively establishing a cartel of favoured banks and, even if unintentionally, creating avenues for price-fixing among them.”

Industry insiders in Nigeria who spoke with TheCable also said this was another way of creating room for price-fixing.

“As usual, a good policy has to be undermined the Nigerian way,” a bank’s executive director said, warning that there will be many “unintended” consequences if the CBN goes ahead with licensing only 10 banks as primary dealers.

Many banking executives who spoke with TheCable off-the-record expressed worries about the criteria, preferring that all banks should be allowed to be primary dealers.

It is feared that the banks that benefited tremendously from CBN’s recent FX regime are likely to be the only ones qualified to be registered as FXPD.

It is further feared that banks that are not licensed may be regarded as “unhealthy” by customers which may hamper their confidence with negative consequences for the non-FXPD banks.

A CBN official told TheCable that the licensing of FXPD is meant to sanitise the FX market.

“CBN will monitor closely and punish any anti-market behaviour,” he said.

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