“Do It or Get Suspended”: CBN Sets Limits on Access, GTB, Zenith, Others Dollar Account Balance

• The Central Bank of Nigeria (CBN) has announced new limits on Access Bank, Zenith, UBA, GTB, and other dollar account balances
• The move is in reaction to the continued depreciation of the naira against the US dollar and other foreign currencies
• The CBN hopes the new rule will help reduced the potential risk Nigerian banks could be exposed to

Legit.ng journalist Dave Ibemere has over a decade of experience covering Tech, Energy, Stocks, Investments, and the Economy.

The Central Bank of Nigeria (CBN) has imposed limits on how much banks can hold in foreign currencies.

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

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Naira to dollar exchange rate

The naira fell to a record low on the official market to N1,482/$1 on Tuesday, January 30, 2024, slipping below the unofficial parallel market rate.

This happened after market regulator FMDQ Exchange changed its closing rate calculation methodology for the naira.

CBN sets limit

With the depreciation of naira more Nigerian banks created an incentive for banks to hold excess long foreign currency position and CBN is worried.

In the new circular, the CBN address the net open position (NOP) limits of banks on foreign currency assets and liabilities.

NOP limits set the maximum amounts for the single and total instrument exposure for all asset classes on forex.

A bank which holds NOP (whether long or short) in foreign currencies is exposed to the risk that exchange rates may move against it.

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The open positions may be either trading positions or, simply exposures caused by the bank’s overall assets and liabilities.

In the new guidelines, the CBN said the NOP limit of the overall foreign currency assets and liabilities of banks shall not exceed “20% short or 0% long of shareholders’ funds”.

The apex bank said the move was due to concerns over the growth in foreign currency exposures of banks through their NOPs.

Part of the circular reads:

"The Central Bank of Nigeria (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.

"Therefore, to ensure that these risks are well managed and avoid losses that could pose material systemic challenges, the CBN issues the following prudential requirements:"

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Banks must now immediately bring their exposures within the set limits or face sanctions, including suspension from the currency market.

More rules for banks

Before Naira's depreciation, lenders could use their open net positions on foreign currency to finance short-term trade lines without resorting to the central bank for bidding.

This lets banks "make the market" for dollars and provide two-way quotes for buying and selling the currency, creating a fully functioning forex market.

With the new rule, the CBN wants banks to have liquid foreign assets to cover maturing foreign currency obligations.

The CBN also asked banks to have a foreign exchange contingency funding arrangement with other institutions, Leadership reports.

Banks will also be required to get approval for the early repayment of their Eurobonds, where such redemption clauses are applicable.

Access, GTB, UBA, and others to debit customers' bank accounts for FG

Earlier, Legit.ng also reported that the federal government instructed all Nigerian banks to debit customers with domiciliary accounts.

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The debit is for old foreign currency transactions carried out between 2021 and 2023 by customers and will be remitted to the government.

Access Bank, GTB, UBA, Zenith, and other commercial banks have sent messages to customers to expect the debits.

In a notice titled 'Important Notice: Electronic Money Transfer Levy Deductions Begin on Foreign Currency Transactions,' the First Bank of Nigeria announced that deductions would start promptly and be forwarded to the FIRS.

Source: Legit.ng