CBN Raises Banks’ Foreign Exchange Loan Limits

The Central Bank of Nigeria (CBN) has increased the limit on banks’ foreign currency borrowings to 125 percent of shareholders’ fund.

The apex bank took the decision after some banks breached its regulatory limit due to the recent fall in the naira, according to a report by Reuters.

The new regulation replaces a 2014 rule capping foreign borrowings, including Eurobonds, at 75 percent of shareholders’ funds, as the country tries to manage widespread capital shortfalls at banks due to a currency crisis and bad loans.

“A major consequence of this development was the inadvertent breach of the regulatory limit for foreign currency borrowings by some banks,” the central bank said in a circular.

“To address this development … the aggregate foreign currency borrowing of a bank borrowing should not exceed 125 percent of shareholders’ funds.”

The new rules also prescribes that all foreign borrowing should be hedged through the financial markets and debt should have a minimum of five year maturity except for trade lines.

It directed lenders to report on their utilisation of foreign currency borrowings on a monthly basis.

Nigeria has been gripped by a shortage of dollars since crude prices plunged, triggering a currency crisis that left banks and other companies struggling to purchase hard currency and battered investor confidence.

The naira lost around a third of its official value last year after the central bank lifted its dollar peg to float the currency on the interbank market.

The apex bank later re-imposed a quasi-peg to avoid further currency loss, thereby creating multiple exchange rates which has masked the pressure on the naira and stunted inflows as investors struggle to price naira assets.

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