If you are operating a commercial bank and you are hoarding excess dollars in your vaults ensure that you empty that vault soon. It is a good advice you should heed because the apex bank has a plan.
It has come to the notice of the Central Bank of Nigeria (CBN) that some commercial banks are hoarding excess dollar stock in their vault.
Such banks should be ready to comply with the CBN’s directive or face untold persecution and punishment
In a move to stabilise the exchange rate, the Central Bank of Nigeria (CBN) has asked commercial banks to sell off excess dollar stock.
This was contained in a circular released on Wednesday, by the CBN to drive home this point and warn lenders against hoarding dollars for profit.
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CBN Direct Banks To Empty Vaults
The circular was titled “Harmonisation of Reporting Requirements on Foreign Currency Exposures of Banks”.
According to the CBN, the growing trend of hoarding large foreign currency by banks is becoming worrisome
Furthermore, the move comes barely 48 hours after the CBN released a circular, warning banks and FX dealers against reporting false exchange rates, among others.
In this circular, dated January 31, 2024, the apex bank accused banks of holding excess foreign exchange positions.
It gave lenders until February 1, 2024 (today) to sell off excess dollars in their vaults.
The circular was signed by the Director of Trade and Exchange, CBN, Dr. Hassan Mahmud, and a representative of the Director, of Banking Supervision, CBN, Mrs. Rita Sike.
“The Central Bank of Nigeria 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 circular read.
Instructions To Banks From CBN
The CBN also issued prudential requirements that banks must follow.
These requirements are the management of the NOP which measures the difference between a bank’s foreign currency assets and its foreign currency liabilities.
Also, the circular mandates that the NOP must not exceed 20% short or 0% long of the bank’s shareholders’ funds.
According to the apex bank, this calculation must be done using the Gross Aggregate Method, which provides a comprehensive view of the bank’s foreign currency exposure.
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Furthermore, banks with current NOPs exceeding these limits are required to adjust their positions to comply with the new regulations by February 1, 2024.
Additionally, banks must calculate their daily and monthly NOP and Foreign Currency Trading Position (FCT) using specific templates provided by the CBN.
