JUST IN: CBN no longer allows foreign currency to be used as collateral for Naira loans

The Central Bank of Nigeria (CBN) has issued a directive prohibiting Nigerian banks from accepting Foreign Currency-denominated collaterals for Naira loans.

This decision was communicated to all commercial banks through a letter signed by the Director of the Banking Supervision Department, Adetona Adedeji.

However, there are exceptions to this rule, which include Eurobonds issued by the Federal Government of Nigeria and Guarantees of foreign banks, including Standby Letters of Credit.

The CBN has noticed a trend where bank customers are using Foreign Currency (FCY) as collaterals for Naira loans.

As a result, the practice of using foreign currency-denominated collaterals for Naira loans is now prohibited, except in cases where the collateral is in the form of Eurobonds issued by the Federal Government of Nigeria or Guarantees of foreign banks, including Standby Letters of Credit.

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The CBN has emphasized that all loans that are currently secured with dollar-denominated collaterals, excluding the exceptions mentioned above, must be wound down within 90 days.

Failure to comply with this directive will result in these exposures being risk-weighted at 150 percent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions imposed by the CBN.

This decision by the CBN comes at a time when minimum capital requirements for all banks have been announced.

The governor of the CBN, Olayemi Cardoso, has been implementing various policies aimed at safeguarding the Naira and strengthening Nigeria’s economy.