BREAKING: CBN Stops Banks From Utilising Naira Devaluation Gains

Written by on September 12, 2023

Nigeria’s apex bank, the Central Bank of Nigeria (CBN) has instructed deposit money banks (DMBs) to refrain from using profits generated through the revaluation of the naira for dividend payouts or operational funding.

CBN said a review of the foreign exchange (FX) regime change showed the banks are in a position to profit from the policy because of its potential to significantly increase the naira value of banks’ foreign currency (FCY) assets and liabilities.

The apex bank gave the directive in a letter, titled: ‘Impact of Recent FX Policy Reforms: Prudential Guidance to the Banking Sector’, which was dated September 11, 2023, and signed by Haruna Mustafa, CBN’s director of the banking supervision department.

A revaluation of a currency occurs when the value of a currency is increased relative to another currency in a fixed exchange rate regime.

On June 14, the CBN officially unified the multiple FX rate systems, collapsing all FX windows into the investors’ and exporters’ (I&E) window.

The policy resulted in the depreciation of the local currency by about 63 percent, causing significant levels of volatility in the FX market.

In the letter, the financial regulator said the transition from the multiple exchange rates regime to a single rate could result in varying levels of FX revaluation gains.

The apex bank, however, said the policy could also lead to losses across the industry.

“Additional implications of the FX policy reforms may include breaches of single obligor and net open position limits, possible increase in asset quality risks and pressure on industry capital adequacy,” the statement reads.

The CBN also issued guidelines on how banks can manage the impact of FX reform.

The apex also directed banks to immediately implement the measures.

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