Central Bank of Nigeria Restricts Banks’ Profits from Foreign Exchange Revaluation.
The Central Bank of Nigeria (CBN) has re-emphasised that banks are barred from paying dividends to shareholders or spend on operating expenses from foreign currency revaluation gains but are expected to set the gains aside.
Foreign exchange revaluation gains occur when a bank’s assets or liabilities denominated in foreign currencies increase in value due to fluctuations in exchange rates.
In the context of Nigerian banks, these gains typically arise from the revaluation of foreign currency-denominated assets, such as loans, investments, or deposits, when the value of the naira depreciates. So far in 2024, the value of the naira had depreciated by 76.5 per cent from N915 to the dollar which it sold officially on the first trading day this year to N1,615 to the dollar.
Banks’ foreign-currency loans when converted back to naira on their balance sheets have ballooned as a result of the devaluation, causing some banks to breach both their lending limits and open positions on foreign exchange trading.
In a letter titled ‘Re: Impact Of Recent FX Policy Reforms: Prudential Guidance to the Banking a Sector,’ issued to all banks on Thursday, the apex bank referring to a circular it had issued last year stated that “banks shall not utilise such FX revaluation gains to pay dividends or meet operating expenses.”
