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CBN Prohibits Nigerian Banks from Benefiting from Naira Devaluation


The Central Bank of Nigeria (CBN) has prohibited all deposit money banks (DMBs) in the country from utilizing any gains resulting from the recent naira devaluation to pay shareholder dividends or finance their operations.


In a letter dated September 11, 2023, the CBN said its review of the foreign exchange (FX) regime transition showed that banks are poised to profit substantially from the new unified exchange rate policy due to the significant increase in the naira value of their foreign currency assets and liabilities.


Earlier on June 14, the CBN had officially unified the multiple FX windows into a single investors’ and exporters’ (I&E) window rate, which led to the naira depreciating against the dollar by about 63 per cent. This transition from multiple exchange rates to a single exchange rate resulted in a one-time revaluation of banks’ FX assets and liabilities.


In its letter signed by Haruna Mustafa, Director of Banking Supervision, the CBN noted that while some banks may book revaluation gains from the transition, others could face losses. It outlined prudential guidelines for banks to manage the impact of the FX reforms:


Banks must set aside any FX revaluation gains as a countercyclical buffer to cushion potential future FX losses, rather than pay dividends or finance operations.

Banks exceeding single obligor limits due to FX revaluation will receive regulatory forbearance upon applying to the CBN. This exemption from limit deductions will apply only to existing facilities before the new FX policy date.

Similar forbearance is available for banks breaching net open position limits due to the transition.

Existing regulations on capital adequacy ratios, dividend payments, and foreign currency borrowing limits remain applicable.

The CBN directed all Nigerian banks to immediately implement these measures and exercise utmost prudence regarding FX revaluation gains, which are susceptible to reversal from any adverse future FX movements.


Analysts say the move aims to protect bank balance sheets and prevent any unintended benefits from the transition. While the FX gains boost capital levels, the CBN wants banks to remain well-capitalized and resilient, rather than pursue risky expansion or shareholder returns.


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