In a significant policy shift, the Central Bank of Nigeria (CBN) has issued a directive prohibiting the use of foreign currency (FCY) as collateral for Naira loans. This move, announced by the Acting Director of the Banking Supervision Department, Adetona Adedeji, marks a notable departure from previous practices regarding loan collateralization.

According to the directive, banks are no longer permitted to accept deposits denominated in foreign currencies such as USD, EUR, or GBP as security for loans issued in Naira. The CBN cited observations of customers using foreign currencies as collateral for Naira loans and has implemented the prohibition with immediate effect.

Previously, the apex bank took steps to meet retail market demand for eligible invisible transactions by selling a total of $10,000 to 1,588 Bureau De Change (BDC) operators at the rate of N1101/$1. These operators are now instructed to sell to eligible customers at a spread of not more than 1.5 per cent above the purchase price, with naira deposits to be made into designated CBN accounts starting from April 8, 2024.

In an official statement released, the CBN outlined specific exceptions to the ban on foreign currency-denominated collaterals for Naira loans. Eurobonds issued by the Federal Government of Nigeria and guarantees of foreign banks, including Standby Letters of Credit, are permitted as acceptable forms of foreign currency collateral. However, all loans currently secured with dollar-denominated collaterals not meeting these criteria must be wound down within 90 days. Failure to comply will result in these exposures being risk-weighted at 150% for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.

The directive, outlined in a letter addressed to all banks, emphasizes the need for adherence to the new regulations and advises banks to adjust their practices accordingly. Signed by Dr. Adetona S. Adedeji, Acting Director of the Banking Supervision Department, the letter underscores the CBN's commitment to maintaining stability and enforcing prudent financial practices within the Nigerian banking sector.

This policy change is expected to have significant implications for banks and borrowers alike, reshaping loan collateralization and financial risk management in Nigeria.

Way to go.

It is clear that allowing certain abnormalities in the system contributed to the devaluation of the naira and strong policies can help check this.

You don't see people trade dollars in the streets in other countries so much so they become the determinant of the value of dollars. Same way banks sell dollars to their cronies unchecked while denying other.

Tinubu and Cardoso are not here to play. I voted for Tinubu because I know he is a go-getter. I laugh at those abusing him and calling him names. He is an highly focused politician that cannot be distracted by haters and sadists. Cry as much as you like Tinubu will achieve his goals and fulfil his campaign promises to Nigerians. E lo fokan bale !