The Central Bank of Nigeria (CBN) has directed Deposit Money Banks (DMBs) to dispose of their surplus dollar reserves by February 1, 2024, aiming to stabilize the nation’s fluctuating exchange rate. In a recent circular, the apex bank cautioned against hoarding foreign currencies for profit, expressing concerns about the increasing trend of banks holding substantial foreign currency positions.
This move follows a warning issued by the CBN to banks and FX dealers regarding false exchange rate reporting, with the latest circular accusing banks of maintaining excess foreign exchange positions and setting a deadline of today, February 1, 2024, for the sale of surplus dollars.
“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,” the circular read.
The CBN has also introduced prudential requirements for banks, with a primary focus on managing the Net Open Position (NOP). The NOP is the difference between a bank’s foreign currency assets and liabilities. The circular stipulates that the NOP should not exceed 20% short or 0% long of the bank’s shareholders’ funds.
This calculation, based on the Gross Aggregate Method for a comprehensive view of foreign currency exposure, must be completed. Banks surpassing these limits in their current NOPs must adjust positions to comply with the new regulations by February 1, 2024. Additionally, banks are instructed to calculate daily and monthly NOP and Foreign Currency Trading Position (FCT) using specific templates provided by the CBN.
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