The Central Bank of Nigeria, CBN, has directed Deposit Money Banks, DMBs, to stop utilising gains from their foreign exchange revaluation for dividends and operational expenditures.

The new directive is contained in a letter signed by the CBN Director, Banking Division Department, Haruna Mustafa.

FX revaluation gains refer to the increase in the value of a bank’s assets and liabilities denominated in foreign currency when there is a change in the exchange rate between the foreign currency and the local currency.

The CBN said it had assessed the consequences of the recent FX rate regime change on the banking system and identified its potential to substantially impact the Naira values of banks’ foreign currency, FCY, assets and liabilities.

It added that to mitigate this risk, it has directed DMBs to set aside their FCY revaluation gains as a counter-cyclical buffer. This means that the banks cannot use these gains to pay dividends or meet operating expenses.