The Central Bank of Nigeria (CBN) on Tuesday, directed all banks to build capital buffers to increase resilience against potential volatility and economic shocks.
The apex bank also approved additional prudential guidance and directives for immediate implementation to improve financial soundness as it relates to treatment of FX revaluation gains, Single Obligor Limit (SOL), Net Open Position (NOP), and Capital Adequacy.
The measures were contained in a circular to all banks dated September 11, 2023, and signed by CBN Director, Banking Supervision Department, Mr. Haruna Mustafa.
The central bank reviewed the effect of the recent foreign exchange rate regime change on the banking system and observed its potential to significantly increase naira values of banks’ foreign currency (FCY) assets and liabilities, resulting in varying levels of FX revaluation gains or losses across the industry
According to CBN, additional implications of FX policy reforms may include breach of single obligor and open position limits, possible increase in asset quality risks, as well as pressure on industry capital adequacy.
Consequently, the central bank directed banks to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the FX rate.
In this regard, banks shall not utilise such FX revaluation gains to pay dividend or meet operating expenses.
The central bank also granted forbearance to banks that inadvertently breach the SOL due to the FX policy upon application to the CBN. It added that the forbearance shall apply only to existing facilities as at the effective date of the policy.
According a report by ThisDay Newspaper, such banks shall be exempted from the regulatory deductions on the excess above the SOL on their Capital Adequacy Ratio computation.
Furthermore, the apex bank stated that banks that exceeded the NOP prudential limits due to the FX revaluation shall be granted forbearance upon application to the CBN.
The central bank, however, noted that existing prudential regulations on capital adequacy, dividend payment, and FCY borrowing limits shall continue.
The CBN added that it will continue to monitor emerging vulnerabilities and take appropriate regulatory actions going forward.
