The Central Bank of Nigeria (CBN) has prohibited the use of foreign currency as collateral for Naira loans.
This directive contained in a circular by Dr. Acting Director of the Banking Supervision Department, Adetona S. Adedeji, represents a significant shift in the CBN’s approach to loan collateralization.
According to the new regulation, banks can no longer accept deposits denominated in foreign currencies like USD, EUR, or GBP as security for loans issued in Naira.
This ban extends to most foreign currency-based financial instruments, excluding those specifically permitted by the CBN.
The CBN has outlined two specific exceptions to this new regulation: Nigerian government-issued Eurobonds can still be used as collateral for Naira loans. Guarantees provided by reputable foreign banks, including Standby Letters of Credit, will remain acceptable forms of collateral.
The directive provided a timeframe for banks to address existing loans secured by non-compliant collateral-foreign currency deposits other than Eurobonds or foreign bank guarantees.
