The director of the banking supervision department of the Central Bank of Nigeria (CBN), Haruna Mustafa, said deposit money banks (DMBs) have been barred from using the gains arising from the foreign exchange policy reforms to run their operations.

In a statement dated September 11, 2023, Mustafa said the CBN had learnt that the policy to reform the forex market might result in gains or losses for banks

CBN instructed banks that have profited from the policy to resist using the proceeds gained for dividend payments or to fund their operations. The statement was titled; ‘Impact of Recent FX Policy Reforms: Prudential Guidance to the Banking Sector’.

Ripples Nigeria had reported in June that the CBN had devalued the naira and also implemented the unification of the multiple exchange rates in the official market, leaving just the Investors’ and Exporters’ (I&E) rate as a benchmark for the trading of the dollars in the official window.

In the new development, CBN issued steps banks must take in the face of a gain or loss resulting from the foreign exchange policy.

“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 value 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 open position limits, possible increase in asset quality risks and pressure on industry capital adequacy,” CBN said in the statement.

On the guidelines, the CBN said: “1. 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.

“2. 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

3. 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.

4. Existing prudential regulations on capital adequacy, dividend payments and FCY borrowing limits shall continue to apply.