The Central Bank of Nigeria has directed all banks in Nigeria to stop the use of foreign currencies as collateral for naira loans.
The Apex bank disclosed this in a circular uploaded to its website on Monday 8 April 2024.
The directive, articulated in a letter dispatched to all banking institutions in the country on Monday by Dr. Adetona S. Adedeji, the Director of Banking Supervision at CBN, highlights exceptions such as Eurabonds issued by the Federal Government of Nigeria and guarantees from foreign banks, including Standby Letters of Credit.
Titled “Use of Foreign-Currency-Denominated Collaterals for Naira Loans,” the directive unequivocally states that the prevailing practice of employing foreign currency as collaterals for Naira loans is no longer permissible, with specific conditions for exceptions.
The letter mandated banks to phase out all existing loans secured with dollar-denominated collaterals, other than the aforementioned exceptions, within a 90-day period.
Failure to comply will result in a risk weighting of 150% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.
“Consequently, the current practice of using foreign currency-
i. Eurobonds issued by the Federal Government of Nigeria; or
ii. Guarantees of foreign banks, including Standby Letters of Credit
“In this regard, all loans currently secured with dollar-denominated collaterals otherthan as mentioned above should be wound down within 90 days, failing which such exposures shall be risk weighted 150% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions“, the statement read in part.
