By Stanley Onyeka, Lagos
The Central Bank of Nigeria (CBN), yesterday, issued a new set of directives that would discourage banks from tampering with the value the naira through hoarding and speculation of foreign currency, aimed at halting the nation’s currency from further plunge.
In a circular co-signed by the Director, Trade and Exchange, Hassan Mahmud, and Director, Banking supervision, Rita Ijeoma Sike, the CBN directs all banks to hold only a maximum of 20% of foreign exchange (FX) in short-term investments and 0% in long-term investments, to guarantee its availability to buyers.
In the last few day, the Naira crumbled to all-time low at a rate of N1,520 to$1 at the FX market, thereby weakening the purchasing power of the masses.
The circular reads in part: “The Net Open Position (NOP) limit of the overall foreign currency assets and liabilities taking into cognizance both those on and off-balance sheets should not exceed 20% short or 0% long-forgotten shareholders’ funds unimpaired by losses using the Gross Aggregate method,” signed by CBN.
The apex bank, which expressed concern over “the growth in foreign currency exposures of banks through their Net Open Position (NOP),” noted that “This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks.”
Banks are expected to bring all their exposures within the set limits immediately and ensure that all returns submitted to the CBN provide an accurate reflection of their balance sheets.
To this end, banks with NOPs above 20% are advised to adjust them to the prudential limit by not later than today, February 1.
It further warned that the apex bank would not hesitate to immediately sanction erring banks by suspending them from participating in the FX market.
To fast-track the process, the CBN also provided a specific template for banks to calculate and input daily and monthly returns on Net Open Assets and Net Open Positions for mainly U.S. dollars, Great Britain Pounds, Euro and a box for other currencies.
The circular continued: “Banks are expected to bring all their exposures within the set limits immediately and ensure that all returns submitted to the CBN provide an accurate reflection of their balance sheets.”
Also, banks are “to borrow and lend in the same currency (natural hedging) to avoid currency mismatch associated with foreign risk.”
