CBN moves to check banks’ foreign currency exposure

Concerned with the rising propensity of banks for foreign currency borrowings through foreign lines of credit and Eurobonds, the Central Bank of Nigeria (CBN) has put measures in place to avoid over exposure that could threaten the stability of the financial system.

The essence, according to a circular released on Monday, is to ensure that the associated risks are well managed as well as avoid losses that could pose material systemic challenges.

According to the circular signed by Tokunbo Martins, director, banking supervision, CBN, the new prudential guideline directs that henceforth, aggregate foreign currency borrowing of a bank excluding inter-group and inter-bank (Nigerian banks) borrowing should not exceed 75% of its shareholders’ funds unimpaired by losses.

The guideline also states that the new 75% limit supersedes the existing 200% specified in Section 6 of the guidelines for foreign borrowing for on-lending by Nigerian banks issued on November 26, 200.

The net open position (long or short) of the overall foreign currency assets and liabilities taking into cognisance both those on and off-balance sheet should not exceed 20% of shareholders’ funds unimpaired by losses using the gross aggregate method, the apex bank stated in the guideline.

Banks whose current NOP exceed 20% of their shareholders’ funds are required to bring them to prudential limit within six months and are required to compute them on monthly basis.