Monitor Your Foreign Currency Position Closely, CBN Directs Bank


Ugo Aliogo

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.”
She also said the safety and soundness of the banking system was the collective responsibility of everyone, saying everybody has a role to play in ensuring that the financial system is safe.

Speaking on the Treasury Single Account (TSA), she said the main objective of the policy was to enhance efficiency of cash management, improve accountability in government, enhance transparency and avoid misapplication of public funds.
“It is also worthy of note that some state governments including Kaduna and Lagos have introduced the TSA regime in the management of their revenues.”

Martins further stressed that the TSA caused some unintended consequences which affected the operations of banks in certain areas such as depletion of deposit, decrease in revenue, redundancy and liquidity stress.

In her remark, the Managing Director of FITC, Dr. Lucy Newman, said financial institutions have made remarkable progress in the country over the years especially in innovation and creativity, adding that if other sectors take a leaf from the success stories of the financial and telecommunication sectors, the economy would bounce back and improve greatly.

She added: “For us, this programme will help us to stay focused on all the areas, so that we will not fall into infractions. We are also zeroing in on money laundering, starting with general regulations. We need to take things in context; there are micro and macro credentials.”