Nigeria’s CBN Prohibits Use of Foreign Currency Collateral for Naira Loans

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In a recent circular, Nigeria’s central bank has banned commercial lenders from accepting foreign currency-denominated collateral to grant naira loans. The move aims to safeguard the banking system against potential risks associated with a strengthening local currency. The circular declared the practice of using foreign currency as collateral for naira loans as “prohibited.”

Approved forms of eligible foreign currency collateral include government-issued Eurobonds or letters of credit issued by offshore banks. Lenders have been instructed to phase out all loans currently secured with dollar-denominated collateral within 90 days or face penalties.

The naira has experienced significant appreciation against the dollar in both the official and parallel markets following its second devaluation in less than a year in January. This strengthening of the currency was facilitated by the central bank’s decision to raise interest rates in February and March and remove restrictions on foreign participation in fixed-income auctions.

Additionally, the central bank now allows foreign investors to pre-fund their accounts and acquire naira at the prevailing exchange rate for bill auctions, providing them with easier access to the local currency. Previously, lenders encountered challenges in meeting foreign investors’ bids, as they incurred additional costs on settlement day when borrowing from the central bank’s discount window to cover bill payments.


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Godwin Okafor
Godwin Okaforhttps://naija247news.com
Godwin Okafor is a veteran Financial Journalist, Internet Social Entrepreneur, and the visionary Founder of Naija247news Media Limited. With an extensive career spanning over 16 years in financial journalism, Godwin possesses a wealth of experience that seamlessly bridges both traditional and digital media landscapes. His journey in journalism commenced at Business Day, Nigeria, where he laid the foundation for his prolific career. In 2010, Godwin took a bold step by founding Naija247news Media, a platform that has since become a prominent player in delivering timely and accurate news. Educationally, Godwin Okafor holds a Bachelor's degree in Industrial Relations and Personnel Management from the prestigious Lagos State University, Ojo, Lagos. His commitment to continuous learning led him to the Lagos Business School, where he further honed his skills. Additionally, he is recognized as a Fellow of the University of Pennsylvania, having successfully completed the Wharton Seminar for Business Journalists. Throughout his illustrious career, Godwin has earned acclaim by winning numerous journalism awards, a testament to his dedication to excellence in reporting. Beyond his role as a Financial Journalist, Godwin Okafor wears the hat of the Chairman at Emmerich Resources Limited, the publishing entity behind Naija247news. His visionary leadership has played a pivotal role in shaping the media landscape and establishing Naija247news as a trusted source of information. Godwin Okafor's multifaceted expertise, commitment to journalistic integrity, and leadership in the realm of business journalism underscore his influential presence in both the media and entrepreneurial spheres.

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