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CBN Orders Banks To Stop Use Of Foreign Currencies As Collateral For Naira Loans
The Central Bank of Nigeria, CBN has ordered banks to stop the use of foreign currencies as collateral for naira loans.
The apex bank said it had observed the use of FCY by bank customers as collateral for naira loans and, therefore, prohibits it with immediate effect.
This was disclosed on Monday in a letter to all commercial banks signed by its Director Banking Supervision Department, Adetona Adedeji.
However, the new guidelines gave exception to Eurobonds issued by the Federal Government of Nigeria and Guarantees of foreign banks, including Standby Letters of Credit.
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 with such exposure shall be risk-weighted 150 per cent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions,” CBN stated.
