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Central Bank of Nigeria reiterates banks’ restrictions on foreign exchange gains usage

Apex Bank Emphasizes Prudence in Foreign Exchange Management Amidst Economic Shifts

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The Central Bank of Nigeria (CBN) has reaffirmed its stance that banks operating within the country are prohibited from utilizing their foreign exchange revaluation gains to pay dividends or cover operational expenses.

In a circular issued on Thursday and signed by the acting Director of the Banking Supervision Department, Adetona Adedeji, banks were cautioned against such actions, highlighting the need for prudent financial management.

The directive, reiterated in a previous letter dated September 1, 2023, underscores the CBN’s emphasis on safeguarding against adverse movements in the foreign exchange rate by ensuring that banks maintain a counter-cyclical buffer.

The CBN’s September directive mandated deposit money banks to cease using gains from foreign exchange revaluation for dividends and operational costs. The apex bank stressed the immediate implementation of this directive in a letter dated September 11, 2023, signed by the then Director of the Banking Division Department, Haruna Mustafa.

Foreign exchange revaluation gains arise from fluctuations in the value of a bank’s assets and liabilities denominated in foreign currency, driven by changes in exchange rates between foreign and local currencies.

Despite several Nigerian banks reporting significant revaluation gains in their third-quarter reports, positioning them for stronger full-year performances, the CBN maintains its stance on prudent financial management and risk mitigation strategies.

The circular further outlines prudential guidance and directives, including the treatment of FX revaluation gains, forbearance measures for banks breaching single obligor limits, and adjustments for banks exceeding net open position limits due to FX revaluation.

As Nigeria navigates economic shifts and currency fluctuations, the CBN remains steadfast in its commitment to ensuring financial stability and resilience within the banking sector, underscoring the importance of prudent management practices amidst evolving economic dynamics.

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