The Central Bank of Nigeria has ordered banks to stop the use of foreign currency-denominated collateral for Naira loans.
The apex bank in a circular to all banks, titled, “The Use of Foreign Currency-Denominated Collaterals for Naira Loan,” said ask all banks to immediately suspended the act giving them 90 days window to wound down such loans in their portfolios.
However, banks are allowed to accept foreign currency collaterals of Eurobonds issued by the federal government or guarantees of foreign banks including Standby letters of credit.
Part of the circular signed by the CBN’s acting director of banking supervision department, Adetona Adedeji, reads:
“The Central Bank of Nigeria (CBN) has observed the prevailing where banks customers use Foreign Currency (FCY) as collateral for Naira.
“Consequently, the current practice of using foreign currency-denominated collateral 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 percent of Capital Adequacy Ratio computation, in addition to other regulatory sanctions.”
