CBN prohibits use of foreign loans as collaterals for Naira loans

The Central Bank of Nigeria has written to all banks in Nigeria to halt 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 Foreign Currency (FCY) by bank customers as collateral for naira loans and, therefore, prohibits it with immediate effect.

“Consequently, the current practice of using foreign currency-denominated collaterals for Naira is hereby prohibited”.

CBN however noted exceptions to include “Eurobonds issued by the Federal Government of Nigeria; or Guarantees of foreign banks, including Standy Letters of Credit”.

It ordered that “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”.