Naira Depreciation: CBN Moves Against Banks Using FX Revaluation Gains To Pay Dividend To Shareholders

The Central Bank of Nigeria (CBN) has moved against commercial banks using foreign currency revaluation gains to either pay dividends or meet operating expenses.

The CBN made the disclosure in a circular, BSD/DIR/PUB/LAB/017/003, addressing all banks in the country.

The CBN had last year campaigned against the use of gain resulting from the revaluation of foreign currency assets amid the depreciation of the naira.

The bank hopes to strengthen the banking sector amidst the floating of the naira which later depreciated by over 98 per cent by December 2023, according to PricewaterhouseCoopers (PwC).

After the depreciation of the naira, banks with large foreign currency assets declared a huge naira equivalent but the CBN foresees a possible depreciation of the currency in 2024.

The CBN said, “Further to our letter dated September 11, 2023, referenced BSD/DIR/CON/LAB/16/020 on the above subject, the Central Bank of Nigeria wishes to reiterate that banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate.

Last year, the CBN told banks that the gains would serve as counter-cyclical buffers.

The apex bank approved prudential guidance and directives for immediate implementation by banks.

The bank said, “Banks are required to exercise utmost prudence and set aside the FCY revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the FX rate. In this regard, banks shall not utilize such FX revaluation gains to pay dividend or meet operating expenses.

“Banks that inadvertently breach the Single Obligor Limit (SOL) due to the FX policy will be granted forbearance upon application to the CB. The forbearance shall apply only to existing facilities as at the effective date of this policy. Such banks shall be exempted from the regulatory deductions on the excess above the SOL limit in their CAR computation.

“Banks that exceed the NOP prudential limits due to the FX revaluation shall be granted forbearance for the breach upon application to the CBN.

“Existing prudential regulations on capital adequacy, dividend payments and FCY borrowing limits shall continue to apply.”