CBN Stops Use Of Foreign Currencies As Collateral For Naira Loan

The Central Bank of Nigeria has written to all banks in Nigeria to stop the use of foreign currencies as collateral for naira loans.

It revealed this in a circular uploaded to its website on Monday.

The apex bank stated that it had observed the use of FCY by bank customers as collateral for naira loans and, therefore, prohibits it with immediate effect.

It disclosed this in a circular titled “The use of foreign-currency-denominated collaterals for naira loans” with ref number: BSD/DIR/PUB/LAB/017/004.

The circular was signed by the apex bank’s acting Director, Banking Supervision Department, Adetona Adedeji, and uploaded to its website on Monday.

“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,” the circular read.

The CBN noted that it is on a mission to ensure that there is adequate foreign exchange in the market even as the naira is being strengthened.