Nigerian Central Bank Sets Deadline For Banks To Unload Extra Dollars

Nigerian Central Bank Sets Deadline For Banks To Unload Extra Dollars....KINDLY READ THE FULL STORY HERE▶

In a bid to stabilize the nation’s volatile exchange rate, the Central Bank of Nigeria (CBN) has directed Deposit Money Banks to liquidate their excess dollar stocks by the latest deadline of February 1, 2024, according to an official statement. The CBN expressed concerns about commercial banks holding long-term foreign exchange positions to capitalize on volatile exchange rate movements, believing it poses risks………CONTINUE READING

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A new circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks” outlines guidelines to mitigate the associated risks. This directive follows closely after a previous circular warning against false reporting of exchange rates by banks and FX dealers.

The FMDQ Exchange’s adjustment of the official exchange rate calculation methodology has led to a shift from approximately N900/dollar to N1,480/dollar. Economists and stakeholders have applauded this move to unify official and parallel market exchange rates but emphasize the need for the CBN to clear FX backlogs, estimated at over $5 billion.

As part of efforts to fund FX requests at the official window, the CBN accused banks of holding excessive foreign exchange positions, setting a deadline of February 1, 2024, for the liquidation of these positions. The circular, dated January 31, 2024, introduced prudential requirements focusing on managing Net Open Positions (NOP), which should not exceed 20% short or 0% long of a bank’s shareholders’ funds.

Banks exceeding these limits are mandated to adjust their positions by the specified date. The CBN also instructed banks to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT) using provided templates. Additionally, banks are required to maintain high-quality liquid foreign assets and adopt treasury and risk management systems for oversight and accurate reporting.

Non-compliance with the NOP limit could lead to immediate sanctions and suspension from the foreign exchange market, warned the CBN.

In response, a top bank executive highlighted that the circular aims to compel banks to sell excess dollar liquidity exceeding $5 billion. The goal is to enhance liquidity, stabilize the exchange rate, and attract foreign investors.

The report also provided updates on the naira’s performance in official and parallel markets, reflecting changes in response to recent market dynamics. Meanwhile, the Senate’s Committee on Banking, Insurance, and Other Financial Institutions summoned the CBN Governor, Olayemi Cardoso, to appear before it on Tuesday to address concerns about the state of the economy and the naira’s fall in the forex market.

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Source: Bushradiogist