The Central Bank of Nigeria (CBN) has cautioned bank customers against using foreign currency as security for Naira-denominated loans. This measure aims to safeguard the stability of the local currency and mitigate potential risks associated with fluctuations in foreign exchange rates.
Adetona Adedeji, the Acting Director of the Banking Supervision Department at the CBN, delivered this warning in a statement issued in Abuja on Monday. He specified that the practice of using foreign currency as collateral for Naira loans would only be permitted in cases involving Eurobonds issued by the Federal Government or guarantees from foreign banks, including standby letters of credit.
Adedeji emphasized that loans currently secured with foreign currency collaterals, other than those mentioned above, must be phased out within a period of 90 days. Failure to comply will result in these exposures being risk-weighted at 150 per cent for Capital Adequacy Ratio computation, along with other regulatory sanctions.