The Central Bank of Nigeria (CBN) has issued a stern warning to commercial banks, reiterating that they are prohibited from utilizing their foreign exchange (forex) revaluation gains to pay dividends or cover operational expenses.

In a circular released on Thursday by Adetona Adedeji, the acting Director of the Banking Supervision Department, the apex bank underscored the necessity for banks to exercise caution and allocate their forex revaluation gains as a counter-cyclical buffer against adverse fluctuations in the forex rate.

The circular emphasized, “Banks shall not utilize such FX revaluation gains to pay dividends or meet operating expenses,” reaffirming a directive initially issued in September 2023.

The directive, outlined in a letter referenced BSD/DIR/CON/LAB/16/020, underscores the CBN’s commitment to ensuring financial stability and prudent fiscal management within the banking sector.

Forex revaluation gains materialize when there is an appreciation in the value of a bank’s assets and liabilities denominated in foreign currency, attributable to fluctuations in the exchange rate between the foreign currency and the local currency.

The CBN’s reiteration of this directive comes against the backdrop of ongoing efforts to regulate and stabilize Nigeria’s financial landscape, particularly amidst recent volatility in the forex market.

Notably, the Naira has experienced significant fluctuations, with the CBN twice floating the currency between June 2023 and the present year. This has resulted in the Naira trading at N1,608.98 per US dollar as of Thursday, March 14, 2024, marking a stark contrast from its valuation at N460 per USD in May 2023.

These developments underscore the challenges facing Nigeria’s financial institutions amid evolving economic conditions, prompting regulatory measures to safeguard against potential risks and ensure the resilience of the banking sector.

As Nigerian banks navigate the complexities of the forex market and adhere to regulatory guidelines, the CBN’s latest directive serves as a reminder of the imperative for prudent financial management and adherence to regulatory standards within the banking industry.