Monitor Your Foreign Currency Position Closely, CBN Directs Bank

In view of the forex scarcity in the economy, the Central Bank of Nigeria (CBN) has advised commercial banks to monitor their foreign currency positions more closely.

The Director, Banking Supervision, CBN, Mrs. Tokunbo Martins, who gave this advice, pointed out that there have been increased volatility in the forex market. Speaking at the CBN/ FITC 2016 Edition of Continuous Education Programme (CEP) for Directors of Banks and Other Financial Institutions, with the theme: “Effective Board Leadership; Sustaining a Culture of Compliance and Growth,” in Lagos yesterday, Martins also reaffirmed the commitment of the central bank to continue promoting compliance and safety in the financial sector.

She added: “Following the depreciation of naira as fallout of the introduction of the flexible exchange regime, the foreign currency exposures of banks has increased in naira terms. This has increased the loan repayment obligation of borrowers and threatened their capacities to meet contracted loan repayments. Banks may therefore, need to restrict extending foreign currency denominated loans to customers that do not earn FX.

“Following the deficiencies in financial regulations revealed by the 2007/2008 financial crisis, the committee prepared the Basel III regulatory framework between 2009– 2011. The regulation specifically covers bank capital adequacy, stress testing, market and liquidity risks, among others. It is worthy of note that in the process of implementing the requirements of Basel II, the CBN had implemented some aspects of the requirements of Basel III.

This proactive step was aimed at ensuring the stability of the financial system. The requirements of the Basel III framework are grouped under four areas such as regulatory capital, liquidity coverage ratio, net stable funding ratio (NSFR) and leverage ratio.”