The Central Bank of Nigeria (CBN), has expressed concern over the growth in foreign currency exposures of banks through their Net Open Position (NOP).
The apex bank disclosed this in a circular published on Wednesday on its website.
The circular was signed by its Director, Trade and Exchange, Dr. Hassan Mahmud and the Director, Banking Supervision. Mrs. Rita Sike.
The bank said, “such foreign currency positions expose banks to foreign exchange and other risks.”
The circular said, to ensure that these risks are well managed and avoid losses that could pose material systemic challenges, it has issued new prudential requirements for banks to comply with.
The apex bank said, “the NOP limit of the overall foreign currency assets and liabilities taking into cognizance both those on and off-balance sheet should not exceed 20 per cent short or 0 per cent long of shareholders’ funds unimpaired by losses using the Gross Aggregate Method (GAM)
The statement added that “banks whose current NOP exceeds 20 per cent short and 0 per cent long of their shareholders’ funds unimpaired by losses are required to bring them to the prudential limit by February 1, 2024.
They are also required to compute their daily and monthly NOP and foreign currency trading position using approved templates.
It added that, “Banks are also required to have adequate stock of high-quality liquid foreign assets, including cash and government securities in each significant currency to cover their maturing foreign currency obligations. In addition, banks should have in place a foreign exchange contingency funding arrangement with other financial institutions.
