The Central Bank of Nigeria (CBN) has lifted the suspension on the Standing Lending Facility (SLF), a critical tool used by banks to manage their short-term liquidity needs.
This move follows the recent decisions by the Monetary Policy Committee (MPC) at its 296th meeting, where several adjustments to the monetary policy rates were approved.
In a statement by Dr. Omolara O. Duke, Director of the Financial Markets Department, the CBN outlined the new operational guidelines that authorized dealers must follow.
These guidelines include key provisions that will have immediate implications for the financial markets.
Authorised Dealers are now permitted to access the SLF at an interest rate of 31.75 percent.
This marks a significant increase from previous levels and reflects the CBN’s ongoing efforts to manage liquidity in the banking system effectively.
To prevent “systemic gridlock”, dealers are now allowed to access the Intraday Liquidity Facility (ILF) at no cost, provided the borrowed funds are repaid within the same day. This provision aims to ensure the smooth operation of the financial markets without adding unnecessary costs to the banking institutions.
The CBN has retained the five percent penalty for participants who fail to settle their ILEs by the end of the day.
In such cases, the system will automatically convert the ILE to an SLF, which will be charged at a higher penal rate of 36.75 percent . This measure is intended to enforce discipline among market participants and ensure timely settlements.
The CBN has also reintroduced the practice of rediscounting instruments pledged by participants as collateral. This will be done at the penal rate, as stipulated in the approved repo guidelines. The move is expected to tighten the financial discipline among banks and other financial institutions.
Authorised dealers are required to submit their SLF requests through the Scripless Securities Settlement System (S4) between 5:00 PM and 6:30 PM. This time window has been set to facilitate efficient processing and to avoid any disruptions in the system.
The lifting of the SLF suspension comes in the wake of significant adjustments made by the MPC to the standing facilities’ corridor. Specifically, the MPC raised the upper corridor to 5.00% from 1.00% around the Monetary Policy Rate (MPR), a move aimed at tightening monetary policy to curb inflationary pressures and stabilize the economy.
In addition to the adjustments to the SLF, the CBN also issued a circular detailing changes to the Standing Deposit Facility (SDF).
The SDF rate has been adjusted to 25.75 percent, with different tiers for different types of banks:
For Commercial and Merchant Banks, deposits up to N3 billion will attract a 25.75 percent rate, while excess deposits above this threshold will be charged at 19.00 percent .
For Payment Service Banks deposits up to N1.50 billion will attract a 25.75 percent rate, with the same 19.00 percent rate applied to excess deposits above this amount.
These changes were also attributed to the MPC’s decision to adjust the Asymmetric Corridor around the MPR to +500/-100 basis points, from the previous +100/-300 basis points, as per sections 12 and 30 of the CBN Act 2007.
The immediate effect of these adjustments is expected to be felt across the banking sector, with higher costs of borrowing likely leading to tighter liquidity conditions.
Banks may need to recalibrate their short-term funding strategies in response to the higher SLF rate, while the adjustments to the SDF could impact the way financial institutions manage their excess reserves.
The CBN’s decision to enforce stricter penalties and reintroduce collateral execution reflects its commitment to ensuring that financial institutions adhere to prudent risk management practices. As the new guidelines take effect, market participants will need to navigate the tighter monetary landscape with caution.
The circulars by the CBN are effective immediately and all authorised dealers are required to comply with the new regulations as outlined.
