Bank Directors React to CBN's Directive to Offload Excess Dollar Reserves

Bank Directors React to CBN's Directive to Offload Excess Dollar Reserves

  • Bank Directors Association of Nigeria said they are in support of the new CBN's directive on Net Open Position
  • They said that the order is necessary to manage foreign exchange risks effectively
  • They also urged all banks to completely abide by the new directive and take part in its implementation

Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.

The recent guidelines from the Central Bank of Nigeria (CBN), intended to strengthen the country's financial system, have received support from the Bank Directors Association of Nigeria (BDAN).

Employees React After CBN Ordered Banks to Sell Their Excess Dollar
Bank directors continue to support programs that advance the stability and prosperity of the Nigerian economy. Photo credit - MoneyMarket
Source: UGC

Legit.ng earlier reported that the CBN imposed limits on how much banks can hold in foreign currencies.

Group commends CBN

In a circular released on Wednesday, January 31, 2024, the CBN expressed concerns about the growth of forex exposures on their balance sheets as the naira continued to depreciate against the US dollar.

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Mustafa Chike-Obi, BDAN chairman, signed a statement stating that the group fully endorsed measures showing the CBN's dedication to maintaining the stability and resilience of the banking industry.

The group noted:

“Amid concerns surrounding the escalating foreign currency exposure of Banks through their Net Open Positions, the leadership of the Central Bank of Nigeria (CBN) has issued a circular titled ‘Harmonisation Of Reporting Requirements on Foreign Currency Exposures of Banks’.
"In this directive, the CBN stipulates that the Net Open Positions (NOP) limit for overall foreign currency assets and liabilities should not exceed 20% short or 0% long of shareholders’ funds.”

It further stated that the directive was essential to guarantee the efficient management of foreign exchange risks, coupled with the other prudential measures listed in the circular.

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Experts explain why naira could continue falling despite CBN’s limitation policy

According to the notice, the CBN hopes to limit any losses that would present serious systemic problems by putting these restrictions in place.

According to a ThisDay report, the bank directors also noted that the regulatory measures underscored a strategic initiative aimed at bolstering risk management, transparency, and accountability within the financial industry.

They acknowledged and commended CBN for its proactive stance in safeguarding the interests of depositors, investors, and the overall economic well-being of Nigeria.

BDAN described the CBN's regulations as a step in the right direction toward building a stable financial environment and averting negative consequences for the banking industry.

As a result, the association urged all banks to adhere to the new rule and take an active role in its implementation.

To guarantee a fair and efficient regulatory approach, it also recognised the careful effort made by the CBN in conferring with experts and stakeholders.

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“As advocates for responsible banking and ethical conduct, BDAN believes that these guidelines will contribute significantly to the long-term sustainability, growth, as well as the overall efficiency, transparency, and stability of the banking sector, ultimately contributing to the nation’s economic development."

CBN finally finds solution to naira woes

Legit.ng reported that Yemi Cardoso, the governor of the CBN, revealed that the institution had found $2.4 billion in erroneous foreign outstanding claims.

He noted that the naira has been under pressure, and the currency market has been unstable for some time due to these claims.

Cardoso said that in order to have a clear picture of the matter, the CBN hired Deloitte to investigate the FX charges.

The naira recently hit another low as measures to strengthen it intensify.

Source: Legit.ng

Authors:
Zainab Iwayemi avatar

Zainab Iwayemi (Business Editor) Zainab Iwayemi is a business journalist with over 5 years experience reporting activities in the stock market, tech, insurance, banking, and oil and gas sectors. She holds a Bachelor of Science (B.sc) degree in Sociology from the University of Ilorin, Kwara State. Before Legit.ng, she worked as a financial analyst at Nairametrics where she was rewarded for outstanding performance. She can be reached via zainab.iwayemi@corp.legit.ng

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