The Central Bank of Nigeria (CBN) has instituted a prohibition on the utilisation of foreign currency assets as collateral for naira loans, excluding certain exemptions. Specifically, Eurobonds issued by the Federal Government of Nigeria or guarantees from foreign banks, including Standby Letters of Credit, remain unaffected by the ban.
This directive, communicated via a letter to all banks by Dr. Adetona Adedeji, the acting Director of the Banking Supervision department at the CBN, stipulates a three-month grace period for banks to phase out naira loans supported by foreign currency collaterals. The CBN expressed concern over the widespread practice of leveraging foreign currencies as security for naira-based loans among bank customers in the country.
As a result, the CBN firmly stated, “The current utilisation of foreign currency-denominated collaterals for naira loans is now prohibited.” However, exceptions are made for situations where the collateral consists of Eurobonds issued by the Federal Government of Nigeria or guarantees from foreign banks, including Standby Letters of Credit.
Furthermore, the directive mandates the winding down of all loans currently backed by dollar-denominated collaterals, other than those falling within the specified exemptions, within a 90-day timeframe. Failure to comply will result in the risk-weighting of such exposures at 150 percent for Capital Adequacy Ratio computation, alongside other regulatory sanctions.
