The Central Bank of Nigeria (CBN) has directed all banks to
stop the use of foreign currency-denominated collaterals for naira loans.
Adetona Adedeji, acting director of the banking supervision
department at CBN, disclosed this in a statement on Monday.
The regulator directed banks to trim all existing loans with
foreign currency collaterals to 90 days or attract a 150 percent capital
adequacy ratio computation as part of the bank’s risk.
Capital adequacy ratio is calculated by dividing a bank’s
capital by its risk-weighted assets.
“The Central Bank of
Nigeria has observed the prevailing situation where bank customers use foreign
currency (FCY) as collaterals for Naira loans,” the circular reads.
“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 CBN said it is on the mission to ensure that the there
is adequate foreign exchange in the market even as the naira is being
strengthened
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