The Central Bank of Nigeria has barred the use of foreign exchange as collateral for local currency loans. In its April 8 letter addressed to banks, the CBN warned of severe consequences for banks that fail to comply with the latest directive.
Nigerian Central Bank Prohibits Use of Foreign Exchange as Collateral for Local Currency Loans
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Halting the Slide of the Naira
Hamstrung by ongoing shortages of U.S. dollars, the Central Bank of Nigeria (CBN) has directed banks to cease using foreign exchange as collateral for loans in local currency. The CBN issued this directive, which became effective immediately, in a letter addressed to all Nigerian banks through its banking supervision department.
Since the start of the year, Nigerian monetary authorities have announced a series of measures aimed at reviving the official foreign currency market. These measures also aim to halt the slide of the local currency against the U.S. dollar and other strong currencies.
As reported by Bitcoin.com News, some of these measures include banning authorized dealers from using cash when disbursing personal or business travel allowances. The CBN has also introduced requirements that international oil companies must meet before they can repatriate funds to offshore accounts.
In its April 8 letter, the CBN warned of severe consequences for banks that fail to comply with the latest directive.
“In this regard, all the 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,” the CBN said in the letter.
In related news, the Central Bank of Nigeria announced it will sell $10,000 to Bureau de Change operators at an exchange rate of 1 USD to 1,101 NGN. BDCs, in turn, will sell the foreign currency at a premium not exceeding 1.5%. At the time of writing, the official exchange rate for USD to Naira stood at 1:1,251.
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