By Stanley Onyeka, Lagos
The Central Bank of Nigeria (CBN) yesterday warned commercial banks not to use their foreign exchange (FX) revaluation gains to pay dividends or meet their operational expenses.
This is contained in a circular signed by the acting Director, the Banking Supervision Department, Adetona Adedeji.
The circular reads in part: “Further to our letter dated September 1, 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 utilise such FX revaluation gains to pay dividends or meet operating expenses.”
FX revaluation gains occur when there is an increase in the value of a bank’s assets and liabilities denominated in foreign currency due to a change in the exchange rate.
Recall that the CBN stressing the need for prudent financial management and risk mitigation had directed banks to exercise utmost prudence and set aside foreign currency revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate.
Specifically, banks are required to set aside Foreign Currency revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate, ensuring stability and resilience within the banking sector.
Such gains cannot also be used to cover day-to-day operating expenses, as banks must exercise prudence and allocate these funds strategically.
CBN also warned that failure to comply may result in regulatory action against such banks, while urging them to review their financial practices and ensure alignment with the prudential measures.
It reiterated the importance of maintaining financial stability and safeguarding the interests of depositors and the broader economy.
In this regard, banks shall not utilise such FX revaluation gains to pay dividends or meet operating expenses.
