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Akinwande Soji-Ojo
The Central Bank of Nigeria (CBN) has directed all banks to stop the use of foreign currency-denominated collaterals for naira loans.
Acting Director of Banking Supervision Department of the CBN, Adetona Adedeji, disclosed this in a statement, on Monday.
The apex bank directed banks to trim all existing loans with foreign currency collaterals to 90 days or attract a 150 per cent 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.
“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,” he said.
CBN added that it is on the mission to ensure that the there is adequate foreign exchange in the market even as the naira is being strengthened.