The Central Bank of Nigeria (CBN) has asked deposit money
banks (DMBs) to stop utilising gains from the revaluation of the naira to pay
dividends or finance operations.
CBN said a review of the foreign exchange (FX) regime change
showed the banks are in a position to profit from the policy because of its
potential to significantly increase the naira value of banks’ foreign currency
(FCY) assets and liabilities.
The apex bank gave the directive in a letter, titled:
‘Impact of Recent FX Policy Reforms: Prudential Guidance to the Banking
Sector’, which was dated September 11, 2023, and signed by Haruna Mustafa,
CBN’s director of the banking supervision department.
A revaluation of a currency occurs when the value of a
currency is increased relative to another currency in a fixed exchange rate
regime.
On June 14, the CBN officially unified the multiple FX rate
systems, collapsing all FX windows into the investors’ and exporters’ (I&E)
window.
The policy resulted in the depreciation of the local
currency by about 63 percent, causing significant levels of volatility in the
FX market.
In the letter, the financial regulator said the transition
from the multiple exchange rates regime to a single rate could result in
varying levels of FX revaluation gains.
The apex bank, however, said the policy could also lead to
losses across the industry.
“Additional implications of the FX policy reforms may
include breaches of single obligor and net open position limits, possible
increase in asset quality risks and pressure on industry capital adequacy,” the
statement reads.
The CBN also issued guidelines on how banks can manage the
impact of FX reform.
“Treatment of FX Revaluation Gains: Banks are required to
exercise utmost prudence and set aside the FCY revaluation gains as a
counter-cyclical buffer to cushion any future adverse movements in the FX rate.
In this regard, banks shall not utilize such FX revaluation gains to pay
dividend or meet operating expenses,” the CBN said.
“Single Obligor Limit
(SOL): Banks that inadvertently breach the Single Obligor – Limit (SOL) due to
the FX policy will be granted forbearance upon application to the CB. The
forbearance shall apply only to existing facilities as at the effective date of
this policy. Such banks shall be exempted from the regulatory deductions on the
excess above the SOL limit in their CAR computation.
“Net Open Position (NOP) Limit: Banks that exceed the NOP
prudential limits due to the FX revaluation shall be granted forbearance for
the breach upon application to the CBN.
“Existing prudential regulations on capital adequacy, dividend
payments and FCY borrowing limits shall continue to apply.”
The apex also directed banks to immediately implement the
measures.
Advertise on NigerianEye.com to reach thousands of our daily users
No comments
Post a Comment
Kindly drop a comment below.
(Comments are moderated. Clean comments will be approved immediately)
Advert Enquires - Reach out to us at NigerianEye@gmail.com