Nigerian Banks Forbidden from Using Forex Revaluation Gains for Dividends, Operations – CBN

The Central Bank of Nigeria (CBN) has issued a directive reaffirming the prohibition on Nigerian banks from utilizing foreign exchange (forex) revaluation gains for dividends or operational expenses.

The circular, signed by the acting Director of the Banking Supervision Department, Adetona Adedeji, emphasized the necessity for banks to exercise prudence by setting aside forex revaluation gains as a counter-cyclical buffer against adverse movements in the exchange rate.

This latest directive follows a previous letter dated September 1, 2023, where the CBN initially instructed banks to refrain from using such gains for dividends or operational costs.

The CBN’s unwavering stance underscores the importance of safeguarding the financial stability of Nigerian banks amidst evolving economic conditions.

Forex revaluation gains occur when there’s an increase in the value of a bank’s assets and liabilities denominated in foreign currency due to exchange rate fluctuations.

While such gains may present an opportunity for financial flexibility, the CBN maintains that they must be reserved for mitigating potential risks rather than being allocated for dividends or operational expenses.

The regulatory move aims to ensure that Nigerian banks maintain robust financial resilience and remain adequately capitalized to withstand market volatilities.

By adhering to these guidelines, banks are positioned to navigate uncertainties in the forex market and uphold their stability within the broader financial ecosystem.

The CBN’s directive serves as a critical reminder to banks of their responsibility to prioritize prudence and financial soundness, especially in light of recent economic challenges.

Compliance with these regulations is crucial for fostering long-term sustainability and resilience in Nigeria’s banking sector.