CBN Stops Banks From Utilising FX Revaluation Gains

The Central Bank of Nigeria (CBN) on Monday instructed commercial banks not to utilise the foreign exchange (FX) revaluation gains to pay dividends or for other operational expenses.

This was seen in a circular to all banks dated September 11. 2023 and signed by Haruna Mustafa, director, of the banking supervision department.

Instead the CBN advised the banks to save the money made from FX to hedge against any future volatility.

“Banks are required to exercise utmost prudence and set aside the foreign currency (FCY) revaluation gains as a counter-cychcal 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 circular reads.

According to the CBN, 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 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 capital adequacy ratio (CAR) computation.

Ex-CBN Director Faults New FX Measures, As Naira Losing Strength

The CBN said banks that exceed the Net Open Position (NOP) Limit 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 encouraged the barks to build capital buffers to increase resilience against potential volatility and/or economic shocks.

“The CBN will continue to monitor emerging vulnerabilities and take appropriate regulatory action,” the circular stated.

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.