On Monday, the Central Bank of Nigeria (CBN) issued a directive to all banks in the country to cease accepting foreign currency-denominated collaterals for naira loans.
Gatekeepers News reports that Adetona Adedeji, the Acting Director of the Banking Supervision Department at CBN, made this known in a statement.
The regulatory body has also instructed banks to reduce all existing loans that have foreign currency collaterals to 90 days or be subjected to a 150 percent capital adequacy ratio computation to mitigate risk.
This ratio refers to the capital held by a bank in proportion to its risk-weighted assets, which is used to assess the bank’s financial stability.
“The Central Bank of Nigeria has observed the prevailing situation where bank customers use foreign currency (FCY) as collaterals for Naira loans,” the circular reads.
“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% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.”
The CBN said it is on the mission to ensure that the there is adequate foreign exchange in the market even as the naira is being strengthened
