CBN tightens noose on its lending window

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The Central Bank of Nigeria (CBN) yesterday barred all authorized dealers from accessing its discount window standing lending facility (SLF) on the settlement date for government securities’ auction, in a renewed effort at monitoring and managing banking system liquidity.

The CBN, in a circular through Alvan Ikoku, director, financial markets department, on Tuesday said it intends to check the observed abuses of the facility through Nigerian treasury bills and and Federal Government bonds, among others, to ensure financial system stability, maintaining adequate money supply and moderating inflation.

Standing lending facility is a tool used by central banks for temporal financial accommodation to banks facing liquidity challenges. It is usually computed based on the plus two and/or minus five of the current Monetary Policy Rate (MPR) at 14 percent.

Consequently, while SLF is now 16 percent, the Standing Deposit Facility (SDF) on the other hand, which provides deposit window for excess liquidity being experienced by some banks, currently at nine percent. This is against the backdrop of observed abuse of access to the CBN standing lending facility by authored dealers. “It has become imperative that some measures be taken to redress the trend and re-define the mode of operation by authorized dealers at the window”, the CBN said in the circular.

The implication, according to some analysts, is that banks would have to source for funds to participate in the auctions rather than getting the funds on the day of auctions and diverting same for the purchase of the instruments.

The apex bank had recently issued a similar circular barring authorized dealers who come to any of CBN’s windows from inter-bank foreign exchange on the same day. High demand for the SLF by money market operators is an indication of tight monetary conditions in the money market.

During periods of liquidity shortage, money market operators access the standing lending facility window more frequently, requesting for large credit facility in order to square-up their positions at the close of daily business. In times of surplus,however, money market operators access the standing deposit facility window to lodge their excess funds.

According to the CBN’s economic report for the month of May 2016, total request for SLF was N882.99 billion, and comprised, mainly of Intra-day Lending Facility (ILF) converted to overnight repos. Average daily request was N51.94 billion in the 17 transaction days from May 1 – 25, 2016, while interest received during the period was N0.45 billion.

In the preceding month, the sum of N827.82 billion was granted with a daily average request of N39.42 billion in the 21 transaction days and N0.49 billion as interest earned. According to the CBN, the situation then showed that developments at the CBN standing facilities window indicated that requests for SDF significantly exceeded the Standing SLF. Against the possibility of deliberate violations by the authorized dealers, the CBN yesterday threatened to deny access to its standing lending facility in case of violation by authored dealers.

Source: Business Day

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