Banks Can’t Pay Dividends from FX Revaluation Gains—CBN Insists

March 15, 2024
Nigerian Banks

By Modupe Gbadeyanka

The Central Bank of Nigeria (CBN) has maintained its stance against the payment of dividends to shareholders by publicly quoted banks from foreign exchange (FX) revaluation gains.

In a letter titled Re: Impact Of Recent FX Policy Reforms: Prudential Guidance to the Banking Sector on Thursday, the banking sector regulator said it has not changed its mind on the directive last year against such practice, warning banks to adhere strictly to it.

In yesterday’s circular signed by the acting Director for the Banking Supervision Department of the CBN, Dr Adetona Adedeji, it was emphasised that “banks are required to exercise utmost prudence and set aside FCY revaluation gains as a counter-cyclical buffer to cushion any adverse movements in the FX rate.”

Recall that in September 2023, the central bank due to the impact on banks over changes to the currency regime, “banks are required to … set aside the foreign currency (FCY) revaluation gains as a counter-cyclical buffer to cushion any future adverse movements in the foreign exchange rate.”

The FX revaluation gains occur when a bank’s assets or liabilities denominated in foreign currencies increase in value due to fluctuations in exchange rates.

These profits arise from the revaluation of foreign currency-denominated assets, such as loans, investments, or deposits, when the value of the Naira depreciates.

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.

Modupe Gbadeyanka

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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