The Central Bank of Nigeria (CBN) on Monday banned banks from accepting foreign currency (likely USD) as collateral for naira loans. This aims to reduce risks in the financial system and strengthen the naira.
Previously, borrowers could use the USD and other foreign currencies to secure naira loans, but the CBN sees this as risky. Exceptions exist for Nigerian government Eurobonds and foreign bank guarantees, which offer more security.
‘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,” a statement by Adetona Adedeji, acting director of the banking supervision department at CBN, said.
Banks have 90 days to adjust existing loans that do not comply. This policy likely links to managing Nigeria’s foreign reserves and supporting the naira, which has faced depreciation recently.
—Ezinwanne Onwuka reports for TruthNigeria from Abuja.
