The Central Bank of Nigeria has announced the cessation of the practice of accepting foreign currencies as collateral for loans denominated in the local currency, the naira.
In a circular issued on April 8, the apex bank directed all Nigerian banks to cease the practice of using foreign currencies as collateral for loans denominated in naira. The directive specified that foreign currencies could only be utilized as collateral for naira-denominated loans under specific conditions, namely:
- Eurobonds issued by the Federal Government of Nigeria, or
- Guarantees of foreign banks, including Standby Letters of Credit.
The CBN further instructed that all loans currently secured with dollar-denominated collateral, except for those meeting the aforementioned criteria, should be phased out within a period of 90 days. Failure to comply with this directive will result in sanctions being imposed.
The circular emphasized that the prevailing practice of using foreign currency-denominated collaterals for naira loans is no longer permissible, with the exception of the specified circumstances outlined above. Banks and financial institutions were urged to adhere to these guidelines accordingly.
