The Central Bank of Nigeria (CBN) has ordered that all banks with excess 20 percent foreign exchange holding should sell them off by today, February 1st 2024.
The directive was made public in a circular released on Wednesday, titled ‘Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks’ and signed by Dr Hassan Mahmud, Director, Trade and Exchange and Mrs Rita Ijeoma Sike for the Director, Banking Supervision .
The Central Bank warned that failure to comply with the directive on sale of excess foreign exchange will result in immediate sanction and/or the suspension from participation in the foreign exchange market.
The Apex Bank said the directive is aimed at controlling the growth in foreign currency exposures of banks through their Net Open Position (NOP).
The Circular reads: “The Net Open Position (NOP) limit of the overall foreign currency assets and liabilities taking into cognizance both those on and off-balance sheet should not exceed 20% short or 0% long of shareholders funds unimpaired by losses using the Gross Aggregate Method.
“Banks whose, current NOP exceed 20% short and. 0% long of their shareholders’ funds unimpaired by losses are required to bring them to prudential limit by February 1, 2024.
“Banks are required to compute their daily and monthly NOP and Foreign currency trading position (FCTP) using the attached templates.
“Banks are also required to have adequate stock of high-quality liquid foreign assets, i.e. cash and government securities in each significant currency to cover their maturing foreign currency obligations.
“In addition, banks should have in place a foreign exchange contingency funding arrangement with other financial institutions.”
“With respect to Eurobonds, any clause of early redemption should be at the instance of the issuer and approval obtained from the CBN in this regard, even if the bond does not qualify as tier 2 capital
“All banks are required to adopt adequate treasury and risk management systems to provide oversight of all foreign exchange exposures and ensure accurate reporting on a timely basis.
“Banks are expected to bring all their exposures within the set limits immediately and ensure that all returns submitted to the CBN provide a accurate reflection of their balance sheets, the CBN circular stated.
