The Central Bank of Nigeria (CBN) has decided to end the practice of accepting foreign currencies as collateral for loans in naira.
The apex bank issued a circular today, April 8, directing all Nigerian banks to stop taking foreign currencies as collateral for naira-denominated loans.
According to the apex bank, foreign currencies can only be used as collateral for Naira loans if they are Eurobonds issued by the Federal Government of Nigeria or foreign bank guarantees, including Standby Letters of Credit.
The CBN mandated that all loans currently backed with dollar-denominated collaterals other than those stated above be wound down within 90 days, and that failure to comply would result in sanctions. Read below.
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‘’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.
“Please be guided accordingly.”
A Gentle Reminder: Every obstacle is a stepping stone, every morning; a chance to go again, and those little steps take you closer to your dream.
Nnamdi Okoli
