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UPDATE: CBN stops use of foreign currencies as collateral for naira loan
 
By: Abara Blessing Oluchi
Mon, 8 Apr 2024   ||   Nigeria,
 

 

The Central Bank of Nigeria has written to all banks in Nigeria to stop the use of foreign currencies as collateral for naira loans.

It disclosed this in a circular uploaded to its website on Monday.

The apex bank said it had observed the use of FCY by bank customers as collateral for naira loans and, therefore, prohibits it with immediate effect.

However, the new guidelines gave exception to Eurobonds issued by the Federal Government of Nigeria and Guarantees of foreign banks, including Standby Letters of Credit.

“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 per cent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions,” CBN stated.

The development comes in the wake of the recently announced minimum capital requirements for all banks.

For months, CBN’s governor, Olayemi Cardoso had continued to roll out policies to defend the Naira and Nigeria’s economy.

 

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