The Central Bank of Nigeria have written to inform banks in Nigeria to stop the use of foreign currencies as collateral for naira loans.
This was disclosed in a circular uploaded to its website on Monday in which the apex bank said it had noticed the use of FCY by bank customers as collateral for naira loans and, therefore, puts an end to it with immediate effect.
The circular titled “The use of foreign-currency-denominated collaterals for naira loans” with ref number: BSD/DIR/PUB/LAB/017/004 reads “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.”
Further the circular stated, “For the avoidance of doubt, the attention of the general public is hereby drawn to the provisions of the CBN Act of 2007, which states inter-alia that “the currency notes issued by the Bank shall be legal tender in Nigeria…for the payment of any amount.”
Furthermore, the Act stipulates that any person who contravenes this provision is guilty of an offence and shall be liable on conviction to a prescribed fine or six months imprisonment.
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