Nigeria: CBN Directs Banks to Adhere to New Foreign Exchange Policy Reforms

The Central Bank of Nigeria (CBN) has issued a directive to all banks, emphasizing the necessity of strict compliance with recent foreign exchange (FX) policy reforms aimed at enhancing financial stability.

In a letter addressed to banking institutions on Thursday, signed by Dr. Adetona Adedeji, Acting Director of Banking Supervision, the CBN underscored the importance of prudent financial management and risk mitigation.

The directive from the CBN emphasizes the critical role of maintaining a strong financial position amidst potential currency fluctuations. Banks are mandated to set aside Foreign Currency revaluation gains as a counter-cyclical buffer, aimed at mitigating adverse movements in the FX rate and bolstering stability and resilience within the banking sector.

To further enhance financial stability, the CBN has expressly prohibited banks from utilizing these gains for certain purposes. Notably, banks are barred from using FCY revaluation gains for dividend payouts; instead, these gains must be retained to reinforce the financial strength of banks.

Moreover, the gains cannot be allocated to cover day-to-day operating expenses. Banks are urged to exercise prudence in the strategic allocation of these funds.

The CBN’s communication serves as a stern reminder to all banks to strictly adhere to these guidelines, with non-compliance potentially leading to regulatory action. Banks are urged to review their financial practices promptly and ensure alignment with the prudential measures outlined by the CBN.

The Acting Director reiterated the paramount importance of maintaining financial stability and safeguarding the interests of depositors and the broader economy.

Banks are urged to take immediate action in line with the guidance provided.

The statement excerpt reads: “Further to our letter dated September 11, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate. In this regard, banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses. Please be guided accordingly.”