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CBN in a new guideline restricts banks borrowing from SLF to overnight repo

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By Oludare Mayowa

 

The Central Bank of Nigeria (CBN) on Tuesday released a revised guidelines for its Standing Lending Facility (SLF), a channel used by banks to borrow short-term funding from the regulatory bank.

According to banking sources, the revised guideline changes the time that banks can access CBN SLF to the end of the trading day, cutting off the opportunity by banks to borrow intraday funds from the facility within the trading period to cover their positions.

From henceforth, banks can only access the SLF between 5-6:30 pm on trading day for same day value, according to the revised guidelines.

Though our correspondent has not been able to lay his hands on the details of the revised guideline, sources said the changes could pressure banks’ ability to access intraday funding from the CBN.

“We expect money market to respond to the changes accordingly as interbank rate is seeing climbing in the coming days after the CBN enforcing the time change,” one currency dealer said.

In 2014, following the prevalent of excess liquidity in the money market, banks preferred to keep their idle balance at the CBN Standing Deposit Facility (SDF) and earn interest on such funds.

The CBN came out with a review guideline to restrict the amount banks can deposit in the facility to N7.5 billion and any amount in excess of that would not earn interest.

READ THIS ALSO: CBN to sanction banks, BDCs for rejecting old, lower dollar denominations from customers

Standing facilities are monetary policy operations by the CBN which enable banks to keep idle balance with the CBN when there is excess liquidity in the market and borrow when there is liquidity shortage in the system.  

In its January economic report, the CBN said banks deposited more than they borrowed at the Standing Facilities Window
Operation due to the liquidity condition in the system.

The regulatory bank stated with applicable rates for the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF) at 12.5 percent and 4.5 percent, respectively.

It said total request for the SLF and granted from January 1–31, 2021 was N492.50 billion, made up of N68.30 billion direct SLF and N424.20 Intraday Lending Facilities (ILF) converted to
overnight repo.

“Daily average was N35.18 billion in 14 transaction days from January 1–31, 2021 with a total interest of N0.29 billion,” the regulatory bank stated.
Total SDF granted, during the review period, was N528.33 billion with a daily average of N26.42 billion in 20 transaction days from January 1-31, 2021. “Daily request ranged from N4.70 billion to N42.5 billion,” the bank said.

 

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