The Central Bank of Nigeria (CBN) has ceased the practice of accepting foreign currencies as collateral for loans issued in naira.
The Central Bank of Nigeria (CBN) has announced its decision to halt the acceptance of foreign currencies as collateral for loans issued in naira.
In a circular issued on April 8, the apex bank instructed all Nigerian banks to cease the practice of using foreign currencies as collateral for loans denominated in naira.
The CBN clarified that foreign currencies can only serve as collateral for naira-denominated loans under specific circumstances, such as when the collateral comprises Eurobonds issued by the Federal Government of Nigeria or guarantees from foreign banks, including Standby Letters of Credit.
Furthermore, the CBN directed banks to wind down all existing loans secured with dollar-denominated collaterals, except those meeting the aforementioned criteria, within a 90-day period. Non-compliance with this directive will result in sanctions.
For more information, refer to the circular issued by the Central Bank of Nigeria.
‘’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.
