The Bank of Ghana has issued a revised directive on Net Open Position limits, effectively barring banks from holding long positions in the pound, euro and other foreign currencies.
The move is part of broader regulatory efforts to strengthen prudential oversight and ensure stability within the country’s foreign exchange market.
Under the revised framework, banks are no longer permitted to maintain long foreign currency positions at the close of business. Instead, Authorised Dealer Banks must ensure that their Net Open Position remains within clearly defined limits set by the central bank.
The directive introduces stricter controls on single currency positions, requiring banks to maintain either a squared position or a short position within the allowable threshold. This development signals the central bank’s determination to manage currency risks and prevent excessive exposure to foreign exchange volatility.
Single Currency Limits Set Between 0% and -10%
According to the revised guidelines, the Single Currency Position limit for each currency shall range from 0% to -10% of Net Own Funds. This means banks must either balance their foreign currency exposure completely or hold only a short position that does not exceed 10 percent of their capital base.
In practical terms, the close of business position for each currency must be either zero or a short position capped at 10 percent of Net Own Funds. The restriction eliminates the possibility of banks speculating on currency appreciation by holding long positions.
By setting these limits, the Bank of Ghana aims to reduce systemic risks that may arise from significant mismatches between foreign currency assets and liabilities. The measure also aligns with international best practices in foreign exchange risk management.
Stricter Reporting and Reconciliation Requirements
Beyond limiting foreign currency exposure, the directive also introduces detailed reporting and reconciliation obligations. Daily changes in Net Open Position, excluding contingent liabilities, must be fully reconciled with the net foreign exchange trade for the reporting day. This reconciliation is to be calculated as total FX purchases less total FX sales.
All banks are required to continue submitting Daily Bank Returns. Reports for each working day must be submitted no later than 10:00 a.m. on the following business day. The central bank has emphasized the importance of timeliness and accuracy in these submissions.
The directive further clarifies how banks should treat transactions involving partial margins denominated in foreign currency. Where a bank enters into transactions involving partial margins in the same currency as the underlying Letter of Credit or contingent exposure, only the net exposure will be included in the computation of the Net Open Position. The net exposure is defined as the difference between the face value of the Letter of Credit and the foreign currency margin.
This clarification seeks to eliminate ambiguity and ensure consistency in the calculation of foreign exchange exposure across the banking sector.
Sanctions for Non-Compliance
The Bank of Ghana has issued a strong warning to banks regarding compliance with the revised directive. In its concluding advisory, the central bank stressed the importance of complete and accurate reporting within prescribed timelines.
“Any inaccurate, incomplete, delayed submissions and/or non-submission of reports shall attract sanctions as provided in Section 93 (3) and Section 41 (4) of Act 930 as well as any other applicable laws and regulations”.
Bank of Ghana
This explicit reference to sanctions underscores the seriousness with which the regulator views compliance. It also serves as a clear signal that supervisory enforcement will be strengthened.
Market observers note that tighter oversight of Net Open Position limits could help stabilize the foreign exchange market by reducing speculative activities and ensuring that banks maintain prudent currency exposures.
What This Means for Banks
The prohibition on long foreign currency positions may alter trading strategies within the banking industry. Banks that previously benefited from currency appreciation strategies will need to adjust their treasury operations to comply with the new rules.
The revised directive may also enhance transparency in the foreign exchange market. By mandating daily reconciliation and strict reporting deadlines, the Bank of Ghana is positioning itself to monitor currency flows more effectively.
For customers and businesses, the move could translate into a more stable foreign exchange environment. Reduced volatility in the banking sector’s currency exposure can contribute to broader macroeconomic stability.
Ultimately, the directive reflects the Bank of Ghana’s ongoing efforts to strengthen regulatory oversight and safeguard the financial system. As global economic uncertainties continue to affect currency markets, proactive measures such as these are aimed at protecting both banks and the wider economy from excessive foreign exchange risks.
With the implementation of the revised Net Open Position limits, banks are now on notice to align their operations strictly with regulatory expectations. Compliance will not only be monitored but enforced through the applicable provisions of the law.
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