Banks Must Not Use FX Gains to Pay Dividends – CBN

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Banks Must Not Use FX Gains to Pay Dividends – CBN
Yemi Cardoso

Banks Must Not Use FX Gains to Pay Dividends – CBN

The Central Bank of Nigeria (CBN) has maintained its position that deposit money banks must not use foreign currency gains recorded in 2023 to pay dividends or offset operating expenses. Following the devaluation of the naira in June, banks posted higher earnings performance, driven by revaluation gains.

This was a common trend among big banks, while some smaller lenders incurred costs as a result of their respective exposures to foreign currency liabilities. According to an unaudited financial statement posted on the Nigerian Exchange, Tier-1 banks pushed their earnings higher due to gains from their strong net open positions.

However, as part of efforts to sanitise the forex market in 2024, the CBN directed banks to sell down their foreign currency holdings to reduce exposures. This is to neutralise devaluation effects on banks’ books.

“Further to our letter dated Sept 11 2023 which referenced the impacts of FX policy reforms: prudential guidelines for banking sector, the CBN wishes to reiterate that banks are required to exercise utmost prudence and set aside foreign currency revaluation gains as a counter-cyclical buffer to cushion any adverse movement in FX rate.

“In this regard, banks shall not utilise such FX revaluation gains to pay dividends or meet operating expenses,” a circular signed by Dr, Adetona Adedeji who is CBN Acting director, banking supervision, stated. #Banks Must Not Use FX Gains to Pay Dividends – CBN