The House of Representatives asserted on Wednesday that four banks are holding approximately $5 billion in surplus foreign exchange, signalling concerns about the volatility in Nigeria’s foreign exchange market.
Responding to this, the House directed the joint Committees on Banking Regulations and Banking Institutions to undertake an investigative hearing into the failure of banks and financial institutions to adhere to Central Bank of Nigeria (CBN) directives regarding Net Open Position Limits.
This decision was reached following the adoption of a motion addressing an urgent national concern regarding the imperative for banks to adhere to the CBN’s guidelines on excess long foreign exchange holdings and net open position limits.
The motion, sponsored by Hon. Babajimi Benson, Chairman of the House Committee on Defence, underscored the importance of enforcing CBN policies to maintain financial stability.
During the debate, Hon. Benson emphasized the CBN’s role in regulating the country’s monetary policies as mandated by the CBN Act. He expressed dismay at the blatant disregard for existing financial regulations, urging swift action to address the issue and ensure compliance with regulatory frameworks.
He said:
Hon. Benson highlighted provisions within Section 8 (4) and (5) of the CBN Act, which mandate the CBN Governor to provide updates to relevant Committees of the National Assembly during semi-annual hearings, along with periodic reports on the economy’s performance.
Expressing disappointment over the lack of adherence to existing legislation, Hon. Benson pointed out there has been a steady increase in the dollar’s value compared to the naira. He further lamented that the House is concerned about the significant surge, attributed to various market forces and government economic policies, including the liberalization of the dollar.
Moreover, Hon. Benson raised concerns regarding the tendency of commercial banks and certain financial institutions in Nigeria to withhold a substantial portion of acquired forex, obtained through purchasing, borrowing, or CBN allocation, rather than lending it to customers.
This practice, he noted, aims to capitalize on selling it when the exchange rate is favourable, exacerbating the challenges faced by ordinary Nigerians in accessing foreign exchange.
He said:
In response to the situation, the House tasked its Committee on Legislative Compliance with overseeing the comprehensive enforcement of the directives.
The Net Open Position (NOP) represents the net balance of all assets, liabilities, and off-balance sheet items in a particular currency.
In a circular dated January 31, 2024, referenced ED/FEM/PUB/FPC/001/001 and jointly signed by Hassan Mahmud, Director of Trade and Exchange, and Rita Sike, acting on behalf of the Director of Banking Supervision, the CBN instructed all banks to adhere to NOP limits.
These limits, according to the circular, stipulate that NOP should not exceed 20% short or 0% long of shareholders’ funds unimpaired by losses, using the Gross Aggregate Method.
Banks with current NOP levels exceeding these limits were instructed to bring them within prudential limits by February 1, 2024.
During a plenary session presided over by Speaker Tajudeen Abbas, the House unanimously passed a motion addressing an urgent national concern regarding the necessity for banks to comply with the CBN’s regulations on excess long foreign exchange holdings and NOP limits.
This motion was introduced by Hon. Babajimi Benson, the representative of Ikorodu Federal Constituency.
Following the motion’s unanimous adoption, the House charged its Committee on Legislative Compliance with ensuring the full implementation of these policies across the banking sector.
