By Babajide Komolafe
LAGOS— The Central Bank of Nigeria, CBN, yesterday, raised the limit on banks’ foreign currency loans, including Eurobonds, to 125 per cent of shareholders’ funds.

Governor, Central Bank of Nigeria (CBN), Mr Godwin Emefiele

This represents 66 per cent increase when compared with the 75 per cent limit introduced in 2014.

The CBN also imposed a five-year limit on maturity on banks’ foreign currency loan, and directed that all foreign currency loans must be hedged through the financial markets.

In a circular announcing this development, the CBN said the 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 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 CBN also 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 central bank said.

This implies that they have to hold more capital in order to keep within a regulatory threshold of loan to capital ratio.

Nigerian banks raised over $1.5 billion from issuing Eurobonds and other types of debt instruments in 2013 as they rushed to lend to the once lucrative oil industry at the peak of crude prices before the 2014 price crash.