The Central Bank of Nigeria (CBN) directed Deposit Money Banks (DMBs) to sell their extra dollar reserves by February 1, 2024, to help stabilize the country’s fluctuating exchange rate.

CBN Orders All Banks in Nigeria to Sell Excess Dollars
CBN Orders All Banks in Nigeria to Sell Excess Dollars

According to a circular that was released on Wednesday, the bank also warned all lenders against hoarding excess foreign currencies for profit.

CBN Orders All Banks in Nigeria to Sell Excess Dollars

The circular is titled, “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks”. The apex bank expressed worry about the increasing tendency of banks to hold significant foreign currency positions. This action follows closely within 48 hours of the CBN issuing a circular, cautioning banks and FX dealers against providing inaccurate exchange rates, among other concerns.

The central bank gave lenders until, February 1, 2024, to sell off extra dollars stored in their vaults, accusing banks in its most recent circular of maintaining positions in foreign exchange that exceeded their needs.

Banks Must Conform to the New Regulations Before the End of Feb 1, 24

“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 circulated document, dated January 31, 2024, was signed by Mrs. Rita Sike, a representative of the Director, Banking Supervision, and Dr. Hassan Mahmud, the Director of Trade and Exchange, CBN. The CBN also issued prudential requirements that banks must follow, a key focus of which is the management of the Net Open Position (NOP), which measures the difference between a bank’s foreign currency assets (what it owns in foreign currencies) and its foreign currency liabilities (what it owes in foreign currencies).

In accordance with the apex bank, the Gross Aggregate Method—which offers a thorough understanding of the bank’s foreign currency exposure—must be utilized for this computation.

In addition, banks must use specific templates provided by the CBN to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT). Banks whose current NOPs exceed these limits must modify their positions to comply with the new regulations by February 1, 2024.

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By Dee

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