CBN Cracks The Whip: Sets Deadline For Banks To Dump Excess Dollars Amid Economic Concerns

CBN Cracks The Whip: Sets Deadline For Banks To Dump Excess Dollars Amid Economic Concerns

In a strategic move aimed at stabilizing Nigeria’s fluctuating exchange rate, the Central Bank of Nigeria (CBN) has issued a directive mandating Deposit Money Banks to liquidate their surplus dollar stocks by the looming deadline of February 1, 2024…..CONTINUE READING

Expressing concerns over commercial banks holding extended foreign exchange positions to exploit volatile market movements, the CBN believes it poses potential risks.

The new circular titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks” outlines guidelines to mitigate associated risks, closely following a prior warning against false reporting of exchange rates by banks and FX dealers.

The FMDQ Exchange’s adjustment of the official exchange rate calculation methodology, transitioning from approximately N900/dollar to N1,480/dollar, has garnered support from economists and stakeholders. However, emphasis remains on the CBN’s imperative to clear FX backlogs, estimated at over $5 billion.

In a bid to address this, the CBN accused banks of maintaining excessive foreign exchange positions and set a strict deadline of February 1, 2024, for their liquidation. The circular, dated January 31, 2024, introduces prudential requirements, focusing on managing Net Open Positions (NOP) within specified limits. Banks exceeding these limits are mandated to adjust their positions promptly.

The CBN further instructed banks to calculate daily and monthly NOP and Foreign Currency Trading Position (FCT) using provided templates. To ensure oversight and accurate reporting, banks are required to adopt treasury and risk management systems. Non-compliance with the NOP limit carries the risk of immediate sanctions and suspension from the foreign exchange market, warns the CBN.

Responding to the directive, a top bank executive highlighted its aim to compel banks to sell excess dollar liquidity exceeding $5 billion, ultimately enhancing liquidity, stabilizing the exchange rate, and attracting foreign investors.

The report also sheds light on the naira’s performance in both official and parallel markets, reflecting adjustments in response to recent market dynamics. Meanwhile, the Senate’s Committee on Banking, Insurance, and Other Financial Institutions has summoned CBN Governor Olayemi Cardoso to address concerns about the state of the economy and the naira’s decline in the forex market.