The Central Bank of Nigeria (CBN), in a bid to fortify the country’s financial system, has given a directive prohibiting the use of foreign currency as collateral for Naira loans.
The directive, outlined in a letter to all banks, restricts the practice except for specific exemptions such as Federal Government-issued Eurobonds or guarantees from foreign banks.
Adetona Adedeji, Director of Banking Supervision Department, underscored the rationale behind the move, staying, “The current practice of using foreign currency-denominated collaterals for Naira loans is hereby prohibited…”
To enforce compliance, the CBN mandates a winding down period of 90 days for loans secured with dollar-denominated collateral, except as allowed by the new guidelines.
Failure to adhere to these regulations will result in punitive measures, including a 150% risk weighting for Capital Adequacy Ratio computation, alongside other regulatory sanctions.
This directive aligns with the CBN’s broader efforts to bolster the banking sector and foster economic stability, exemplified by recent initiatives such as the upward review of minimum capital requirements for banks announced on 29th March.
