Regulatory Alerts2024-09-01
On the Foreign Exchange Position of Banks
The Bank of the Republic of Burundi issued Circular No. 18/2018 to cap banks' overall net foreign exchange positions at 25% of core own funds, ensuring potential currency fluctuation losses remain within prudential standards. The regulation mandates that end-of-day excesses in long positions be sold and short position deficits be covered through foreign exchange market purchases within one to two business days. Banks maintain the discretion to set individual currency limits, provided their aggregate exposure adheres to these overarching prudential thresholds.
BANK OF THE REPUBLIC OF BURUNDI
THE GOVERNMENT
CIRCULAR NO. 18/2018 ON THE FOREIGN EXCHANGE POSITION OF BANKS ISSUED PURSUANT TO LAW NO. 1/17 OF 2018
Having regard to Law No. 1/34 of December 2, 2008 establishing the Statutes of the Bank of the Republic of Burundi, particularly Articles 7 (paragraphs 4 and 16) and 20;
Having regard to Law No. 1/17 of August 22, 2017 governing banking activities, particularly Articles 3, 0, 48, 49, 50, 51, and 63;
Having reviewed Circular No. 18/09 on the foreign exchange position of banks;
The Bank of the Republic of Burundi, hereinafter referred to as the "Central Bank", hereby issues:
Article 1: Purpose
This circular aims to set the limit on the foreign exchange position to ensure that the potential risk of loss resulting from exchange rate fluctuations relative to a bank's own funds remains within prudential standards.
Article 2: Definitions
For the purposes of this circular, the following terms shall mean:
- foreign currency (currency), a currency other than the legal tender in Burundi;
- net foreign exchange position, the difference between assets and liabilities in a currency, on and off-balance sheet of a bank;
- long foreign exchange position or open long foreign exchange position, the positive difference between assets and liabilities in a currency;
- short foreign exchange position or short position,
Article 3: Limit on the overall net foreign exchange position
A bank's overall net foreign exchange position (long or short) is limited to 25% of its core own funds.
In the case of an overall long net foreign exchange position, any excess over the 25% core own funds limit, ascertained at end-of-day, must be sold in the foreign exchange market or, failing that, to the Central Bank on the following business day.
In the case of an overall net foreign exchange position, any shortfall relative to the 25% core own funds limit, ascertained at end-of-day, must be covered by purchasing foreign currencies in the foreign exchange market within the following two business days.
Article 4: Net foreign exchange position by currency
The limit on the net foreign exchange position for each currency, whether short or long, is freely set by each bank, provided that the overall net position remains within prudential standards.
Article 5: Determination of the overall net foreign exchange position level
The calculation of the overall net foreign exchange position level must cover all assets and liabilities