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Forex: CBN sold $5.33bn to BDCs in 2020

The Central Bank of Nigeria (CBN) sold foreign exchange amounting to $5.33 billion to the Bureaux De Change (BDC) segment of the for-eign exchange market last year, findings by New Telegraph show. The figure is $5.50 billion (50.6 per cent) below the $10.79 billion that the regulators sold to the same segment of the forex market in the corresponding period of 2019.

New Telegraph’s review of forex data obtained from the apex bank shows that the steep fall in forex sales to BDCs in 2020, compared with the previous year, was due to the sharp drop in the price of oil-the commodity that accounts for about 90 per cent of the country’s export earnings- which, combined with the Coronavirus (COVID-19) crisis, resulted in a decline in the CBN’s forex buffers (external reserves). In fact, further analysis of the data indicates that when compared to 2019 numbers, the regulator’s forex sales to authorised dealers, including BDCs, headed north only in Q1’20.

For instance, in its Q4’20 economic report, the CBN stated: “During the fourth quarter of 2020, total foreign exchange sales to authorised dealers by the bank stood at $5.62 billion, an increase of 28.7 per cent above the level in the preceding quarter. This was attributed, largely, to the increased interventions in the BDC and I&E windows during the quarter.

“The total foreign exchange sales, however, saw a decrease of 46.1 per cent below the level in the corresponding quarter of 2019. Further disaggregation showed that BDC sales and I&E sales rose to $1.36 billion and $1.62 billion from $0.34 billion and $0.39 billion, respectively, in the preceding quarter. “Similarly, interbank sales and SME intervention increased by 12.2 per cent and 3.1 per cent to $0.16 billion and $0.31 billion, respectively, from the levels in the preceding quarter.

The Secondary Market Intervention Sales (SMIS) and matured swap transactions, however, fell by 12.8 per cent and 62.9 per cent to $1.71 billion and $0.46 billion, relative to the levels in the preceding quarter.” Also, the CBN’s Q3’20 economic report shows that it made total foreign exchange sales to authorised dealers amounting to $4.37 billion, a decline of 2.3 per cent, from the level in the preceding quarter. It stated: “This was attributed largely to the decrease in wholesale forward intervention and interbank sales.

The total foreign exchange sales represented a decrease of 56.4 per cent, compared with the corresponding quarter of 2019. “Further disaggregation showed that matured swap transactions and SMIS intervention rose by 50.8 per cent and 0.7 per cent to $1.24 billion and $1.96 billion, from the levels in the preceding quarter. “However, interbank sales, interventions at the I&E window and SME fell by 22.3 per cent, 18.7 per cent and 3.5 per cent to $0.15 billion, $0.39 billion and $0.30 billion relative to their levels in the preceding quarter. Foreign exchange cash sales to BDCs was $0.33 billion in the review period.” Significantly, in its economic report for half year 2020, the CBN had said: “The precautious level of economic activities hampered foreign exchange supply to authorised dealers.

Total foreign exchange supply to authorised dealers by the bank stood at $13.98 billion, indicating a decline of 15.3 per cent each, below the levels in the preceding half year and the corresponding half of 2019, respectively. “Of the total, inter-bank sales amounted to $0.38 billion, compared with $0.62 billion and $0.81 billion in the preceding six months and the corresponding period of 2019, respectively.

“At the BDC segment, total sales declined to $3.63 billion in the review period, compared with $6.75 billion and $6.86 billion in the preceding half year and corresponding period of 2019, respectively, due to the temporary suspension of sales to the segment as international travels were grounded.

“Foreign exchange sales under the Secondary Market Intervention Scheme (SMIS) and to Small and Medium Enterprises (SME) declined by 7.6 per cent and 31.0 per cent to $3.16 billion and $0.57 billion, respectively, from their levels in the preced-ing half year.

Sales to the I&E window rose by 27.6 per cent to $6.24 billion, compared with the levels in the preceding six months and the corresponding period of 2019, respectively.” Specifically, this means that the CBN sold a total of $3.63 billion to BDCs in H1’2020; $0.34 billion in Q3 and $1.36 billion in Q4, thus amounting to a total of $5.33 billion for last year. Contrastingly, New Telegraph’s analysis of the regulator’s forex sales to BDCs in 2019 shows that it sold $6.85 billion and $3.94 billion in H1 and H2’19 respectively, thus amounting to a total of $10.79 billion for the period. According to latest data obtained from the CBN, the total number of licensed BDCs in the country stood at 5, 530 as at the end of October 2020.

Given that the number of the operators was about 3,000 in early 2015, it means that the number of BDCs increased by over 2,530 in a six-year period. Analysts note that BDC operators’ sale of forex for Personal Travel Allowance (PTA) and Business Travel Allowance (BTA) helps the CBN to deepen forex liquidity in the retail end of the market, thereby bolstering the naira.

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