The Central Bank of Nigeria (CBN) has directed all banks to ban the use of foreign currency denomination as collaterals for naira loans.
This was contained in a circular directed to all banks by CBN’s Acting Director of Banking Supervision Department, Adetona Adedeji.
The circular lists two exceptions to the rule as foreign currency collateral which are Eurobonds issued by the Federal Government or guarantees of foreign banks, including Standby Letters of Credit.
“The Central Bank of Nigeria has observed the prevailing situation where bank customers use Foreign Currency 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 Ration computation, in addition to other regulatory sanctions,” the statement reads in part.
