By 
In a circular dated January 31, 2024, the Central Bank of Nigeria (CBN) expressed its apprehension about the increasing foreign currency exposures of banks, particularly through their Net Open Position (NOP). The circular, jointly signed by Dr. Hassan Mahmud, Director of Trade and Exchange, and Mrs. Rita Ijeoma Sike, Director of Banking Supervision, highlights the potential risks associated with these foreign currency positions.
To address these concerns and ensure effective risk management, the CBN has introduced new prudential requirements that banks must adhere to. Going forward, the Net Open Position (NOP) limit for overall foreign currency assets and liabilities, considering both on and off-balance sheet items, should not exceed 20 percent short or 0 percent long of shareholders’ funds unimpaired by losses. This calculation is to be done using the Gross Aggregate Method.
Banks that currently have NOPs exceeding the stipulated limits (20 percent short or 0 percent long) in relation to their shareholders’ funds unimpaired by losses are required to adjust their positions to comply with the new regulations by February 1, 2024.
Additionally, banks are mandated to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCTP) using approved templates provided by the CBN. It is a part of the effort to ensure transparency and accuracy in reporting.
The CBN emphasized the necessity for banks to maintain a sufficient stock of high-quality liquid foreign assets, which includes cash and government securities in significant currencies. This is crucial to cover their maturing foreign currency obligations.
Furthermore, the circular stated that banks should establish a foreign exchange contingency funding arrangement with other financial institutions to enhance their resilience in managing unforeseen challenges.
These measures, outlined by the CBN, are aimed at safeguarding the financial sector from potential systemic challenges and ensuring the effective management of foreign currency risks.
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