The Central Bank of Nigeria (CBN) today imposed a limit on how much local banks can hold in foreign currencies. It expressed concern about the increase of forex exposures on its balance sheet following the naira and dollar crisis, which has plunged the naira into a risky state.
On Tuesday, the naira declined low on the official market, slipping below the unofficial parallel market rate after market regulator FMDQ Exchange changed its closing rate calculation methodology. Its dollar-denominated sovereign bonds also suffered sharp falls.
The CBN said it recently introduced a limit on lenders' net open positions of 20% of shareholders' funds for short positions and a zero limit for long positions and ordered banks to harmonise reporting, according to a circular released on Wednesday.
Before these restrictions, lenders were not allowed to have open positions on the dollar, which meant they could not buy foreign exchange with their account from the market or speculate on the currency's value.
The CBN said the excess net open dollar positions on banks' balance sheets have incentivised lenders to hold foreign currency, exposing them to currency and other risks.
Now, banks must immediately bring their exposures within the set limits or face sanctions, including suspension from the currency market.
Read more: https://www.investingport.com/cbn-finally-restricts-banks-fx-holdings-following-naira-decline/