ENUGU, Nigeria (VOICE OF NAIJA)- In a bid to address the nation’s volatile exchange rate, the Central Bank of Nigeria (CBN) has issued a directive instructing Deposit Money Banks (DMBs) to sell their excess dollar stocks by 1 February, 2024.
The move is part of the CBN’s ongoing efforts to stabilize the country’s currency.
The latest circular, titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” expresses concern about the increasing trend of banks holding significant foreign currency positions.
This directive follows barely 48 hours on the heels of a previous circular on Wednesday, after the CBN warned banks and FX dealers against reporting false exchange rates, among others.
Dated 31 January, 2024, and signed by the Director, Trade and Exchange, CBN, Dr. Hassan Mahmud, along with Mrs. Rita Sike, a representative of the Director, Banking Supervision, CBN, the circular accuses banks of maintaining excess foreign exchange positions.
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“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 circular read.
Banks are given until 1 February, 2024, to liquidate surplus dollars in their vaults.
The CBN’s directive includes prudential requirements, focusing particularly on the management of the Net Open Position (NOP).
This measures the disparity between a bank’s foreign currency assets and liabilities.
The circular mandates that the NOP must not exceed 20 per cent short or 0 per cent long of the bank’s shareholders’ funds.
Banks with current NOPs exceeding these limits are required to adjust their positions to comply with the new regulations by 1 February, 2024.
The CBN further stipulates that banks must utilize specific templates provided by the regulatory body to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT).