CBN issues guidelines for banks borrowing from its window

The Central Bank of Nigeria (CBN) on Friday issued a guideline with terms and conditions on how Deposit Money Banks (DMBs) and eligible institutions can access its window, known as Standing Lending Facility (SLD) and Term Repurchase Facility (TRF).

The objective of the facilities is to provide naira liquidity to eligible institutions that are unable to access funds at the inter-bank market. The rates on the facilities are set at margins above expected market rates so as to provide sufficient incentives for banks to explore the interbank market before seeking resources in the CBN for funds.

“These guidelines contain the terms and conditions for the operation of the SLF and the TRF and should be read in conjunction with the Nigerian Master Repurchase Agreement (NMRA),” Angela Sere-Ejembi, director, CBN’s financial markets department, said in the guidelines.

Banks and merchant banks made more placements than borrowings in the Standing Facilities window in January 2021, the CBN stated in its economic report for January.

The trend showed that banks deposited more than they borrowed at the window, due to the liquidity condition in the banking system, with applicable rates for the Standing Lending Facility (SLF) and Standing Deposit Facility (SDF) at 12.5 percent and 4.5 percent, respectively.

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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.

Also, 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 N42.59 billion. Cost incurred on SDF in the month stood at N0.08 billion.

The NMRA is the legal document that governs all repos between the two parties that have signed it. The legal nature of a repo involves an agreement to sell securities at an agreed price, and to buy them back at a set future date at an agreed price.

The tenor for the SLF spans from one business day to the next, at a time as set by the CBN. The facility is available on all business days, between the hours of 5.00 pm and 6.30pm or such as stipulated by the CBN from time to time.

Settlement is for the same day value and the rate is set at the Monetary Policy Rate (MPR), plus its upper corridor, as set by the Monetary Policy Committee (MPC) of the CBN and published on the CBN website.

At its last meeting in March, the MPC voted to retain MPR at 11.5 percent, retain asymmetric corridor of +100 and -700 basis points around the MPR, retain CRR at 17.5 percent and retain liquidity ratio at 30 percent.

The TRF is a term facility that is available on all business days between the hours of 9.00 am and 6.30 pm or such hours as stipulated by the CBN from time to time. Term repos can be transacted with the CBN for periods that range from 4 – 90 days (that is 4 – 30 days, 31-60 days and 61 – 90 days). Settlement is for same-day value, at rates anchored to the prevailing MPR as set by the MPC and published on the CBN.

According to the guidelines, transactions under the SLF shall be conducted in amounts of a minimum of N100 million and multiples of N1 million (or permissible fractions), based on the market value of securities placed for the transaction. The same applies to transactions under the TRF.