The Central Bank of Nigeria (CBN) on January 31, 2024, issued a circular for the harmonization of reporting requirements on foreign currency exposures of banks (the “Circular”). This circular was issued following concerns in the growth in foreign currency exposures of banks through their Net Open Position. The circular and its implementation is aimed at ensuring that foreign exchange risks are well managed and that losses which could pose material challenges are avoided.

In this newsletter, we highlight the various requirements which banks are expected to meet in compliance with the Circular.

  1. What is the Net Open Position (NOP) (or foreign currency position) of a Bank?

NOP is the metric used by banks to analyse the foreign exchange risk which they are exposed to. The foreign exchange risk of a bank in any currency is that bank's net open position in that currency. This position could be long (i.e. when the bank's total foreign assets are greater than its total foreign liabilities. In such case the bank is overbought on foreign currency) or short  (i.e. when the bank's total foreign currency liabilities are greater than its total foreign assets. That means the bank is oversold on foreign currency).

The NOP is calculated by determining the difference between the total assets in foreign currency and total liabilities in foreign currency, divided by the bank's total equity or net worth.

The CBN had in a similar circular issued in October 2014 prescribed that a bank's NOP shall not exceed 20% of its shareholders' funds unimpaired by losses, and by a letter dated January 28, 2015, further prescribes that the NOP be calculated daily, and the result forwarded to the CBN at the end of each day. The Circular however recognizes that because of the growing foreign currency exposures, banks have more incentive to hold long foreign currency positions. On this basis, the Circular sets forth some prudential requirements to manage and avoid losses which could cause serious challenges in the financial sector.

  1. What are the prudential requirements provided by the Circular?
  1. A bank's NOP must not exceed 20% short or 0% long of shareholders' funds unimpaired by losses.
  2. Banks whose current NOP exceeds 20% short and 0% long are required to have brought them within prudential limit by February 1, 2024.
  3. The Circular provides a template which banks are required to use in the computation of their daily and monthly NOP and foreign currency trading position.
  4. Banks are required to have adequate reserve of high-quality liquid foreign assets to cover their maturing foreign currency obligations.
  5. Banks are also required to have a foreign exchange contingency funding arrangement with other financial institutions.
  1. What other requirements are banks expected to comply with?

In addition to the prudential requirements, banks are also expected to comply with the following:

  1. Banks are advised and required to borrow and lend in the same currency to avoid any currency mismatch.
  2. Banks are required to ensure that the basis of interest rates are the same for floating and fixed interests to avoid risks associated with foreign borrowing interest rate risk.
  3. As regarding Eurobonds, it is required that any clause for early redemption of the investment/indebtedness should be at the instance of the issuer. The approval of the CBN is required in this instance.
  4. All banks are required to adopt adequate treasury and risk management systems to provide oversight on all foreign exchange exposures and ensure accurate and timely reporting.
  5. Banks are expected to ensure that all returns filed with the CBN accurately reflect their balance sheets.


It is important to note that failure to comply with the NOP limit will result in an immediate sanction being issued against the bank and/or suspension from participation in the foreign exchange market. Therefore, Banks are encouraged to ensure compliance with the Circular.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.