Banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses.
The Central Bank of Nigeria (CBN) has reaffirmed its directive to banks regarding the utilisation of foreign currency (FCY) revaluation gains.
In a circular released by the bank on Thursday and signed by the Acting Director of the Banking Supervision Department, Adetona Adedeji, the CBN advised banks against undertaking such actions.
In the circular, referencing a letter dated 11 September 2023, the CBN emphasised the need for banks to exercise utmost prudence in handling these gains.
According to the directive, banks are required to set aside FCY revaluation gains as a counter-cyclical buffer to mitigate any adverse movements in the foreign exchange (FX) rate. It specified that banks should not use such gains to pay dividends or cover operating expenses.
"Further to our letter dated September 11, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate.
"In this regard, banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses. Please be guided accordingly," it said.
"Banks and financial institutions are advised to take note of this directive and comply accordingly to avoid any sanctions or regulatory actions from the CBN."
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In September 2023, the CBN instructed banks to cease using profits from their foreign exchange revaluation for dividends and operational costs. The directive, outlined in a letter dated 11 September 2023, and signed by the then Director of the CBN's Banking Division Department, Haruna Mustafa, was to be implemented promptly.
"The bank thus approved the following prudential guidance and directives for immediate implementation by banks. Treatment of FX Revaluation Gains: Banks are required to exercise utmost prudence and set aside the FCY revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the FX rate. In this regard, banks shall not utilise such FX revaluation gains to pay dividends or meet operating expenses.
"Single Obligor Limit (SOL): Banks that inadvertently breach the Single Obligor Limit (SOL) due to the FX policy will be granted forbearance upon application to the CBN. The forbearance shall apply only to existing facilities as of the effective date of this policy. Such banks shall be exempted from the regulatory deductions on the excess above the SOL limit in their CAR computation.
"Net Open Position Limit: Banks that exceed the NOP prudential limits due to the FX revaluation shall be granted forbearance for the breach upon application," the circular stated.
