CBN Orders Banks To Adhere To Forex Policy Reforms

The Central Bank of Nigeria (CBN) has issued a directive to banks, instructing them to fully adhere to recent foreign exchange (FX) policy reforms. This directive was communicated in a letter sent to banking institutions and signed by Dr. Adetona Adedeji, the Acting Director of Banking Supervision at the CBN.

Last year, the CBN emphasized the importance of prudent financial management and risk mitigation, specifically directing banks to exercise caution and set aside foreign currency revaluation gains as a counter-cyclical buffer to mitigate any negative impacts from fluctuations in the foreign exchange rate.

Reiterating the content of a previous letter dated September 11, 2023, referenced as BSD/DIR/CON/LAB/16/020, the CBN emphasized that banks must continue to exercise prudence and reserve Foreign Currency (FCY) revaluation gains to serve as a buffer against adverse movements in the FX rate.

The statement from the CBN explicitly states: “In this regard, banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses.” This underscores the CBN’s commitment to ensuring that these gains are safeguarded and utilized solely for their intended purpose of mitigating FX rate risks.

Banks are urged to adhere strictly to these directives and refrain from utilizing FX revaluation gains for purposes other than those specified by the CBN. The letter serves as a reminder to banks of their obligation to comply with regulatory guidelines and to prioritize prudent financial management practices.

By enforcing these measures, the CBN aims to promote stability and resilience within the banking sector, safeguarding against potential risks associated with foreign exchange fluctuations. It underscores the importance of prudent financial management in mitigating risks and ensuring the stability of the financial system.

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