The Central Bank of Nigeria (CBN) has banned the use of foreign currencies as collateral for naira loans.
The ban was contained in a correspondence to all banks in Nigeria, signed by Adetona Adedeji, acting director of the banking supervision department and posted on the CBN website on Monday.
The CBN said it had observed the use of FCY by bank customers as collateral for naira loans and, therefore, prohibits it with immediate effect.
The banks were further directed to trim all existing loans with foreign currency collaterals to 90 days or attract a 150 per cent capital adequacy ratio computation as part of the bank’s risk.
Capital adequacy ratio is calculated by dividing a bank’s capital by its risk-weighted assets.
“The Central Bank of Nigeria has observed the prevailing situation where bank customers use foreign currency (FCY) as collaterals for Naira loans,” the circular reads.
“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 CBN said it is on the mission to ensure that the there is adequate foreign exchange in the market even as the naira is being strengthened.
