To tame the raging foreign exchange crisis and ultimately sanitize the money market, the Central Bank of Nigeria (CBN) is beaming its regulatory searchlight on banks, alerting them of growing risks from their high exposure to FX Net Open Position (NOP). NOP is the net outstanding balance of all assets, liabilities, and off-balance sheet items of banks in a foreign currency. A bank that holds NOP (whether long or short) in foreign currencies is exposed to the risk that exchange rates may move against it. So, the CBN is trying to guide the banks from being too exposed to FX liabilities which ultimately hurts the economy. For starters, the apex bank has directed that all commercial banks in the country must borrow and lend in the same currency to avoid currency mismatch associated with foreign currency risk. In a letter signed jointly by Dr Hassan Mahmud, Director, Trade and Exchange, and Rita Ijeoma Sike, who signed for the Director of Banking Supervision, noted that the apex bank was worried about the growth in foreign currency exposures of banks through their NOP. The statement said the development has created an incentive for banks to hold excess long foreign currency positions, which exposes banks to foreign exchange and other risks.

Culled: The Sun