In a bid to address concerns over rising foreign currency exposures among banks, the Central Bank of Nigeria (CBN) has issued a new circular outlining prudential requirements.
The directive aims to mitigate risks associated with excessive foreign currency speculation.
The circular, titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” stipulates that the Net Open Position (NOP) limit for overall foreign currency assets and liabilities should not exceed 20 percent short or 0 percent long of shareholders’ funds unimpaired by losses.
Banks with current NOP exceeding these limits must adjust to the prudential limit by February 1, 2024.
Banks are now mandated to calculate their daily and monthly NOP and Foreign currency trading position using provided templates.
Non-compliance with the NOP limit may result in immediate sanctions and/or suspension from the foreign exchange market, warns the apex bank.
Additionally, the CBN requires banks to maintain a sufficient stock of high-quality liquid foreign assets to cover maturing foreign currency obligations.
Foreign exchange contingency funding arrangements with other financial institutions are also mandatory.
To mitigate currency risks, banks are urged to borrow and lend in the same currency, adopt natural hedging, and align interest rates for borrowing and lending.
The circular also emphasized the need for approval from the CBN for any early redemption clause in eurobonds.
