CBN Hikes Limit On Banks' Foreign Currency Loans by 66%
In a bid to strengthening the naira, the Central Bank of Nigeria, CBN, Thursday said it has rose the limit on banks’ foreign currency loans, including Eurobonds, to 125 per cent of shareholders’ funds, representing 66 per cent increase when compared with the 75 per cent limit introduced in 2014.
The CBN has also imposed a five-year limit on maturity on banks’ foreign currency loan, and and has directed all foreign currency loans must be hedged through the financial markets.
According to a circular announcing this development, the CBN explained that increase was due to the sharp depreciation of the naira, which resulted in a breach of the 75 per cent
limit by banks.
CBN said: “A major consequence of this development was the inadvertent breach of the regulatory limit for foreign currency borrowings by some banks.
"To address this development, the aggregate foreign currency borrowing of a bank borrowing should not exceed 125 per cent of shareholders’ funds.”
The new rules according to CBN also prescribed that all foreign borrowing should be hedged through the financial markets and that debt should have a minimum of five-year maturity except for trade lines.
The apex bank however directed banks to report on their utilisation of foreign currency borrowings on a monthly basis. With the sharp depreciation of the naira, banks have seen their dollar loan books swell in naira terms, the apex bank said.
The implication of this is that they have to hold more capital in order to keep within a regulatory threshold of loan to capital ratio.
The CBN has also imposed a five-year limit on maturity on banks’ foreign currency loan, and and has directed all foreign currency loans must be hedged through the financial markets.
According to a circular announcing this development, the CBN explained that increase was due to the sharp depreciation of the naira, which resulted in a breach of the 75 per cent
limit by banks.
CBN said: “A major consequence of this development was the inadvertent breach of the regulatory limit for foreign currency borrowings by some banks.
"To address this development, the aggregate foreign currency borrowing of a bank borrowing should not exceed 125 per cent of shareholders’ funds.”
The new rules according to CBN also prescribed that all foreign borrowing should be hedged through the financial markets and that debt should have a minimum of five-year maturity except for trade lines.
The apex bank however directed banks to report on their utilisation of foreign currency borrowings on a monthly basis. With the sharp depreciation of the naira, banks have seen their dollar loan books swell in naira terms, the apex bank said.
The implication of this is that they have to hold more capital in order to keep within a regulatory threshold of loan to capital ratio.
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