As the floating currency system officially starts today, the Central Bank of Nigeria, CBN will be naming Forex Primary Dealers, FXPDs.
FXPDs are authorised banks that will be allowed to act as the dealers with the CBN on large trade sizes on a two-way quote basis. Based on the strict condition that the CBN laid down, Nigeria is likely to have just about seven banks that will qualify for this coveted business status.
According to the CBN rule, for any bank to be authorised as a FXPD, such bank must have a minimum of NGN400 billion in total FX assets. The second condition is that such bank must have a minimum shareholders fund not battered by debt and impairment of at least NGN200 billion. Finally, the bank must have a liquidity ratio of at least 40%. With many tier 1 and tier 2 banks battered by the crash in global oil prices and the treasury single account, the estimate of seven banks is ambitious.
All other things equal, banks who would qualify as FXPDs are Zenith Bank, FBN Holdings (First Bank Nigeria Limited), United Bank for Africa, Access Bank, Guaranty Trust Bank, Diamond Bank and Union Bank.
These are the banks that will lockhorns at the market today.
However, other banks that will not participate as FXPDs are already protesting, looking for ways to get into the deal. Some of them have plausible arguments that the exclusive privilege given to these seven banks might lead to abuse, round-tripping and a cartel. While the CBN might not bulge, their arguments should be looked into.
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