The Central Bank of Nigeria (CBN) on Monday has directed commercial banks not to use their foreign exchange revaluation gains for dividends or operational expenses.
This was disclosed in a letter dated Sept. 11, 2023, signed by Haruna Mustafa, Director of the Banking Division Department, stated that all banks were informed of the immediate implementation of the directive.
FX revaluation gains arise when there’s a shift in exchange rates, affecting the value of a bank’s assets and liabilities in foreign currency.
The CBN also reviewed the recent changes to the FX rate regime and found it could significantly impact the Naira values of banks’ foreign assets and liabilities.
Although the FX reforms of the first quarter in 2023 hurt some businesses, most Nigerian banks remained profitable. The CBN stated that the FX revaluation gains should act as a buffer against possible negative FX rate shifts.
Banks were encouraged to use these gains to boost their capital reserves, bolstering the sector’s resilience against economic uncertainties.
The letter further outlined new guidelines for banks to follow:
– FX Revaluation Gains: Banks must prudently set these gains aside as buffers for future FX rate changes. Making use of these gains for dividends or operating costs is therefore prohibited.
  – Single Obligor Limit (SOL): Banks that exceed the SOL due to the FX policy can apply for forbearance. This only covers existing facilities as of this policy’s effective date. Affected banks won’t face regulatory deductions above the SOL in their Capital Adequacy Ratio (CAR) calculations.
– Net Open Position (NOP) Limit: Also Banks surpassing the NOP limits because of FX revaluation can apply for forbearance for the violation.
The existing rules on capital adequacy, dividend payments, and foreign currency borrowing limits still remain in place.
SOURCE: PUNCH
