Monday, April 8, 2024

CBN stops banks from collecting foreign currencies as collateral for naira loans

CBN stated that it has seen FCY being used as collateral for naira loans by its clients and, as a result, forbids it going forward.

• April 8, 2024
Central Bank of Nigeria Logo
Central Bank of Nigeria logo (Credit: CBN website)

The Central Bank of Nigeria has advised all banks to stop using foreign currencies as collateral for naira loans. 

Adetona Adedeji, the acting head of the CBN’s financial supervision department, announced this in a circular sent on Monday. 

 According to the circular titled “The use of foreign-currency-denominated collaterals for naira loans,” CBN urged banks to reduce all existing loans with foreign currency collaterals to 90 days or face a 150 per cent capital adequacy ratio calculation as part of the bank’s risk. 

The top bank stated that it has seen FCY being used as collateral for naira loans by its clients and, as a result, forbids it going forward. 

 “The Central Bank of Nigeria has observed the prevailing situation where bank customers use foreign currency (FCY) as collateral for naira loans. 

“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 collateral other than as mentioned above should be wound down within 90 days, failing which such exposures shall be risk-weighted at 150% for capital adequacy ratio computation, in addition to other regulatory sanctions,” the circular read. 

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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