Naira volatility has stopped being an exceptional event and become an operating condition. Between the unification of the FX windows, the Nigerian Foreign Exchange Market (NFEM) reforms, and the structural pressure on reserves, every Nigerian CFO and treasurer now manages a balance sheet whose Naira value can move 10-20% in a quarter on factors outside their control. A treasury policy that was written for a single managed FX window is no longer fit for purpose.
This article is a practical guide to building — or rewriting — a treasury policy for the operating reality Nigerian businesses now face. It is written for the CFO, the treasurer, the audit committee chair and the board members who are increasingly being asked, "what is our treasury policy?" and finding the existing document gives them an inadequate answer.
What a treasury policy is for
A treasury policy is the board's standing instruction to management on how to manage cash, FX, debt and counterparty risk inside defined limits. It is not a procedure manual and it is not the same as a finance policy. Three things distinguish it from neighbouring documents.
First, a treasury policy is board-approved. Cash management procedures can be approved by the CFO; a treasury policy that authorises FX exposure, hedging instruments or counterparty concentration must come back to the board because the underlying risk is enterprise-level.
Second, a treasury policy is limit-based. It does not tell the treasurer how to execute; it tells the treasurer the perimeter within which they may execute. The limits are the policy.
Third, a treasury policy is reviewed against market reality. A policy that was set in a 460 NGN/USD environment and never recalibrated as the rate moved is a control failure, not a policy.
The eight sections every treasury policy needs
Different organisations structure their treasury policy differently. After reviewing many Nigerian treasury policies — from listed banks to mid-market manufacturers to growth-stage technology companies — we recommend eight sections.
1. Scope, governance and authority
State which legal entities the policy covers, who owns it (typically the CFO), who is accountable to the board for it (typically the audit committee or a board finance committee), and who has authority to vary it (typically the board, on the recommendation of the CFO).
Specify approval thresholds in a delegation of authority matrix. Routine cash placements at major Nigerian banks should not require board approval; entry into a new FX hedging instrument or a new banking relationship should.
2. Liquidity management
Define minimum cash buffer requirements, ideally expressed as both an absolute Naira amount and a number of weeks of operating cash burn. Specify how cash is forecasted (typically a rolling 13-week forecast) and the cadence at which the forecast is refreshed.
State the policy on undrawn committed facilities — many Nigerian businesses underestimate how much undrawn capacity they need to weather a 30-day market disruption. A defensible starting point is undrawn committed facilities covering at least 30 days of operating outflows in addition to the cash buffer.
3. Banking relationships and counterparty risk
Name the approved banking counterparties and specify maximum exposure per counterparty, ideally expressed as a percentage of total cash. Concentration risk inside a single bank is a real exposure in any market with episodic banking stress; Nigerian companies should not place more than a defined percentage (we typically recommend 25-35%) of total cash with any one bank.
Specify the criteria for adding a new banking counterparty (regulatory rating, CRR, prior relationship, services required) and the cadence at which existing counterparties are reviewed.
4. FX policy
This is the section most Nigerian treasury policies need to rewrite.
State the company's overall stance on FX risk: are you a natural FX importer (most Nigerian manufacturers), a natural FX exporter (oil, agriculture, technology services), or naturally balanced? The stance drives the limits.
Define the maximum unhedged FX exposure as a percentage of equity or annual revenue. A common starting point for an FX importer with operations entirely in Nigeria is to limit net unhedged FX payables to no more than three months of FX procurement.
Specify the permitted hedging instruments. Many Nigerian companies are restricted by Nigerian capital controls to forwards, NDFs, and natural hedges; specify which the policy permits, who approves their use, and what counterparty risk thresholds apply.
State explicitly that speculative FX positions are prohibited. The treasury function exists to manage the FX exposure that arises from the business, not to generate FX profits. This sentence has prevented more board crises than any other in a treasury policy.
5. Investment of surplus cash
State the permitted investment instruments and their minimum credit ratings. For most Nigerian non-financial corporates this list is short: Nigerian Treasury Bills, FGN Bonds, top-rated commercial paper, and bank deposits at approved counterparties.
State the maximum tenor permitted and the maximum percentage of cash that can be in instruments of any single tenor band. Long-dated tenors are not appropriate for operating cash.
6. Debt and financing
Specify the maximum permitted leverage (typically net debt to EBITDA), the maximum permitted ratio of foreign-currency to local-currency debt (critical in a Naira-volatility environment), and the minimum debt service coverage ratio that must be maintained.
State that any new debt facility above a defined threshold requires board approval, and that the CFO must report any breach of a financial covenant to the audit committee within a defined period (we recommend five business days).
7. Reporting and breach management
The treasury policy is meaningful only if it is monitored. State the cadence at which treasury performance against the policy is reported to the audit committee — quarterly at minimum, monthly if the business is FX-sensitive. Specify the metrics: liquidity position, counterparty exposure, FX exposure, hedge cover, breaches.
Define what constitutes a breach (any operating outside the stated limits), how it is escalated (typically to the CFO and audit committee chair within five business days), and how it is remediated.
8. Review
State the cadence at which the policy itself is reviewed — at least annually, plus on any material change in the operating environment (e.g. a 20%+ move in the Naira, a regulatory change in the FX market, a material acquisition).
Calibrating limits to operating reality
A treasury policy is only useful if its limits reflect operating reality. We see two common failures.
The first is stale limits: a counterparty exposure limit set in 2019 that has not been recalibrated to the current size of the business; a FX exposure limit expressed in Naira that has been silently halved by Naira depreciation. The annual review must recalibrate, not merely re-approve.
The second is aspirational limits: a hedging cover ratio that the treasury function has never met and has no realistic plan to meet. An aspirational limit is not a control; it is a paper compliance that breaks down on first test. Better to set a realistic limit and tighten it over time, with the audit committee tracking the trajectory.
What the audit committee should test annually
The audit committee should be able to satisfy itself, at least annually, that:
- The policy has been formally reviewed and re-approved by the board.
- Each defined limit has been operated within during the period, or breaches have been formally escalated.
- The list of approved counterparties is current and each counterparty has been reviewed against the criteria.
- The hedging activity in the period is consistent with the policy (no speculative positions; instruments used are on the permitted list).
- Reporting to the audit committee has occurred at the stated cadence and with the stated metrics.
This testing is independent of the external audit. The external auditor will form a view on going concern and on disclosures; the audit committee's role is to satisfy itself that the policy actually controls the activity.
A short checklist before you take your draft to the board
Before circulating a draft treasury policy for board approval, the CFO and treasurer should be able to answer "yes" to each of the following.
1. Does every limit in the policy have a clear, current Naira (or percentage) value? 2. Is there a single, named owner for each policy area? 3. Is there a documented escalation route for every breach? 4. Has the policy been pressure-tested against the most recent quarter's actual treasury activity — would any actual transaction have triggered a breach under the new policy? 5. Has internal audit or an external reviewer read the draft and signed it off as workable? 6. Does the policy explicitly cover the legal entities, currencies and counterparties the business actually operates with — or are there material exposures sitting outside the policy?
A "no" answer to any of these is a sign the policy is not yet ready for board approval.
Where the Outliers Treasury Policy Template fits
We maintain a working treasury policy template aligned to this structure, calibrated for Nigerian operating reality and updated as the FX environment evolves. It is editable and is intended to be a starting point that the CFO and treasurer can adapt — not a document to be adopted unchanged.
If you are rewriting your treasury policy now — and you should be, if the existing document predates the NFEM reforms — start with the Treasury Policy Template and tailor it to your business. The broader Finance & Treasury Centre and its resource library contain the dashboards, models and policy companions that surround it.
Download the Treasury Policy Template to start from the Outliers structure rather than from a blank document.