CBN discontinues practice of accepting foreign currencies as collateral for loans issued in naira

The Central Bank of Nigeria has decided to discontinue the practice of accepting foreign currencies as collateral for loans issued in naira.

In a circular issued today April 8, the apex bank directed all Nigerian banks to discontinue the practice of accepting foreign currencies as collateral for loans denominated in naira.

The apex bank mentioned that foreign currencies can only be used as collateral for loans issued in Naira when the foreign currency collateral is Eurobonds issued by the Federal Government of Nigeria; or Guarantees of foreign banks, including Standby Letters of Credit

The CBN directed that all loans currently secured with dollar-denominated collaterals other than as mentioned above should be wound down within 90 days and that failure to comply will attract sanctions. Read below

‘’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 which such exposures shall be risk-weighted 150% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.

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