The use of foreign currency-denominated collateral for loans has been banned.
In a circular released on Monday by the Central Bank of Nigeria’s (CBN) Acting Director of Banking Supervision Department, Adetona Adedeji to all banks, two exemptions were made to the rule as foreign currency collateral, which are Eurobonds issued by the Federal Government or guarantees of foreign banks, including standby letters of credit.
“The Central Bank of Nigeria has observed the prevailing situation where bank customers use Foreign Currency (FCY) as collaterals for Naira loans,” the circular partly read.
“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.
The circular noted that all loans currently secured with dollar-denominated collateral other than as stipulated should be wound down within 90 days, failing which such exposures shall be risk-weighted at 150% for Capital Adequacy Ration computation and other regulatory sanctions.
RN
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