CBN halts the use of foreign currency as collateral for Naira loans

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

This was contained in a circular dated April 8, 2024 and directed to all banks by CBN’s Acting Director of Banking Supervision Department, Adetona Adedeji.

The apex bank official listed two exceptions to the rule as foreign currency collateral which are Eurobonds issued by the Federal Government or 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,” the circular partly read.

“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 such exposures shall be risk-weighted 150% for Capital Adequacy Ration computation, in addition to other regulatory sanctions.”

Meanwhile, the CBN, also on Monday, announced the sales of dollars to over 1, 500 Bureau De Change (BDC) operators to meet retail market demand for eligible transactions.

The apex bank said it would sell $10, 000 to each of the BDCs at the rate of N1,101/$1, a move which has been seen as part of CBN’s efforts to maintain the gain of the naira over the dollar.

The naira has appreciated against the dollar in recent weeks, gaining over 40%, from about N1,900/$ to about N1,200/$1 now.