Nigeria’s central bank has announced a significant policy change aimed at safeguarding the stability of its banking sector. In a circular issued on Monday, the bank declared that commercial lenders are no longer permitted to accept foreign currency-denominated collateral for naira loans.
This directive comes in response to observed risks associated with the practice, which the central bank has explicitly prohibited. Instead, the bank has identified specific forms of foreign currency collateral deemed acceptable, including government-issued Eurobonds and offshore bank-issued letters of credit.
Commercial banks have been instructed to promptly wind down existing loans secured with dollar-denominated collateral within a 90-day period, failing which sanctions may be imposed. This move follows a recent strengthening of the Nigerian naira against the US dollar, prompted by the central bank’s actions earlier in the year.
Measures such as consecutive interest rate hikes in February and March, coupled with the relaxation of restrictions on foreign participation in fixed-income auctions, have contributed to this currency appreciation. Additionally, recent policy adjustments facilitating smoother transactions for foreign investors have been well-received.
Analysts note that prior challenges faced by lenders in fulfilling bids from foreign investors have been addressed, with the central bank’s initiatives aimed at enhancing market liquidity and efficiency.
In navigating economic uncertainties, the central bank’s proactive stance underscores its commitment to ensuring financial stability. By banning foreign currency collateral for naira loans, it seeks to mitigate risks and uphold the integrity of Nigeria’s banking sector amid evolving global currency dynamics.
photo source: Google
By: Montel Kamau
Serrari Financial Analyst
9th April, 2024
Article and News Disclaimer
The information provided on www.serrarigroup.com is for general informational purposes only. While we strive to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.
www.serrarigroup.com is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information on the website is provided on an "as-is" basis, with no guarantee of completeness, accuracy, timeliness, or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
In no event will www.serrarigroup.com be liable to you or anyone else for any decision made or action taken in reliance on the information provided on the website or for any consequential, special, or similar damages, even if advised of the possibility of such damages.
The articles, news, and information presented on www.serrarigroup.com reflect the opinions of the respective authors and contributors and do not necessarily represent the views of the website or its management. Any views or opinions expressed are solely those of the individual authors and do not represent the website's views or opinions as a whole.
The content on www.serrarigroup.com may include links to external websites, which are provided for convenience and informational purposes only. We have no control over the nature, content, and availability of those sites. The inclusion of any links does not necessarily imply a recommendation or endorsement of the views expressed within them.
Every effort is made to keep the website up and running smoothly. However, www.serrarigroup.com takes no responsibility for, and will not be liable for, the website being temporarily unavailable due to technical issues beyond our control.
Please note that laws, regulations, and information can change rapidly, and we advise you to conduct further research and seek professional advice when necessary.
By using www.serrarigroup.com, you agree to this disclaimer and its terms. If you do not agree with this disclaimer, please do not use the website.
www.serrarigroup.com, reserves the right to update, modify, or remove any part of this disclaimer without prior notice. It is your responsibility to review this disclaimer periodically for changes.
Serrari Group 2023
