Money market

Reps call for probe into commercial banks’ non-compliance with CBN’s directives

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By Sodiq Adelakun

The House of Representatives has instructed its Committees on Banking Regulations and Banking Institutions to hold an investigative hearing regarding the failure of commercial banks and financial institutions to comply with the Central Bank of Nigeria’s (CBN) directives on Net Open Position (NOP) Limits.

In a circular dated January 31, 2024, the CBN, through its Director of Trade and Exchange, Hassan Mahmud, and Rita Sike on behalf of the Director of Banking Supervision, directed all banks to ensure that their NOP limit does not exceed 20 percent short or 0 percent long of shareholders’ funds unimpaired by losses, using the Gross Aggregate Method.

The circular also stated that banks with a current NOP exceeding 20 percent short or 0 percent long of their shareholders’ funds unimpaired by losses must bring them within prudential limits by February 1, 2024. The House of Representatives has taken this matter seriously and has tasked its committees to investigate the non-compliance of commercial banks and financial institutions with the CBN’s directives.

The purpose of the investigative hearing is to determine the reasons behind the non-compliance and to ensure that the banks adhere to the prescribed limits.

This move by the House of Representatives highlights the importance of financial institutions following regulatory guidelines set by the CBN to maintain stability and transparency in the banking sector.

At a plenary session presided over by Speaker Tajudeen Abbas  on Wednesday, the House adopted a motion of matter of urgent national importance on the need for banks to implement CBN’s policies on holding excess long foreign exchange and NOP limits brought on the floor of the House by member representing Ikorodu Federal Constituency, Babajimi Benson.

The lawmaker noted that the CBN is saddled with the responsibility of regulating the monetary policies of the country as provided for by the CBN Act, stressing that “in the performance of this duty, the CBN is empowered to make regulations and give directives for commercial banks and certain financial institutions to implement.”

This is just as he also noted that Section 8 (4) and (5) of the CBN Act require that the CBN Governor “is expected to brief the relevant Committees of the National Assembly during the semi-annual hearings as well as provide periodic reports on the performance of the economy to the National Assembly.

“There has been a steady rise in the rate of the dollar in comparison to the naira. It rose to N1,520 to the dollar in the last week. This astronomical rise has been caused by diverse market forces and certain economic policies adopted by the government, including the liberalisation of the dollar.

“The House of Representatives on Tuesday mandated its Committees on Banking Regulations and Banking Institutions to conduct an investigative hearing on the non-compliance by commercial banks and financial institutions with the Central Bank of Nigeria’s directives on the Net Open Position Limits. Certain financial institutions in Nigeria usually hold back a large part of forex they obtain either through purchase, borrowing or allocation from the CBN rather than lending to their customers with a view to selling it when the exchange rate is high.”

According to him, the speculative activity by commercial banks and certain financial institutions “has further exacerbated the harsh economic situation in the country and led to difficulty by legitimate businesses to obtain forex for their business transactions.

“The CBN has intervened by introducing new monetary policies to check the rise in the rate of dollar among which are the Net Open Position Limits and holding excess long foreign exchange.”

Benson noted that commercial banks and some financial entities have been hesitant to adopt the monetary policies established by the central bank aimed at curbing harmful financial activities.

He contended that without strong legislative action to ensure these policies are carried out, the nation will persistently face severe economic impacts resulting from an ongoing increase in foreign exchange rates.

After a collective agreement on the issue, the House directed its Committee on Legislative Compliance to guarantee the complete execution of these measures.

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