By Tochukwu Bliss, Abuja
The Central Bank of Nigeria (CBN), yesterday, barred the use of foreign currencies (FCY) as collateral for naira loans in continuation of its efforts to cleanse the foreign exchange (FX) market.
However, only Eurobonds issued by the Federal Government of Nigeria; or guarantees of foreign banks, including Standby Letters of Credit are excluded from the ban, as announced in a circular sent to commercial banks.
Signed by the Acting Head, Financial Supervision Department, Adetona Adedeji, and titled “The use of foreign-currency-denominated collaterals for naira loans,” the circular thereby directed banks to reduce all existing loans with foreign currency collaterals to 90 days or face a 150% capital adequacy ratio as part of the bank’s risk.
The 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% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.”
The naira has appreciated against the dollar in recent weeks, gaining over 40%, from about N1,900/$ to about N1,200/$1 currently.
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.
