CBN to sanction banks with cash problems ..auctions $660m to clear dollar demand

The Central Bank of Nigeria (CBN) has said it will penalise Deposit Money Banks that have liquidity challenges by way of temporary suspension from its lending window.

In a circular issued on Wednesday, the apex bank announced a change in its rules of engagement with the banks, spelling out new rules regarding how financial institutions could borrow cash from fellow banks or the CBN to cover their temporary shortfalls or meet their obligations.

The regulator declared that any commercial bank that failed to comply with the new directives would be suspended from its window for eight weeks.

The circular, dated February 1, 2017, with reference number, FMD/DIR/GEN/CIR/08/001, was signed by the Director, Financial Market, CBN, Mr. Alvan Ikoku.

The circular, entitled: ‘Amendment of S4 Business Rules and Guidelines,’ read in part, “With reference to Section 10.1 of the S4 Business Rules and Guidelines, which states among others that transaction with the CBN, any auction or two-way quote with the CBN must be settled. If it is in queue, it shall be given highest priority and when it fails to settle, the system shall generate an automatic Intra-day Liquidity Facility (ILF) backed by collateral to settle the transaction.

“Where there are no securities, the allotment shall be cancelled and the defaulter suspended from all auctions for eight weeks, effective from the date of default.”

It added, “The ILF shall be bought back or converted to Standing Lending Facility (SLF) by the participant by the close of business day, failing which it shall be automatically converted to SLF at the prevailing SLF rate plus 500 basis points.

“If any SLF is not purchased by the participant by the next business day, such participant shall not be eligible to access the CBN discount window until such outstanding obligation is settled in accordance with Section 27 of the Guidelines for the Conduct of Repurchase Transactions under the CBN Standing Facilities.

“Henceforth, all SLF must be bought back latest by 10am on the maturity date, failing which encumbered securities would be automatically rediscounted.”

The S4 refers to the settlement platform created by the CBN for security settlement. In the new rules, the CBN is simply saying that any bank which fails to back up cash borrowed from it or other banks with adequate security will get penalised.

Banking and financial experts told our correspondent that the new rules were meant to help the CBN to assess the quantum of liquidity in each bank. This will essentially help the regulator to identify banks that are having liquidity problems.

It will also help banks to desist from unethical practices and stop them from committing infractions.

The Governor, CBN, Mr. Godwin Emefiele, while announcing the change in the management of Skye Bank Plc, said the outgoing management could not help the bank from constantly coming to the apex bank’s window to borrow funds to cover its shortfalls.

Meanwhile, the CBN sold $660 million in three and five-month currency forwards at an auction aimed at clearing a backlog of dollar demand yesterday.

The auction came after the apex bank asked commercial lenders to bid in a special currency auction targeted at clearing backlog of dollar obligations of manufacturing, airlines, agriculture and petroleum sectors.

Traders said the result of the auction was announced late Tuesday while payment for the dollar sales was due on Wednesday.

This is the first major dollar sales to the key sector by the CBN this year in a bid to spur growth and revive Africa’s biggest economy, which slipped into recession last year due to currency crisis necessitated by drop in global oil prices.

Nigeria is in its first recession in 25 years, caused largely by the oil price drop, which has cut the supply of dollars needed to fund imports.

The dollar shortage in the Nigeria crude sales make up two thirds of government revenue, has caused many companies to halt operations and lay off workers, compounding its economic crisis.

The local currency is quoted at N498 to the dollar on the black market, same level since last week, while commercial lenders are quoting N314 to the dollar at the interbank market on Wednesday.


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