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CBN Prohibits Use Of Foreign Currency Collaterals For Naira Loans

Nigerian banks have been given 90 days to wind down dollar-denominated collaterals following CBN’s prohibition for Naira loans.

The Central Bank of Nigeria (CBN) has issued a directive prohibiting the use of foreign currency-denominated collaterals for Naira loans, except in specific circumstances.

The directive, outlined in a letter addressed to all banks, aims to address the prevailing practice where bank customers utilize Foreign Currency (FCY) as collateral for Naira loans.

According to the directive, the only exceptions permitted for the use of foreign currency collateral are Eurobonds issued by the Federal Government of Nigeria or guarantees of foreign banks, including Standby Letters of Credit.

All other loans currently secured with dollar-denominated collaterals must be wound down within 90 days, failing which such exposures will be risk-weighted at 150% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.

The letter, signed by the AG Director of the Banking Supervision Department, Dr Adetona Adedeji, emphasizes the need for banks to comply with the new directive to ensure regulatory adherence and stability within the banking sector.

This directive underscores the CBN’s commitment to regulating and monitoring banking activities to safeguard the interests of customers and maintain financial stability within the Nigerian banking industry. It also reflects the CBN’s proactive approach to addressing emerging issues and ensuring compliance with regulatory standards.

Banks are urged to take immediate action to ensure compliance with the directive and seek clarification or assistance from regulatory authorities if needed.

Ozioma Samuel-Ugwuezi

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