The Central Bank of Nigeria (CBN) has reaffirmed its stance that banks operating within the country are not allowed to utilize their foreign exchange revaluation gains for dividend payouts or to cover operational expenses.
In a circular issued by the apex bank on Thursday and signed by Adetona Adedeji, the acting Director of the Banking Supervision Department, banks were cautioned against employing such strategies.
The circular referenced a previous letter dated September 1, 2023, with the code BSD/DIR/CON/LAB/16/020, where the CBN emphasized the necessity for banks to exercise caution and reserve foreign currency (FCY) revaluation gains as a buffer against adverse fluctuations in the FX rate.
It stated: “Banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses.”
This directive follows a previous communication from the CBN in September 2023, instructing Deposit Money Banks to desist from using gains from foreign exchange revaluation for dividends and operational expenditures. The directive, signed by the then Director of the Banking Division Department, Haruna Mustafa, was to be immediately enforced.
Foreign exchange revaluation gains occur when there is an increase in the value of a bank’s assets and liabilities denominated in foreign currency due to fluctuations in exchange rates.
Several Nigerian banks have reported significant revaluation gains in their third-quarter reports, indicating potentially improved performance for the full year.
The CBN, in its September circular, evaluated the implications of recent changes in the FX rate regime on the banking system and recognized the potential significant impact on the naira values of banks’ foreign currency assets and liabilities.
As part of the prudential guidance and directives outlined by the CBN for immediate implementation by banks, it stated that banks must set aside FCY revaluation gains as a buffer against future adverse movements in the FX rate, reiterating the prohibition on using such gains for dividends or operating expenses.
The circular also addressed measures regarding the Single Obligor Limit (SOL) and Net Open Position Limit (NOP), granting forbearance to banks that breach these limits due to FX policy changes.
