Banking & Finance

Central Bank Prohibits Use of Foreign Currencies as Collateral for Naira Loans

The Central Bank of Nigeria (CBN) has written to all banks in Nigeria to discontinue the use of foreign currencies as collateral for naira loans.

In a circular issued today, signed by its acting Director, Banking Supervision Department, Adetona Adedeji, the apex bank said that it “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,” the circular noted, directing further that “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.”

All the banks have been warned to “be guided accordingly.”

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