CBN limits top 4 commercial banks deposits to boost lending- Analysts

Motolani Oseni

As part of efforts to reduce access to its Standing Deposit Facility (SDF), a group of analysts at ARM research have said the Central Bank of Nigeria (CBN) is limiting the top four Tier 1 commercial banks access to its facility.

The apex bank had issued a circular, stressing that, “remunerable daily placements by banks at the SDF shall not exceed N2billion.”

According to the Lagos based research on Thursday, “Notably, during periods of excess liquidity in the banking system and the accompanied depression in interbank rates, the SDF window afforded banks (especially top 4 Tier 1 banks who are perpetual net placers of funds) an avenue for placing excess liquidity in the absence of OMO or Treasury bills auctions and earn an annualised rate of 8.5per cent.

“Notwithstanding, we believe the impact on income for the Top four Tier 1 banks (Guaranty Trust Bank, Zenith Bank, United Bank for Africa (UBA)) and FBN holding, will minimal as we expect such funds to be redirected to the Tier 2 banks which had been perpetual net takers at the Standing Lending Facility, albeit at a much lower rate depending on overall market liquidity.

“Although, we do not perceive CBN will be comfortable leaving excess liquidity with the banks, as such could result in speculation at the foreign exchange market, but it is hard to reason borrowing of the same funds via OMO and T-Bills at higher rates from the same banks.”

They maintained that the CBN has delivered another news to commercial banks, which now comes in the form of a voluntary rejection of excess liquidity deposited by the banks to CBN via the Standing Deposit Facility (SDF).

The report by ARM research noted, “The facility had served as a liquidity mop-up mechanism for the apex a bank without necessarily issuing government securities in return to the banks.

Prior to November 2014, banks could deposit as much liquidity at their disposal with CBN and be remunerated for same.

CBN capped the minimum remunerated deposit through the window at N7.5 billion in November 2014, however banks could keep excess at their discretion without being remunerated.

“With the new framework, the allowable daily deposit through the SDF that will now be remunerated is now capped at N2 billion at the applicable MPR minus 500basis points (8.5per cent). We believe the new structure further suggests the apex banks drive to persuade banks to lend to the real sector.”

Meanwhile, the Director, Financial Markets Department, CBN, Mr Angela Sere-Ejembi in a circular on Wednesday said, “With reference to the circular to all Banks and Discount Houses, Re: Guidelines on Accessing the CBN Standing Deposit Facility, Ref: FMD/DIR.GEN.CIR/05/020 and dated November 6, 2014, after further review: the remunerable daily placements by banks at the SDF shall not exceed N2billion; The SDF deposit of N2 billion shall be remunerated at the interest rate prescribed by the Monetary Policy Committee (MPC) from time to time; Any deposit by a bank in excess of N2billion shall not be remunerated.”

According to the circular, the provisions of this circular take effect from Thursday.

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