Central Bank bans use of foreign currency-denominated collaterals for Naira loans

The Central Bank of Nigeria has banned the use of foreign currency-denominated collaterals for Naira loans. In a letter dated April 8th and addressed to all banks, the regulator said all banks must wound up all such loans within the next 90 days all face sanctions.

According to the CBN, ‘the prevailing situation of bank customers using Foreign Currency (FCY) as collaterals for Naira loans has been observed by the Central Bank of Nigeria. As a result, the practice of using foreign currency-denominated collaterals for Naira loans is now prohibited, except in cases where the foreign currency collateral is Eurobonds issued by the Federal Government of Nigeria or guarantees of foreign banks, including Standby Letters of Credit”

“Therefore, all loans that are currently secured with dollar-denominated collaterals, unless they fall under the exceptions mentioned above, must be wound down within 90 days. Failure to do so will result in these exposures being risk-weighted at 150% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions”, it concluded.