The Central Bank of Nigeria (CBN) has issued a directive ordering Deposit Money Banks to sell their surplus dollar holdings by February 1, 2024, in a bid to stabilize the country’s fluctuating exchange rate. The CBN’s circular warns against hoarding foreign currencies for profit and introduces guidelines to minimize associated risks. This move comes as the nation grapples with economic challenges, including a falling naira and concerns about banks holding extensive foreign currency positions.
The circular, titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks,” expresses the CBN’s unease regarding the increasing trend of banks holding significant foreign currency positions. The apex bank emphasized the need for prudential measures, particularly focusing on the management of Net Open Position (NOP), which measures the disparity between a bank’s foreign currency assets and liabilities.
According to the directive, the NOP should not exceed 20% short or 0% long of the bank’s shareholders’ funds, with calculations based on the Gross Aggregate Method. Banks exceeding these limits are mandated to adjust their positions to comply with the new regulations by February 1, 2024. The CBN also introduced specific templates for calculating daily and monthly NOP and Foreign Currency Trading Position (FCT).
In addition to these measures, banks are required to maintain adequate stocks of high-quality liquid foreign assets and implement robust treasury and risk management systems for accurate and timely reporting of foreign exchange exposures. Non-compliance with the NOP limit may result in immediate sanctions and suspension from the foreign exchange market.
Economists and stakeholders have applauded the CBN’s efforts to unify official and parallel market exchange rates, although challenges remain. Analysts are urging the CBN to address a backlog of over $5 billion in foreign exchange demands to prevent a widening gap between official and parallel rates.
As part of these efforts, the CBN has summoned Governor Olayemi Cardoso to appear before the Senate Committee on Banking, Insurance, and Other Financial Institutions on Tuesday to provide insights into the state of the economy and the ongoing challenges in the forex market.
The naira closed at N1,455.59/$ at the official window on Wednesday, marking a 1.82% appreciation from the previous day. However, at the parallel market, it lost N61, trading at N1,511/$. The CBN’s directive has prompted Bureau De Change operators in Abuja to announce a temporary shutdown due to the scarcity of dollars, further intensifying economic concerns.
In a bid to address the economic challenges, including inflation, the Senate Committee has summoned the CBN governor to provide clarity on the nation’s economic outlook and the recent fall of the naira. The meeting is set to delve into critical issues affecting the economy, aiming to find solutions to the ongoing challenges.