Commercial banks have been directed by the Central Bank of Nigeria (CBN) to stop using their foreign exchange revaluation profits for dividends and operating expenditures.
The directive was contained in a letter dated September 11, 2023, and it was signed by Haruna Mustafa, Director of the Banking Division Department.
The apex bank ordered commercial banks to implement the directive immediately.
When there is a change in the exchange rate between the foreign and local currencies, a bank’s assets and liabilities denominated in foreign currency increase in value. This is known as an FX revaluation gain.
While stating that it had assessed the consequences of the recent FX rate regime change on the banking system, the CBN said it identified its potential to substantially impact the Naira values of banks’ foreign currency (FCY) assets and liabilities.
The CBN emphasized that banks should utilize these revaluation gains to reinforce their capital reserves, thus enhancing the banking sector’s capacity to endure 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.”
Ada Peter
