As part of its effort to stimulate lending to the real sector of the economy, the Central Bank of Nigeria has directed that banks’ daily deposits placement through the CBN’s Standing Deposit Facility, shall no longer exceed N2 billion.
According to a circular released on the apex bank’s website and titled “Guidelines on accessing the CBN Standing Deposit Facility”, daily deposits by any bank in excess of N2 billion shall not attract interest payments.
According to the circular which was signed by the apex bank’s Director of Financial Markets Department, Angela Sere-Ejembi, the new directive will take effect from today, Thursday, July 11th, 2019.
Below are some of the key highlights from the circular.
- The remunerable daily placements by banks at the SDF shall not exceed N2 billion.
- 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 N2 billion shall not be remunerated.
It should be noted that the new guideline (N2 billion) by the apex bank represents a 73% reduction from the previous limit of 7.5 billion introduced way back in 2014.
Past Developments: In November 2014, the Central Bank of Nigeria observed that deposit money banks and discount houses preferred to keeping their idle balances in the Standard Deposit Facility with the CBN. Unfortunately, this preference contributed to the restraining of the financial intermediation process. And this was why the CBN opted to review the guidelines for the operation of the standing deposit facility.
The review recommended that daily placements by discount houses and banks at the SDF should not exceed N7.5 billion. This was to be remunerated at the SDF rate at 10% annually.
What the latest development implies: In recent terms, deposit money banks have been reluctant to improve on their lending to key sectors, a trend which the CBN is determined to put an end to. Therefore, the aim of the latest directive is to unlock the credit market, whilst making funds available to the real sector which, currently, is starved of funds. Ultimately, this will encourage lending activities and stabilise/encourage economic growth.
Analysts at Nairametrics also believe that this will facilitate the CBN’s recent directive for banks to issue credit above 60% to the real sector.[READ THIS: CBN orders DMBs to implement new cheque standard starting September 1st]
What is Standard Deposit Facility: It is a monetary policy operation used by Central Banks around the world to absorb deposits from deposit money banks, without involving the use of government securities as collateral in return. In other words, it is a collateral-free monetary policy arrangement.