The Central Bank of Nigeria has barred domestic commercial banks from accepting foreign currency as collateral for loans acquired in the local naira currency.
"The Central Bank of Nigeria has observed the prevailing situation where bank customers use foreign currency as collaterals for naira loans. Consequently, the current practice of using foreign currency-denominated collaterals for naira loans is hereby prohibited," Adetona Adedeji, the acting director for the central bank's supervision department, said in a statement on Monday.
The central bank, however, listed circumstances that foreign currency can be used as collateral.
"(The circumstances are when) Eurobonds (are) issued by the Federal Government of Nigeria, or (when the funds are) guarantees of foreign banks, including Standby Letters of Credit.
Dollar strength
"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 central bank said.
Nigeria has been pushing to strengthen the naira against major foreign currencies, especially the dollar, which had significantly appreciated in value against the local currency in recent times.
One US dollar was equivalent to 1,245 naira in the mainstream market as of April 8, 2024.
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