In a bid to stabilize the fluctuating national exchange rate, the Central Bank of Nigeria (CBN) has issued a directive instructing Deposit Money Banks to sell their surplus dollar stock by the latest date of February 1, 2024. The move comes as the CBN expresses concerns over some commercial banks holding extensive foreign exchange positions for potential profit from volatile exchange rate movements.
The Central Bank of Nigeria (CBN) has issued a circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks.” The purpose of this circular is to provide guidelines that aim to mitigate the risks associated with banks holding significant foreign currency positions. The CBN emphasizes the need to reduce the potential exploitation of exchange rate fluctuations and warns against hoarding foreign currencies for profit.
The directive follows closely on the heels of another circular released by the CBN just 48 hours earlier, cautioning banks and FX dealers against reporting false exchange rates. Additionally, the national exchange rate calculation methodology has recently been adjusted by the FMDQ Exchange, resulting in a shift from approximately N900/dollar to N1,480/dollar.
While economists and stakeholders commend the move to unify official and parallel market exchange rates, challenges are presented, including the need for the CBN to address FX backlogs estimated at over $5 billion and fund FX demands at the official market. To address these challenges, the CBN accuses banks of holding excess foreign exchange positions and mandates them to sell off such positions by February 1, 2024.
The circular, dated January 31, 2024, signed by the Director, of Trade and Exchange, CBN, Dr. Hassan Mahmud, and a representative of the Director, of Banking Supervision, CBN, Mrs. Rita Sike, expresses concern about the growth in foreign currency exposures of banks through their Net Open Position (NOP). To manage this, the CBN introduces prudential requirements, with a focus on the management of NOP.
Banks with current NOPs exceeding the set limits are required to adjust their positions by the specified date. The CBN also directs banks to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT) using templates provided by the CBN. Non-compliance with the NOP limit is met with immediate sanctions and suspension from the foreign exchange market.