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Yesterday, the Central Bank of Nigeria (CBN) released a letter highlighting prudential guidelines to the banking sector, following the impact of the recent foreign exchange (FX) rate regime change. The letter observed the impact of the regime change on the banking sector and the resulting effect on the Naira value of banks’ foreign currency (FCY) assets and liabilities.

 Additional implications of the reforms considered included breaches of single obligor and net open position limits, possible increase in asset quality risks and pressure on industry capital adequacy.

Key Highlights from the letter are stated below;

  • Treatment of FX Revaluation Gains: Banks shall not utilize FX revaluation gains to pay dividend or meet operating expenses
  • Single Obligor Limit (SOL): Banks that inadvertently breach SOLs due to the policy reforms will be granted forbearance upon application to the CBN. This forbearance applies only to existing facilities as of the effective date of the policy reform
  • Net Open Position (NOP):  Banks that exceed 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 foreign currency borrowing limits shall continue to apply

Considering these developments, we expect the pervasive upsurge that has led banking tickers to elevated price levels to end as investors opt for other tickers in other sectors.

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