CBN bans Use of foreign currencies as collateral for naira loans

The Central Bank of Nigeria (CBN) has prohibited the use of Foreign Currency-denominated collaterals for Naira loans by all Nigerian banks.

This was contained in a letter to all commercial banks signed by Adetona Adedeji, the Apex Bank’s Acting Director of Banking Supervision Department.

The letter was uploaded on CBN’s website on Monday.

The new guidelines however, gave exception to Eurobonds issued by the Federal Government of Nigeria and Guarantees of foreign banks, including Standby Letters of Credit.

It directed banks to trim all existing loans with foreign currency collaterals to 90 days or attract a 150 per cent capital adequacy ratio computation as part of the bank’s risk.

“The Central Bank of Nigeria has observed the prevailing situation where bank customers use foreign currency (FCY) as collaterals for Naira loans.

“Consequently, the current practice of using foreign currency-denominated collaterals for Naira loans is hereby prohibited except where the foreign currency collateral is Eurobonds issued by the Federal Government of Nigeria or guarantees of foreign banks, including standby letters of credit.

“In this regard, all loans currently secured with dollar-denominated collaterals other than 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 circular read.