The Central Bank of Nigeria (CBN) is taking decisive action to address the Naira’s decline by accusing commercial banks of hoarding foreign currency for profit. Directors of Trade and Banking Supervision, Hassan Mahmud and Rita Sike, issued fresh guidelines titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks” on Wednesday to curb speculation and hoarding.
According to the circular, the CBN expressed concern about the increase in foreign currency exposures through Net Open Position (NOP), stating, “This has incentivized banks to hold excess long foreign currency positions, exposing them to foreign exchange and other risks.” The CBN aims to manage these risks and prevent potential systemic challenges.
Explaining the issue, the CBN mentioned, “For example, a bank borrows or buys $1 million worth of forex but then holds half of it in its position instead of lending it or using it to finance purchases for its clients immediately.” This practice allows banks to profit from currency depreciation by buying low and selling high.
To enforce compliance, the CBN set a deadline for banks with current NOPs exceeding limits to adjust their positions by February 1, 2024. Additionally, banks are required to calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT) using specific templates provided by the CBN.
