The Central Bank of Nigeria through a circular has directed all banks in Nigeria to stop the use of foreign currencies as collateral for naira loans.
This was circular titled “The use of foreign-currency-denominated collaterals for naira loans” with ref number: BSD/DIR/PUB/LAB/017/004 was signed by Adetona Adedeji, the acting Director, Banking Supervision Department and uploaded to the apex bank's website.
The apex bank said the prohibition of the use of FCY by bank customers as collateral for naira loans is with immediate effect.
“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 stated.
The CBN maintained that it is on a mission to ensure that there is adequate foreign exchange in the market even as the naira is being strengthened.
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