THE GUARDIAN
Going forward, all deposit money banks (DMB) are to disclose their positions on foreign exchange (FX) holdings and draw it down to not more than 20 per cent short of their shareholders’ funds.
In a memo addressed to all banks yesterday, the Central Bank of Nigeria (CBN) said the latest move was informed by the need to curb the growth in foreign currency exposures of banks through their net open position (NOP).
The new directive comes on the heels of rising panic in the monetary authority over the fate of the naira, which dipped further to about N1520/$ at the parallel market as at press time.
It is the latest of the series of policy options the regulator has taken in the past year to stop the free fall of the domestic currency. Indeed, Cardoso is racing against time to rein in the free fall of naira. Yesterday, the Senate, through its Committee on Banking, Insurance and other Financial Institutions, summoned the governor to appear before it on Tuesday next week to answer questions on the state of the economy and the sharp depreciation of naira, a currency adjudged the third worst performing last year.
The Committee, chaired by Senator Adetokunbo Abiru, met yesterday as the currency tumbled to N1520/$ at the parallel market and resolved to summon the CBN governor on the way out.
The apex bank, in the memo, ‘Harmonisation of reporting requirements on foreign currency exposures of banks,’ said: “The CBN has noted with concern the growth in foreign currency exposures of banks through their net open position (NOP). This has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks.”
The memo, which was jointly signed by the Director of Trade and Exchange Department of CBN, Dr Hassan Mahmud, and Ijeoma Sike of the Banking Supervision Department, explained that to ensure that the risks are well managed and avoid losses that could pose material systemic challenges, the NOP limit of the overall foreign currency assets and liabilities taking into cognizance both those on and off-balance sheet should not exceed 20 per cent short or zero per cent long of shareholders’ funds unimpaired by losses using the gross aggregate method.
