- In a recent development, Nigeria’s central bank has prohibited the use of foreign currency for collateral for naira loan
- According to the apex bank, Eurobonds issued by the Federal Government of Nigeria are exempted from the ban
- The CBN directed that all loans currently secured with dollar-denominated collaterals should be wound down within 90 days
The use of foreign currency as collateral for naira loans has been banned by the Central Bank of Nigeria (CBN).
Photo Credit: CBN The Trusted Advisor
Source: UGC
Dr Adetona Adedeji, the acting director of the CBN’s Banking Supervision Department, stated this in a directive to Nigerian banks.
However, the CBN excluded any Eurobonds that the Federal Government of Nigeria issued or foreign bank guarantees, such as standby letters of credit, from the prohibition.
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He claimed that bank customers are currently using Foreign Currency (FCY) as collateral for naira loans, as the CBN has observed.
The CBN noted:
“Consequently, the current practice of using foreign currency-denominated collateral 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.”
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The bank allowed 24 months (starting on April 1, 2024, and ending on March 31, 2026) to comply with the new rule in a statement to all commercial, merchant, and non-interest banks and promoters of planned banks.
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The report says options available to banks outside CBN requirements include mergers and outright acquisitions.
The report acknowledged the financial soundness of the banks, which shows that Nigerian banks are safe and resilient as of 2023.
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