In a bid to stabilize the nation’s volatile exchange rate, the Central Bank of Nigeria (CBN) has issued an order to Deposit Money Banks, instructing them to divest their excess dollar holdings by February 1, 2024.
The directive, outlined in a circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” aims to curb the trend of banks hoarding foreign currencies for profit.
Expressing concern over the increasing foreign currency positions held by banks, the apex bank introduced new guidelines to mitigate associated risks. Emphasizing the need to manage the Net Open Position (NOP), the circular sets prudential requirements, limiting NOP to 20% short or 0% long of banks’ shareholders’ funds. Banks exceeding these limits must adjust their positions by the specified date.
To enforce compliance, banks are mandated to calculate daily and monthly NOP and Foreign Currency Trading Position (FCT) using templates provided by the top bank. Failure to adhere to the NOP limit may result in immediate sanctions and suspension from the foreign exchange market.
Simultaneously, stakeholders urge the CBN to clear a significant foreign exchange backlog, estimated at over $5 billion, to prevent a widening gap between official and parallel market rates. The directive aligns with broader efforts to unify exchange rates, and CBN Governor Olayemi Cardoso’s recent adjustments to the official exchange rate calculation methodology contribute to increased stability.
In response to economic concerns and the naira’s decline, the Senate Committee on Banking, Insurance, and Other Financial Institutions has summoned the bank’s Governor Olayemi Cardoso for a briefing next week. The move follows the naira’s worst week on the official market, prompting heightened scrutiny and regulatory measures.