CBN Prohibits Foreign Currency As Collateral For Naira Loans, Pegs FX Sale At N1,101/$1
The Central Bank of Nigeria (CBN) has banned the use of foreign currency-denominated collaterals for naira loans.
This was contained in a circular directed to all banks by CBN’s Acting Director of Banking Supervision Department, Adetona Adedeji.
The apex bank has equally ordered Bureau De Change (BDCs) to sell Forex at N1,101/$1
Adedeji in the circular listed two exceptions to the rule as foreign currency collateral which are Eurobonds issued by the Federal Government or guarantees of foreign banks, including Standby Letters of Credit.
“The Central Bank of Nigeria has observed the prevailing situation where bank customers use Foreign Currency (FCY) as collaterals for Naira loans,” the circular partly read.
“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.”
Meanwhile, the CBN has ordered BDCs to sell FX below market rate at N1,101/$1
The Central Bank of Nigeria (CBN) in a circular on Monday to Bureau De Change operators (BDCs), informed them of the sale of $10,000 to each BDC at a rate of N1,101/$1.
In the circular signed by Director, Trade & Exchange Department, W. J.. Kanya, the CBN stated that all BDCs are instructed to sell the dollars to eligible customers at a rate not exceeding 1.5per cent above the purchase price.
President, Association of Bureaux de Change Operators of Nigeria. (ABCON), Aminu Gwadabe had over the weekend, appealed to the apex bank to lower its applicable exchange rate below the N1, 251 to the dollar it had pegged for BDCs.
Gwadabe complained that N1, 251 to the dollar had become too expensive for the BDCs.
His complaint came on the heels of development in the foreign exchange market where the parallel market rate of N1,235 to the dollar became lower than the official rate of N1,252 to the dollar.
He said that the BDCs were recording losses.
In February 2024, the CBN approved the sale of foreign exchange to eligible BDCs to meet the demand for invisible transactions.
The sum of $20,000 is to be sold to each BDC at the rate of N1,301/$ – (representing the lower band rate of executed spot transactions at NAFEM
All BDCs are allowed to sell to end-users at a margin not more than one percent (1 %) above the purchase rate from CBN.
This suggests BDCs are not expected to sell above N1,117/$1. The selling rate is below the N1,251.05/$1 recorded at the end of last week, according to data from the Nigerian Autonomous Foreign Exchange Market (NAFEM).
