The Central Bank of Nigeria (CBN) has restated that banks operating there are prohibited from using their foreign exchange (FX) revaluation gains to pay dividends or cover operational expenses.
In a circular issued by the apex bank on Thursday and signed by the acting Director of the Banking Supervision Department, Adetona Adedeji, banks were cautioned against such actions.
The circular emphasized the need for banks to exercise caution and set aside their FX revaluation gains as a counter-cyclical buffer to mitigate potential adverse movements in the FX rate.
It stated, “In this regard, banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses.”
This reiteration comes after a previous directive from the CBN in September, instructing Deposit Money Banks to cease using gains from FX revaluation for dividends and operational expenditures.
The circular highlighted the consequences of the recent FX rate regime change on the banking system. It emphasized the potential impact on the naira values of banks’ foreign currency assets and liabilities.
Furthermore, the CBN provided prudential guidance and directives for immediate implementation by banks, including the treatment of FX revaluation gains.
Banks are instructed to set aside their FCY revaluation gains as a buffer against future adverse movements in the FX rate, and they are prohibited from using such gains for dividends or operating expenses.
Additionally, the circular addressed issues such as Single Obligor Limit (SOL) breaches and Net Open Position Limit (NOP) breaches, providing forbearance measures for banks that inadvertently exceed these limits due to FX policy changes.
The circular underscores the CBN’s commitment to ensuring financial stability and prudential management within the banking sector, urging banks to comply with the directives for the economy’s overall health.
