The Central Bank of Nigeria has ordered Deposit Money Banks to make full provision for their foreign currency denominated loans following the significant change in the official interbank market exchange rate.
In a circular by the Director, Banking Supervision, CBN, Mrs. Tokunbo Martin, the central bank said the directive on provisioning followed the floating of the naira at the interbank market on June 15.
The circular read, “In continuation of the efforts to enhance efficiency, facilitate liquidity and transparency in the foreign exchange market, the CBN issued the Revised Guidelines for the operations of the Nigerian inter-bank foreign exchange market on June, 2016.
“One of the effects of the guidelines, which liberalised the foreign exchange market, is the increase in balances on foreign currency-denominated loans and advances in the books of banks, especially facilities that had been fully provided for under the previous exchange rate regime, but were yet to be written off, per our extant regulation under Section 3.21(a) of the Prudential Guidelines for Deposit Money Banks in Nigeria of July 1, 2010.”
It further read, “Consequently, to ensure adequate and proper provisioning, banks are by this circular required to ensure that the un-provisioned portion on all such facilities are fully provided for immediately in the income statements.”