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CBN Bans Foreign Currency Collaterals for Naira Loans

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The Central Bank of Nigeria (CBN) has banned the use of foreign currency-denominated collaterals for Naira loans.

In a letter addressed to all banks and signed by Dr. Adetona S. Adedeji, the Director of Banking Supervision, the CBN stated that exceptions include Eurabonds issued by the Federal Government of Nigeria and guarantees of foreign banks, including Standby Letters of Credit.

The letter, titled “USE OF FOREIGN-CURRENCY-DENOMINATED COLLATERALS FOR NAIRA LOANS,” emphasizes the need to wind down loans secured with dollar-denominated collaterals within 90 days.

The letter reads: “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 collateral ls for Naira loans is hereby prohibited, except, where the foreign currency collateral is:

  1. Eurobonds issued by the Federal Government of Nigeria; or
  2. 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.

“Please be guided accordingly.”

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