Obinna Chima
The Central Bank of Nigeria (CBN)
wednesday directed commercial banks to
review and make adequate provisioning
for all delinquent foreign currency-
denominated loans in line with the July 1,
2010 Prudential Guidelines for Deposit
Money Banks in Nigeria.
The CBN, which also settled futures
contract valued at N962.23 million, said
in a letter by its Director, Banking
Supervision, Mrs. Tokunbo Martins, titled:
“Provisioning for Foreign Currency
Loans,” dated July 27, posted on the
bank’s website, that the move was in
continuation of the efforts to enhance
efficiency, facilitate liquidity and
transparency in the foreign exchange
Rationalising why it had become
necessary to ensure adequate and proper
provisioning, the central bank directed
banks to ensure that the un-provisioned
portion of all foreign currency-
denominated loans and advances in their
books are fully provided for immediately
in their income statements.
The letter read in part: “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 of July 1, 2010.
“Consequently, to ensure adequate and
proper provisioning, banks are by this
circular, required to ensure that the un-
provisioned portion of all such facilities
are fully provided for immediately in the
income statements and evidence of the
additional provisions forwarded to the
Director of Banking Supervision within
one week of the date of this circular.
“Additionally, all foreign currency-
denominated loans should be reviewed
and adequate provisioning made in all
delinquent ones in line with the Prudential
Guidelines for Deposit Money Banks in
Nigeria of July 1, 2010.”
Meanwhile, commercial banks that
entered into OTC FX Futures Contract
transaction with the CBN have received a
total of N962.23 million from the banking
sector regulator, the FMDQ OTC Securities
Exchange said yesterday following the
maturity of the CBN’s naira-dollar July
27, 2016, OTC FX Futures Contract.
Although the FMDQ did not disclose the
banks that received the sum, THISDAY
last month reported that the first naira-
settled OTC FX Futures on the FMDQ was
executed between the CBN and Citibank
Nigeria Limited. It was gathered then that
the total amount of the FX Futures
contract was $20 million.
A futures contract is a form of derivative,
meaning its value is based on an
underlying security. The contract allows
two parties to take different positions on
whether the price of a security will rise or
fall. A futures contract always includes a
future expiry date and a specific quality
and quantity of an underlying security.
At the forex market, the naira exchange
rate against the dollar depreciated
significantly yesterday by N20.05 to close
at N330.12 to a dollar, lower than the
N310.07 to a dollar it closed the previous
But on the parallel market, the naira fell
marginally by N1 to close at N378 to a
dollar yesterday; down from the N377 to
a dollar it closed on Tuesday.
A financial market analyst attributed the
development to scarcity of dollars in the
“The CBN is allowing the market to trade
freely and has not intervened. The
exchange rate is a reflection of the level of
liquidity in the market,” the source said.
The CBN on Tuesday raised the Monetary
Policy Rate (MPR), otherwise known as
interest rate, by 200 basis points to 14
per cent from 12 per cent.
It also assured Nigerians of the stability of
the banking sector, saying whilst it was
poised to deal ruthlessly with any
misdemeanour and malpractice, the
recent removal of some bank chiefs was
not a sign of distress.
The central bank however left Cash
Reserve Ratio (CRR) and Liquidity Ratio
(LR) unchanged at 22.50 per cent and 30
per cent respectively as well as retained
the Asymmetric Window at +200 and -500
basis points around the MPR.