No more foreign currency collateral for naira loans

The Central Bank of Nigeria (CBN) on Monday banned the use of foreign currency-denominated collaterals for Naira loans, threatening to sanction erring banks.

In a letter to all banks, and signed by Adetona Adedeji, acting director of the banking supervision department, the apex bank outlined the new regulations aimed at addressing prevailing practices in the banking sector.

The directive highlights the observation by the CBN of the widespread practice where bank customers utilize Foreign Currency (FCY) as collaterals for Naira loans. Effective immediately, the CBN has prohibited the use of foreign currency-denominated collaterals for Naira loans, except under specific circumstances.

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

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Furthermore, the directive mandates that all loans currently secured with dollar-denominated collaterals, other than those mentioned above, must be wound down within a period of 90 days. Failure to comply with this directive will result in such exposures being risk-weighted at 150 percent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.

The policy shift underscores the CBN’s commitment to ensuring the stability and integrity of the Nigerian banking system while promoting prudent lending practices and safeguarding against currency-related risks.

Banks and financial institutions are urged to adhere strictly to these new guidelines to avoid regulatory penalties. The CBN emphasizes that this directive is in the best interest of maintaining a sound and resilient banking sector in Nigeria.

For further clarification or guidance, banks are advised to contact the banking supervision department of the Central Bank.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.