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JUST IN: CBN prohibits use of foreign currencies as collateral for loans

As part of efforts to strengthen the country’s currency, the Central Bank of Nigeria CBN has written to all commercial banks to stop the use of foreign currencies as collateral for naira loans.

It disclosed this in a circular on Monday, April 8, 2024, entitled “The use of foreign-currency-denominated collaterals for naira loans”.

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

The CBN directed banks 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.

“The Central Bank of Nigeria has observed the prevailing situation where bank customers use foreign currency (FCY) as collaterals for Naira loans,” the circular stated.

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

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