The Central Bank of Nigeria (CBN) has instructed deposit money banks to sell off their excess dollar stock by February 1, 2024, News About Nigeria reports.
The directive, contained in a circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” was signed by the Director of Trade and Exchange, CBN, Dr. Hassan Mahmud, and a representative of the Director, Banking Supervision, CBN, Mrs. Rita Sike.
It also cautions against hoarding foreign currencies for profit.
The CBN said it is concerned over the increasing number of banks holding large foreign exchange positions, which it feels are being taken advantage of for financial gain due to the irregular movements in exchange prices.
The circular introduces guidelines to reduce the dangers connected to these practices.
The circular read in part, “The Central Bank of Nigeria has noted with concern the growth in foreign currency exposures of banks through their Net Open Position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks.”
To address concerns about excessive foreign currency exposures, the CBN’s circular outlines prudential requirements.
A key focus is on managing the Net Open Position (NOP), which measures the difference between a bank’s foreign currency assets and liabilities.
CBN said NOP must not exceed 20 per cent short or 0 per cent long of the bank’s shareholders’ funds, and banks are given until February 1, 2024, to adjust positions that exceed these limits.
Banks are instructed to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT) using specific templates provided by the CBN.
Additionally, they must maintain adequate stocks of high-quality liquid foreign assets and adopt treasury and risk management systems to oversee foreign exchange exposures.
The CBN warns of immediate sanctions and suspension from the foreign exchange market for banks that fail to comply with the NOP limit.
Non-compliance may result in severe consequences, as the apex bank reinforces measures to ensure stability in the forex market.
This development comes just 48 hours after the CBN warned banks and FX dealers against reporting false exchange rates.
It is in accordance with recent changes to the methods that the FMDQ Exchange uses to determine the country’s official exchange rate.
These changes have brought the official and parallel market exchange rates into line, with the naira closing at 1,450/dollar on Tuesday.
Although stakeholders and economists commended the effort to balance the currency rates, they demanded that the CBN pay attention to the projected $5 billion in foreign exchange backlogs and finance foreign exchange requests at the official market.
They stress how important it is to keep the official rate and the parallel market rate from changing once more.
