In a move to enforce total compliance with the rules of engagement, the Central Bank of Nigeria (CBN) on Thursday, issued a directive to all banks on the need to strictly implement recent foreign exchange policy reforms.
In a letter signed by the Acting Director, Banking Supervision, Adetona Adedeji, and addressed to banks, the CBN emphasised 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. 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.
