CBN Ends Acceptance of Foreign Currency Collaterals for Naira Loans

“CBN Prohibits Use of Foreign Currency Collaterals for Naira Loans, Except for Certain Exceptions”The Central Bank of Nigeria (CBN) has implemented a new directive, prohibiting Nigerian banks from accepting foreign currency-denominated collaterals for Naira loans. This announcement was made in a letter addressed to all commercial banks and signed by Adetona Adedeji, Director of the Banking Supervision Department at CBN.The new guidelines, disclosed on Monday, allow exceptions for Eurobonds issued by the Federal Government of Nigeria and guarantees from foreign banks, including Standby Letters of Credit.In the statement, CBN highlighted its observation of the prevalent practice where bank customers use foreign currency as collaterals for Naira loans. As a result, the central bank has enforced the prohibition of this practice, except for the specified exceptions mentioned above.Furthermore, CBN mandated that all loans currently secured with dollar-denominated collaterals, excluding the exceptions, should be phased out within 90 days. Failure to comply will result in these exposures being risk-weighted at 150 percent for Capital Adequacy Ratio computation, along with other regulatory sanctions.This directive comes amidst the backdrop of recently announced minimum capital requirements for all banks. Governor Olayemi Cardoso has been actively rolling out policies aimed at safeguarding the Naira and bolstering Nigeria’s economy in recent months.