CBN warns banks against circumventing foreign exchange forward margin – Businessday

CBN

The Central Bank of Nigeria (CBN) has warned the deposit money banks that are trying to circumvent its effort at bolstering the local currency.

Specifically, the CBN has observed that banks are laying a bet with the allowable spread in the recently introduced foreign exchange forwards.

The guidelines for foreign exchange derivatives and modalities for CBN FX Forwards stated that the maximum spread of 50 kobo is allowed on the sale of forwards with less than three months tenor whilst 75 kobo is allowed for tenors above 3 months.

But the banks according to Tokunbo Martins, director banking supervision, rather than adhere to a spread that is reasonable, chose to enact short-tenure forwards for two days, five days with N30 spread. They do this 10 times and make N300 spread.

“Risk managers please let us be alive to our responsibilities”, Martins said on the side line of South West risk roundtable organised by Risk Managers Association of Nigeria (RIMAN) in conjunction with Promeiteia. 

The CBN director also told lenders to gear up for the implementation of for the International Financial Reporting Standard (IFRS 9) and the use of advance approaches of Basel II, while warning banks against regulation arbitrage.

Banks that report under IFRSs must apply IFRS 9 Financial Instruments in their 2018 financial statements. Analysts are of the view that the effective implementation of the new standard has the potential to benefit stakeholders including investors, auditors, among others.

“We have identified that what is required to comply with IFRS9 is the same thing with IRB approach of credit risks under Basel II. For banks that are doing IRP already are at advantage but are saying that if we are going to be doing IFRS 9, we might as well introduce the IRB for credit risks under Basel II”, Martins added.

She noted that banks are always in the habit of, looking ways of arbitraging the rules, adding that the CBN can no longer tolerate that. “We said there will be ECO who will take personal responsibility for any infraction discovered. It is the responsibility of Executive Compliance Officer (ECO) to make sure chief compliance office and chief risk officer do what they are expected to do”, she said.

In its effort to enhance the minimum qualifications for the position of the Chief Compliance Officers (CCOs) of the Deposit Money Banks the CBN on October 1, 2016 introduced the appointment of ECO.

Martins advised the risk managers to identify their risks, measure, and monitor and control them in other to mitigate crisis in the industry.