The Central Bank of Nigeria (CBN) has prohibited the use of foreign currency as collateral for naira loans, except for specific cases outlined by the bank.
The directive, issued on April 8, 2024, by CBN’s Acting Director of Banking Supervision Department, Adetona Adedeji, aims to address the prevalent practice where bank customers use foreign currency as collateral for naira loans.
Exceptions to this rule include Eurobonds issued by the Federal Government of Nigeria and guarantees from foreign banks, such as Standby Letters of Credit.
According to the circular, loans currently secured with dollar-denominated collaterals, other than those mentioned above, should be phased out within 90 days. Failure to comply will result in such exposures being risk-weighted 150% for Capital Adequacy Ratio computation, along with other regulatory sanctions.
In addition, the CBN announced the sale of dollars to more than 1,500 Bureau De Change (BDC) operators to cater to the retail market demand for eligible transactions.
Each BDC is set to receive $10,000 at the rate of N1,101/$1. This move is viewed as part of the CBN’s efforts to sustain the appreciation of the naira against the dollar.
The naira has seen significant appreciation against the dollar in recent weeks, marking a gain of over 40%, from approximately N1,900/$ to about N1,200/$1 presently.
