Mohammed Shosanya
The Central Bank of Nigeria (CBN),has announced two fresh strategies aimed at strengthening the Naira.
One is the prohibition of the use of foreign currency as collateral for Naira loans.
The second is the slash in the amount it sells the dollar to licensed Bureau De Change operators.
Thesee were contained in separate circulars by the Acting Director of the Banking Supervision Department, Dr. Adetona Adedeji and the Director of the Trade and Exchange Department, Dr. W.J Kanya.
In the circular by Kanya, the CBN said it sold $15.88 million to 1,588 eligible Bureaux De Change (BDCs).
The circular, addressed to the Association of Bureau De Change Operators of Nigeria (ABCON) President Aminu Gwadabe, explained that it sold a dollar at N1,101.
The BDCs are to sell at N1,116.15 or 1.5 per cent margin above the purchase rate.
The previous dollar purchase rate for BDCs was N1,251/$.
According to Kanya, each of the eligible BDCs will access $10,000.
The circular reads: “We write to inform you of the sale of $10,000 by the CBN to BDCs at the rate of N1101/$1.
“The BDCs are in turn to sell to eligible end users at a spread of not more than 1.5 per cent above the purchase price.
“All eligible BDCs are, therefore, directed to commence payment of the Naira deposit to the under-listed CBN Naira Deposit Account Numbers from today (yesterday), April 08, 2024, and submit confirmation of payment with other necessary documentation for disbursement at the appropriate CBN branches.
“All BDCs are strongly advised to continue to abide by the rules and conditions as stipulated in our earlier letters/circulars.”
According to the circular by Adedeji, banks can no longer accept deposits denominated in foreign currencies like USD, EUR, or GBP as security for loans issued in Naira.
The ban extends to most foreign currency-based financial instruments, excluding those specifically permitted by the CBN.
The circular outlined two specific exceptions to the new regulation: Nigerian government-issued Eurobonds can still be used as collateral for Naira loans.
Guarantees provided by reputable foreign banks, including Standby Letters of Credit, will also remain acceptable forms of collateral.
The directive to banks provides a timeframe to address existing loans secured by non-compliant collateral like foreign currency deposits other than Eurobond or foreign bank guarantees.
Banks now have 90 days to “wind down” these loans, meaning they must restructure the loan to utilise acceptable collateral as defined by the new regulation.
If restructuring is not feasible, the bank must take steps to recover the outstanding loan balance.
The circular reads in part: “The CBN has observed the prevailing situation where bank Customers use Foreign Currency (FCY) as collaterals for Naira loans.
“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 per cent for Capital Adequacy Ratio computation, in addition to other regulatory sanctions.”
