The Central Bank of Nigeria (CBN) has advised commercial banks not to use their foreign exchange revaluation profits for dividends or operational expenses.
Visitodell learnt that the directive was sent in a letter dated September 11, 2023 and signed by Haruna Mustafa, Director, Banking Division Department.
The central bank directed commercial banks to implement the directive as soon as possible.
FX revaluation gains are the increases in the value of a bank’s assets and liabilities denominated in foreign currency as the exchange rate between the foreign and local currencies changes.
The CBN stated that it had analyzed the effects of the recent FX rate regime change on the banking sector and found that it had the potential to significantly alter the Naira values of banks’ foreign currency (FCY) holdings and liabilities.
The CBN highlighted that banks should use these revaluation gains to boost capital buffers, increasing the banking sector’s ability to withstand volatility and economic shocks.
The letter reads in part:
“The Bank thus approved the following prudential guidance and directives for immediate implementation by banks:
“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 dividends or meet operating expenses.
“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 CBN. The forbearance shall apply only to existing facilities as of 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.
“Existing prudential regulations on capital adequacy, dividend payments, and FCY borrowing limits shall continue to apply. 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.
“Existing prudential regulations on capital adequacy, dividend payments, and FCY borrowing limits shall continue to apply.”
