CBN halts the use of foreign currency-denominated collaterals for Naira loans.

The Central Bank of Nigeria (CBN) has issued a directive prohibiting Nigerian banks from accepting Foreign Currency-denominated collaterals for Naira loans.

This announcement was made on Monday through a letter addressed to all commercial banks, signed by Adetona Adedeji, Director of the Banking Supervision Department at the apex bank.

However, the new guidelines provide exceptions for Eurobonds issued by the Federal Government of Nigeria and guarantees from foreign banks, including Standby Letters of Credit.

According to the CBN, the use of foreign currency as collateral for Naira loans has been observed, prompting the need for regulation.

Therefore, except for Eurobonds issued by the Federal Government of Nigeria or guarantees from foreign banks, including Standby Letters of Credit, the practice of using foreign currency-denominated collaterals for Naira loans is now prohibited.

The directive requires that all loans currently secured with dollar-denominated collaterals, other than those mentioned above, should be phased out within 90 days. Failure to comply will result in such exposures being risk-weighted at 150 percent for Capital Adequacy Ratio computation, along with other regulatory sanctions.

This development follows the recent announcement of minimum capital requirements for all banks and is part of ongoing efforts by the CBN, led by Governor Olayemi Cardoso, to safeguard the Naira and stabilize Nigeria’s economy.