The Central Bank of Nigeria has given a directive to all banks to follow recent foreign exchange policy changes carefully.
The CBN emphasized the importance of careful financial management and risk reduction in a letter signed by Dr. Adetona Adedeji, the Acting Director of Banking Supervision, and addressed to banking institutions on Thursday.
The CBN’s directive highlights the importance of maintaining a strong financial position in the presence of potential currency changes. Banks are specifically required to keep Foreign Currency revaluation gains for a rainy day. This measure is intended to soften any negative movements in the FX rate, ensuring stability and strength in the banking sector.
In an effort to improve financial stability, the CBN has explicitly forbidden banks from using these gains for specific purposes. Notably, banks are not allowed to distribute FCY revaluation gains as dividends to shareholders. Instead, they must keep the gains to bolster the banks’ financial position.
The central bank observed that the gains cannot be used for everyday operating expenses. Banks must be careful and allocate these funds thoughtfully.
The CBN’s letter serves as a reminder to all banks to strictly adhere to these guidelines. Failing to comply may lead to regulatory action. Banks are encouraged to review their financial practices and ensure compliance with the prudential measures outlined by the CBN.
The Acting Director emphasized the importance of maintaining financial stability and protecting the interests of depositors and the broader economy.
Banks are advised to promptly follow this guidance.
The statement reads, “In addition to our letter dated September 11, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria emphasizes that banks are required to be very careful and keep FCY revaluation gains as a buffer to soften any negative movements in the FX rate.
“In this regard, banks should not use such FX revaluation gains to pay dividends or cover operating expenses. Please follow these instructions.”
