Regulatory Alerts2014-10-24 | BSD/DIR/GEN/LAB/07/037Prudential Regulation for the Management of Foreign Exchange Risks of Banks
The Central Bank of Nigeria (CBN) has introduced new prudential and hedging requirements for banks to manage foreign exchange risks, specifically those related to borrowing abroad. These include a 75% cap on aggregate foreign currency borrowing, a 20% limit on net open position, and the requirement to maintain adequate high-quality liquid foreign assets to cover maturing obligations. Additionally, banks must naturally hedge their borrowings by lending in the same currency, avoid mismatches in interest rates, and seek CBN approval for early bond redemption clauses. The CBN also introduced a monthly Net Open Position (NOP) computation template for compliance purposes. These measures are aimed at ensuring effective risk management and to prevent losses that could pose systemic challenges.