... increases net open position of banks to 3%

The Central Bank of Nigeria has increased the foreign exchange net open position limit for Deposit Money Banks from one per cent to three per cent of their shareholders funds.Net open position is the amount of dollars banks can hold relative to shareholders funds.The CBN had penultimate Monday slashed the NOP from five per cent to one per cent in a continued effort to stabilise the naira.A circular posted on the CBN website, said, Further to the circular reference TED/FEM/FPC/GEN/01019 dated October 10, 2011, the foreign exchange Net Open Position limit of authorised dealer banks has been reviewed upward. Accordingly, the current limit has been increased from one per cent to three per cent of net shareholders fund with effect from Monday, October 24, 2011.It added that all authorised dealers were enjoined to ensure compliance to avoid sanction, adding that the circular superceded the previous one under reference on the same subject.Analysts said the previous move by the CBN was to free up dollar supply to the inter-bank but however, almost halted the market.The CBN recently raised the interest rate by 275 basis points from 9.25 to 12 per cent, which was the highest increase since the introduction of the Monetary Policy Rate in 2007.In the same vein, the apex bank doubled the Cash Reserve Ratio from four to eight per cent, while reducing the net open positions banks could hold as reserves to one per cent of shareholders funds, from five per cent with immediate effect and with full compliance.Analysts noted that with this increase, the exposure of the banks would increase as the banks could now increase their net positions to three per cent of shareholders funds.The Chief Executive Officer, Fatrax Securities Company, Dr. Wale Ositelu, told our correspondent that the effect of the directive was an increase in the forex speculative activities of banks. Analysts at FSDH Securities had earlier said the effect of the reduction of NOP to one per cent from five per cent would further support the naira, adding that, Prior to the new regulations, we estimate that Nigerian banks held between $400m to $700m in aggregate net open positions, using December 2010 net assets of the banks and assuming that only dollar denominated assets were held.
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