CBN issues directive on foreign exchange policy reforms

The Central Bank of Nigeria has issued a directive to all banks on the need to strictly comply with recent foreign exchange policy reforms.

In a letter signed by the Acting Director, Banking Supervision, Dr. Adetona Adedeji on Thursday addressed to banking institutions, the CBN stressed the need for prudent financial management and risk mitigation.

The CBN’s directive underscores the importance of maintaining a robust financial position in the face of potential currency fluctuations. Specifically, banks are required to set aside Foreign Currency revaluation gains as a counter-cyclical buffer. This measure aims to cushion any adverse movements in the FX rate, ensuring stability and resilience within the banking sector.

In a bid to enhance financial stability, the CBN has explicitly prohibited banks from utilizing these gains for certain purposes. Notably, banks are not allowed to pay dividends – FCY revaluation gains should not be distributed as dividends to shareholders. Instead, they must be retained to strengthen the banks’ financial position.

The apex bank noted that the gains cannot be used to cover day-to-day operating expenses. Banks must exercise prudence and allocate these funds strategically.

The CBN’s letter serves as a reminder to all banks to adhere strictly to these guidelines. Failure to comply may result in regulatory action. Banks are urged to review their financial practices and ensure alignment with the prudential measures outlined by the CBN.

The Acting Director reiterated the importance of maintaining financial stability and safeguarding the interests of depositors and the broader economy.

Banks are advised to take immediate action in line with this guidance.

The statement partly reads, “Further to our letter dated September 11, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate.

“In this regard, banks shall not utilise such FX revaluation gains to pay dividends or meet operating expenses. Please be guided accordingly.”v