The Central Bank of Nigeria stepped up its effort to increase foreign exchange availability in the economy on Monday, issuing a new circular requiring Deposit Money Banks to stop using foreign currencies as collateral for naira loans within 90 days.
The development occurred on Monday, when the naira surged versus the dollar in both official and parallel markets.
The CBN has proceeded to expand its effort to remove dollar liquidity from the banking system by implementing a variety of measures geared at strengthening the naira versus the US dollar.
On Monday, the CBN, chaired by Olayemi Cardoso, published a fresh circular expressing worry over the usage of foreign currency as collateral for naira loans.
The circular headed “The use of foreign-currency-denominated collaterals for naira loans” was made available on its website and was referenced BSD/DIR/PUB/LAB/017/004.
Although this is not the first time the bank has forbidden the usage of FCY, it did state that it had witnessed bank clients using foreign currency as collateral for naira loans. As a result, it was decided that its usage be prohibited.
In a private letter to commercial lenders in 2023, the central bank issued a severe warning against naira overdrafts funded by foreign currency deposits.
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