In a recent development, the Central Bank of Nigeria (CBN) has issued a directive aimed at regulating the practice of utilizing foreign currency (FCY) as collaterals for Naira-denominated loans by bank customers.
The directive, signed by Dr. Adetona S. Adedeji, Acting Director of the Banking Supervision Department, highlights that the prevailing use of FCY-denominated collaterals for Naira loans is no longer permissible, except under specific circumstances. The only exceptions outlined in the directive are Eurobonds issued by the Federal Government of Nigeria and guarantees provided by foreign banks, including Standby Letters of Credit.
Furthermore, the directive instructs that all loans presently secured with dollar-denominated collaterals, aside from those mentioned exceptions, must be phased out within a period of 90 days. Failure to comply with this directive will result in such exposures being risk-weighted at 150% for Capital Adequacy Ratio computation, in addition to potential other regulatory sanctions.
This directive serves to underscore the CBN’s commitment to ensuring the stability and integrity of the financial system. Banks and financial institutions are urged to adhere strictly to the stipulated guidelines.
For further information and guidance, concerned parties are advised to refer to the official communication issued by the Central Bank of Nigeria.
