CBN Bans Foreign Currency Collateral For Naira Loans

The Central Bank of Nigeria, (CBN), has banned the use of foreign denominated collaterals for naira loans.

However, Eurobonds issued by the Federal Government of Nigeria or Guarantees of foreign banks, including Standby Letters of Credit, are exempted from the ban.

The Central Bank of Nigeria (CBN) has given banks three months to wind up naira loans that have been backed up by foreign currency (FCY) denominated collaterals, saying its use is now prohibited.

In a letter to all banks issued by the acting Director Banking Supervision department of the CBN, Dr Adetona Adedeji, the apex bank said it observed that bank customers in the country have been using foreign currencies as collateral on naira loans.

Consequently, the CBN said “the current practice of using foreign currency-denominated collaterals for Naira loans is hereby prohibited. The apex bank furthered that the use can be permitted in situations where the foreign currency collateral is either 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 per cent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions