The Central Bank of Nigeria (CBN) on Monday prohibited the use of foreign currency-denominated collaterals for naira loans by all Nigerian banks.
The apex bank disclosed this in a letter to all commercial banks signed by its Director of Banking Supervision Department, Adetona Adedeji.
However, the new guidelines gave exceptions to Eurobonds issued by the Federal Government of Nigeria and guarantees of foreign banks, including Standby Letters of Credit.
The development comes after the recently announced minimum capital requirements for all banks.
The regulator directed banks to trim all existing loans with foreign currency collaterals to 90 days or attract a 150 per cent capital adequacy ratio computation as part of the bank’s risk.
The capital adequacy ratio is calculated by dividing a bank’s capital by its risk-weighted assets.
The CBN circular reads: “The Central Bank of Nigeria has observed the prevailing situation where bank customers use Foreign Currency (FCY) as collaterals for Naira loans.
“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 percent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.”
The apex bank said it is on a mission to ensure that there is adequate foreign exchange in the market even as the naira is being strengthened
For months, CBN’s Governor, Olayemi Cardoso had continued to roll out policies to defend the Naira and Nigeria’s economy.
