In a bid to maintain stability and safeguard the nation’s financial system, the Central Bank of Nigeria (CBN) has issued a new directive for banks operating in the country. This change comes after the naira experienced a considerable decrease in value, which saw it drop by about 63% compared to other currencies. This situation has led to some notable fluctuations in the foreign exchange market.
Here’s a breakdown of the new developments:
Central Bank’s New Rules for Banks Amid Currency Fluctuations
Recently, the CBN made a significant change by merging various foreign exchange rate systems into one, which affects how the naira compares to other currencies. This shift resulted in the naira losing value, which has brought about ups and downs in the market.
Banks have been informed by the CBN that they can’t use the profits generated from the changes in the naira’s value to cover operating costs or distribute dividends. This step is taken to prevent potential financial troubles in the future due to the volatile nature of the foreign exchange market.
Guidelines for Banks:
The CBN has outlined the following steps for banks to follow in managing the effects of the new policy:
- Handling Profits from Currency Changes: Banks should act wisely by saving the gains from naira’s revaluation, to potentially offset any negative effects that may occur later due to market fluctuations. Therefore, this profit should not be used for dividends or operational costs.
- Single Borrower Limit (SOL): In cases where banks go beyond the approved lending limit due to the new foreign exchange policy, they can request leniency from the CBN. This exception, however, only applies to loans that existed before the introduction of this policy.
- Net Open Position (NOP) Limit: Similar to the SOL, banks that exceed the allowed risk limits due to the currency revaluation may ask for a grace period from the CBN.
The existing rules on aspects like capital sufficiency, dividend payouts, and borrowing limits in foreign currency remain in place.
The CBN has urged banks to put these measures into action immediately to ensure the steady operation of the financial sector during these fluctuating times. This initiative aims to protect the industry from potential adverse impacts and maintain a healthy economic environment in Nigeria.