CBN cracks down on banks as naira experiences sharp decline

The Central Bank of Nigeria (CBN) has taken decisive action against commercial banks accused of hoarding foreign currency for profit.

The CBN, through Directors of Trade and Banking Supervision, Hassan Mahmud and Rita Sike, released fresh guidelines titled "Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks" on Wednesday, January 31, 2024.

The move is aimed at curbing speculation and hoarding practices that have contributed to the recent 42% decline of the Naira against the dollar within just two days.

Expressing concern over the escalating foreign currency exposures of banks, the CBN issued a circular stating, "This has incentivised banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks."

The guidelines emphasise prudential requirements to ensure effective risk management and prevent potential losses that could pose significant systemic challenges.

For instance, the circular highlighted the practice of banks holding a substantial portion of purchased forex instead of immediately using it for lending or financing client purchases.

This allows banks to profit from currency depreciation by buying low and selling high.

The CBN instructed banks with Net Open Positions (NOPs) exceeding specified limits to adjust their positions in compliance with the new regulations by February 1, 2024.

Additionally, banks are required to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT) using templates provided by the CBN.