The Central Bank of Nigeria (CBN) has reaffirmed its directive regarding the utilization of Foreign Exchange (FX) revaluation gains by banks, referencing a previous circular issued on September 11, 2023.
According to the CBN, FX revaluation gains should be utilized as a buffer to mitigate significant fluctuations in the FX rate and should not be allocated towards dividend payments or operational expenses.
The statement issued by the CBN reads, “Banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movement in the FX rate. In this regard, banks shall not utilize any such revaluation gains to pay dividends or meet operating expenses.”
The directive comes in response to the significant profits recorded by Nigerian banks in their semi-annual financial results following the revaluation of the naira in June. This revaluation resulted in notable gains for banks, primarily due to the depreciation of the naira.
The CBN is concerned that utilizing these gains for dividends or operational expenses could expose banks to risks if the exchange rate appreciates in the future.
Therefore, banks are advised to reserve the additional earnings from FX revaluation as a counter-cyclical buffer to cover potential deficits in the event of a decline in the exchange rate.
Furthermore, banks that have exceeded the permissible lending threshold to a single borrower due to the FX policy may seek approval from the CBN to maintain the excess loan.
This exemption, known as forbearance, ensures that banks will not face penalties for surpassing the lending limit, provided the loans were established before the implementation of the policy.
