Nigeria Enforces Strict Forex Limits on Banks to Stabilize Naira and Mitigate Risks”


Nigeria’s Central Bank directs banks to cap foreign exchange exposure at 20% short or 0% long of shareholders’ funds by February 1.

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The goal is to stabilize the naira by restricting speculative bets following a 31% depreciation. Banks holding excess dollars must sell before the deadline or face sanctions, enhancing currency stability and financial system risk management.

The move is part of broader currency market reforms to address risks, improve liquidity, and align with the government’s effort to unify exchange rates.

Compliance involves maintaining prudent forex exposure limits and ensuring adequate liquidity for maturing foreign currency obligations.

Impact on Banks and Naira Stability
Ronak Gadhia, director of sub-Saharan banks research at EFG Hermes, highlighted that sudden movements in exchange rates could significantly impact banks’ capital adequacy and solvency.

By reducing net open position limits, banks’ ability to speculate against the naira is also curtailed, contributing towards greater currency stability – an additional aim of this regulation.

Past large depreciations have incentivized Nigerian banks to increase dollar holdings as protection against further naira losses. The central bank’s concern over growing foreign currency exposures reflects potential vulnerabilities faced by banks due to forex rate risks.

Compliance Measures and Liquidity Requirements
In addition to limiting forex exposures, lenders with excess dollars are required either sell them before the deadline or face sanctions.

Furthermore, those with early redemption clauses on their eurobonds must seek approval before exercising these options. Banks are also mandated to maintain adequate liquid assets covering maturing foreign currency obligations while establishing contingency funding arrangements with other financial institutions.

Godwin Okafor
Godwin Okafor
Godwin Okafor is a veteran Financial Journalist, Internet Social Entrepreneur, and the visionary Founder of Naija247news Media Limited. With an extensive career spanning over 16 years in financial journalism, Godwin possesses a wealth of experience that seamlessly bridges both traditional and digital media landscapes. His journey in journalism commenced at Business Day, Nigeria, where he laid the foundation for his prolific career. In 2010, Godwin took a bold step by founding Naija247news Media, a platform that has since become a prominent player in delivering timely and accurate news. Educationally, Godwin Okafor holds a Bachelor's degree in Industrial Relations and Personnel Management from the prestigious Lagos State University, Ojo, Lagos. His commitment to continuous learning led him to the Lagos Business School, where he further honed his skills. Additionally, he is recognized as a Fellow of the University of Pennsylvania, having successfully completed the Wharton Seminar for Business Journalists. Throughout his illustrious career, Godwin has earned acclaim by winning numerous journalism awards, a testament to his dedication to excellence in reporting. Beyond his role as a Financial Journalist, Godwin Okafor wears the hat of the Chairman at Emmerich Resources Limited, the publishing entity behind Naija247news. His visionary leadership has played a pivotal role in shaping the media landscape and establishing Naija247news as a trusted source of information. Godwin Okafor's multifaceted expertise, commitment to journalistic integrity, and leadership in the realm of business journalism underscore his influential presence in both the media and entrepreneurial spheres.

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