CBN Releases Foreign Currency Exposure Guidelines to Curb Insider Trading

The Central Bank of Nigeria (CBN) on Wednesday issued new guidelines to all commercial banks operating in Nigeria against hoarding and conjecture of foreign currency.

Following the FX backlog,  the CBN released a circular on Wednesday, but jointly signed by the Directors of Trade and Exchange, Hassan Mahmud, and Director of Banking Supervision, Rita Sike, the apex bank revealed its findings on commercial banks’ use of Net Open Positions (NOP) to hoard foreign currency for too long.

The CBN circular points out its notice of commercial banks’ growth in foreign currency exchange, which has created a means for banks to hold excess long foreign currency positions but also poses risks relating to foreign exchange.

This discovery has led to CBN’s provision of guidelines that curb the excess hoarding of foreign notes, especially in avoiding losses associated with treasury and risk management systems which provide for oversight of all foreign exchange exposures for adequate daily reports.

Meanwhile, the NOP, as an instrument of measure, limits the overall foreign currency assets and liabilities of a commercial bank, especially in differentiating how much a bank owns or owes in foreign currencies.

A prudent means to control and manage monetary risks but also put an end to forex gains accrued by long-term hoarding of foreign notes, especially during market fluctuations.

CBN Guideline(s)

To manage and avoid risking losses, part of the CBN circular reads:

The Net Open Position (NOP) limit of the overall foreign currency assets and liabilities taking into cognizance both those on and off-balance sheet should not exceed 20% short or 0% long of shareholders’ funds unimpaired by losses using the Gross Aggregate Method.

Meanwhile, “Non-compliance with the NOP limit will result in immediate sanction and/or the suspension from participation in the foreign exchange market,” the circular adds.

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