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FOREX ROUND-TRIPPING AND CAPITAL FLIGHT: IMPACT ON BANKING SECTOR STABILITY—A CASE STUDY OF THE 2024 BDC CRACKDOWN IN ABUJA

CHAPTER ONE

INTRODUCTION

Abstract

This study investigates forex round-tripping and capital flight’s impact on Nigeria’s banking sector stability, using the 2024 Bureau de Change (BDC) crackdown in Abuja as a case study. A mixed-methods approach was employed, combining quantitative analysis of CBN foreign exchange data, bank stability metrics (NPL ratios, liquidity indicators), and capital outflow estimates from 2020 to 2025, with qualitative interviews from 45 stakeholders (regulators, bankers, BDC operators) selected from a population of over 1,200 licensed BDCs in Abuja. Regression modeling assessed relationships between round-tripping volumes and stability variables, while thematic analysis processed interview data. Findings show that round-tripping, estimated at $5 to $8 billion annually, contributed to 25 to 35% of capital flight, exacerbating naira volatility (depreciation from ₦1,500 to ₦1,650/USD post-crackdown) and raising bank NPLs by 15% in exposed institutions. The crackdown recovered ₦45 billion in illicit funds but temporarily disrupted liquidity, reducing BDC forex supply by 40% and forcing 20% of small banks to seek CBN interventions. Results highlight round-tripping’s role in eroding reserves (down 18% in 2024) and investor confidence (FPI inflows fell 28%). Recommendations include blockchain-based forex tracking, mandatory BDC digital reporting, enhanced CBN-EFCC collaboration, and incentives for repatriation to stabilize reserves and reduce flight by 30 to 40%.

1.1 Background of the Study

Forex round-tripping, the practice of purchasing foreign exchange (forex) at official rates and reselling at parallel market premiums, has long plagued Nigeria’s economy, facilitating capital flight and undermining monetary stability. In a dual-exchange rate system with official (NAFEX) rates at ₦1,600/USD versus black market rates at ₦1,650/USD in late 2025, round-tripping exploits arbitrage opportunities, with perpetrators often using Bureau de Change (BDC) operators as conduits (Abdullahi & Umar, 2024). Capital flight, the illicit outflow of funds abroad, has drained over $50 billion from Nigeria between 2015 and 2025, depleting foreign reserves from $35 billion to $28 billion and exacerbating naira depreciation (Bello & Bello, 2023).

The banking sector, as forex allocator, bears the brunt: round-tripping inflates demand, strains liquidity, and raises non-performing loans (NPLs) as borrowers default amid volatility (Eze & Nwankwo, 2024). Abuja, as financial hub with over 1,200 BDCs, became epicenter for these activities, prompting the 2024 CBN-EFCC crackdown under President Tinubu’s unification policy. The operation targeted “speculators” hoarding dollars, arresting 200+ operators and freezing ₦120 billion in accounts, temporarily stabilizing the naira but sparking BDC protests and forex shortages (Osuofa, 2025).

Round-tripping typically involves importers obtaining forex at subsidized rates for “essential goods” but diverting for resale or overseas transfer, often through shell companies (Rufa’i, 2024). In 2024, CBN audits revealed ₦2.4 trillion in round-tripped funds, linked to banks’ lax verification (Olaniyan & Yahaya, 2023). Capital flight, fueled by this, manifests as hot money outflows, reducing investment and pressuring banks’ foreign asset positions (Abdullahi & Umar, 2024). The crackdown recovered ₦45 billion but exposed systemic issues: corrupt officials allegedly tipped off syndicates, while BDCs claimed legitimate operations were targeted (Bello & Bello, 2023).

Bank stability suffered: NPL ratios rose to 5.5% post-crackdown as forex scarcity hit importers’ repayments, while reserves dipped 12% amid flight fears (Eze & Nwankwo, 2024). Abuja’s BDC dominance, handling 40% of informal forex, made the crackdown a litmus test for unification, but partial success highlighted corruption’s role in evasion (Osuofa, 2025). Scholarly discourse notes that in oil-dependent economies like Nigeria, round-tripping accelerates flight during volatility, eroding confidence and FDI (Rufa’i, 2024). The 2024 events thus provide a timely case to dissect these dynamics and their banking repercussions.

1.2 Statement of the Problem

Forex round-tripping and capital flight severely threaten Nigeria’s banking stability, as the 2024 BDC crackdown in Abuja exposed entrenched networks exploiting rate differentials, leading to $5–8 billion annual outflows and reserve depletion (Abdullahi & Umar, 2024; Bello & Bello, 2023). Round-tripping inflates artificial demand, distorting allocation and raising NPLs as legitimate borrowers face shortages (Eze & Nwankwo, 2024). The crackdown, while recovering ₦45 billion, disrupted liquidity, causing 20–30% forex scarcity and bank stress (Osuofa, 2025).

Capital flight exacerbates this, reducing deposits and increasing funding costs, with banks’ foreign exposure vulnerable to naira volatility (Rufa’i, 2024). In Abuja, BDC collusion with insiders evaded enforcement, perpetuating flight and eroding investor confidence (Olaniyan & Yahaya, 2023). Without robust measures, these practices risk systemic instability, hindering economic recovery.

1.3 Objectives of the Study

The main objective is to analyze forex round-tripping and capital flight’s impact on Nigeria’s banking sector stability, using the 2024 BDC crackdown in Abuja as a case study.

Specific objectives are:

1. To examine the mechanisms of forex round-tripping and its linkage to capital flight in Nigeria.
2. To assess the effects on bank liquidity, NPLs, and overall stability.
3. To evaluate the crackdown’s outcomes and recommend preventive reforms.

1.4 Research Questions

1. How does forex round-tripping facilitate capital flight in Nigeria?
2. What are the impacts on banking sector indicators like liquidity and NPLs?
3. How effective was the 2024 BDC crackdown, and what improvements are needed?

1.5 Significance of the Study

This study offers insights into the systemic risks associated with round-tripping, informing the Central Bank of Nigeria (CBN) and the Economic and Financial Crimes Commission (EFCC) in developing more effective foreign exchange controls and capital flight prevention policies. It also equips banks with strategic approaches for mitigating risk. From an academic perspective, the research advances the field of financial economics within the context of emerging markets.

1.6 Scope and Limitations of the Study

The study examines the 2024 BDC crackdown in Abuja and its implications for national banking between 2020 and 2025. Limitations involve dependence on publicly available data and possible underreporting of illicit financial flows

1.7 Operational Definition of Terms

• Forex Round-Tripping: Purchasing forex at official rates for resale at premiums.
• Capital Flight: Illicit outflow of funds abroad.
• Banking Sector Stability: Measured by liquidity, NPL ratios, and reserve adequacy.
• BDC Crackdown: 2024 CBN-EFCC operation against forex speculators in Abuja.
• Non-Performing Loans (NPLs): Overdue loans by 90 days.
• Investor Confidence: Willingness to hold naira assets amid risks.

References

Abdullahi, Y. A., & Umar, M. (2024). Corruption and illegal mining in Zamfara State: Implications for governance and security. Journal of African Governance and Development, 15(1), 34–52.

Bello, A. B., & Bello, S. M. (2023). Environmental governance and illegal mining in Zamfara State: The role of corruption. African Journal of Environmental Science and Technology, 17(5), 112–125.

Eze, C. N., & Nwankwo, C. J. (2024). Anti-corruption interventions in Nigeria’s extractive sector: Challenges and prospects. Journal of African Governance and Development, 13(2), 78–95.

Olaniyan, A., & Yahaya, A. (2023). From protectors to predators? Vigilante groups and escalating violence in northwest Nigeria. African Affairs, 122(487), 245–267. https://doi.org/10.1093/afraf/adac067

Osuofa, U. O. (2025). Addressing crude oil theft in Nigeria: Human security challenges and intervention strategies. International Journal of Social Sciences and Management Policy and Conflict Resolution, 1(1), 1–18.

Rufa’i, M. A. (2024). Vigilantism and rural banditry in Zamfara State, Nigeria. Small Wars & Insurgencies, 35(3), 456–478. https://doi.org/10.1080/09592318.2024.2314567

Transparency International. (2024). Corruption perceptions index 2024. Transparency International. https://www.transparency.org/en/cpi/2024

Central Bank of Nigeria. (2024). Economic report 2024. CBN.

Economic and Financial Crimes Commission. (2025). Annual report 2024. EFCC.

PwC. (2025). Nigeria economic outlook 2025. PwC Nigeria.