Don’t pay dividends with FX revaluation gains, CBN tells banks

The Central Bank of Nigeria (CBN) on Monday instructed banks to not utilise the foreign exchange (FX) revaluation gains realised from the 60 percent devaluation of the naira to pay dividends or for other operational expenses.

The directive was contained in a circular to all banks dated September 11, 2023 and signed by Haruna Mustafa, director, banking supervision department.

The CBN instead advised the banks to save the money made from FX revaluation to hedge against any future volatility.

“Banks are required to exercise utmost prudence and set aside the foreign currency (FCY) revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the FX rate in this regard, banks shall not utilize such FX revaluation gains to pay dividend or meet operating expenses”, the circular reads.

According to the CBN, 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 at the effective date of this policy. Such banks shall be exempted from the regulatory deductions on the excess above the SOL limit in their capital adequacy ratio (CAR) computaton.

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The CBN said banks that exceed the Net Open Position (NOP) Limit prudential limits due to tne FX revaluation shall be granted forbearance for the breach upon application to the CBN.

“Existing prudential regulations on capital adequacy, dividend payments and FCY borrowing iimits shall continue to apply.”

The apex bank encouraged the banks to build capital buffers to increase resilience against potential volatility and/or economic shocks.

“The CBN will continue to monitor emerging vulnerabilities and take appropnate regulatory action,” the circular stated.

The naira has depreciated by about 60 percent against the US dollar since the CBN began currency reforms last June, and Nigerian banks with substantial net foreign asset positions are cashing in on the currency slide.

For instance, Guaranty Trust Holding Company (GTCO), Fidelity Bank, and FCMB Group saw their cumulative FX income surge to N390.55 billion in the first half of the year.

GTCO recorded the highest FX income with a 19,016 percent growth to N357.47 billion, followed by Fidelity Bank with a 2,030 percent growth to N32.16 billion, while that of FCMB grew by 65.2 percent to N921.78 million.