The Central Bank of Nigeria (CBN) has issued a directive instructing commercial banks to refrain from using their foreign exchange revaluation gains for dividends and operational expenses.
This directive, effective immediately, aims to ensure that banks maintain a counter-cyclical buffer to mitigate potential adverse fluctuations in the exchange rate.
Foreign exchange revaluation gains refer to the increase in the value of a bank’s assets and liabilities denominated in foreign currency when there is a change in the exchange rate between the foreign currency and the local currency.
CBN urges banks to bolster capital reserves
The CBN expressed concerns about the recent FX rate regime change and its potential impact on the Naira values of banks’ foreign currency assets and liabilities.
The CBN emphasized that banks should use these revaluation gains to strengthen their capital reserves, enhancing the banking sector’s resilience to economic shocks and volatility.
The directive allows banks that inadvertently breach the Single Obligor Limit (SOL) due to FX policy to seek forbearance from the CBN.
This forbearance applies only to existing facilities as of the effective date of the policy.
Banks exceeding the Net Open Position (NOP) prudential limits due to FX revaluation can also apply for forbearance.
Existing prudential regulations on capital adequacy, dividend payments, and foreign currency borrowing limits will continue to apply.