CBN sets new FX rules for banking sector

The Central Bank of Nigeria has reviewed the impact of the recent foreign exchange (FX) rate regime change on the banking system and observed its potential to significantly increase Naira values of banks’ foreign currency (FCY) assets and liabilities, resulting in varying levels of FX revaluation gains or losses across the industry

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

The apex bank thus approved the following prudential guidance and directives for immediate implementation by banks:

  • Treatment of FX Revaluation Gains: Banks are required to exercise utmost prudence and set aside the FCY revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the FX rate. In this regard, banks shall not utilize such FX revaluation gains to pay dividend or meet operating expenses.
  • Single Obligor Limit (SOL): Banks that inadvertently breach the Single Obligor Limit (SOL) due to the FX policy will be granted forbearance upon application to the CB. The forbearance shall apply only to existing facilities as at the effective date of this policy. Such banks shall be exempted from the regulatory deductions on the excess above the SOL limit in their CAR computation.
  • Net Open Position (NOP) Limit: Banks that exceed the NOP prudential limits due to the FX revaluation shall be granted forbearance for the breach upon application to the CBN.
  • Existing prudential regulations on capital adequacy, dividend payments and FCY borrowing limits shall continue to apply.

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