THE Central Bank of Nigeria, (CBN), has lifted the ban on its lending to banks, adjusting the rate upward to 31.75 per cent interest rate.
Banks borrow short-term funds from the CBN through a channel known as the Standing Lending Facility (SLF).
Similarly, CBN raised the Standing Deposit Facility (SDF) rate to 25.75 per cent.
The SDF is the means banks use to deposit money with the apex bank.
The Nigerian bankers’ bank disclosed this in two separate circulars released on Monday, August 26.
The circulars were signed by the CBN director of the financial markets department, Omolara Duke.
Financial experts believe that the SDF is part of CBN’s efforts to manage liquidity in the financial system.
According to CBN, the rate increase of the SLF was based on the decision of the Monetary Policy Committee (MPC) to adjust the upper corridor of the standing facilities to 5.00 per cent from 1.00 per cent around the monetary policy rate (MPR) at its 296th meeting.
It said commercial and merchant banks would earn a 19 per cent interest rate on deposits above N3 billion in its Standing Deposit Facility (SDF).
“The Monetary Policy Committee (MPC) adjusted the upper corridor of the standing facilities to 5.00 per cent from 1.00 per cent around the MPR, at its 296th meeting.
“The suspension of the Standing Lending Facility (SLF) is hereby lifted and Authorised Dealers should send their request for SLF through the Scripless Securities Settlement System (S4) within the operating hours of 5.00 pm to 6.30 pm,” CBN said.
It explained that authorised dealers were permitted to access the SLF at 31.75 per cent; intraday lending facility (ILF) to avoid system gridlock at no cost if repaid the same day.
It retained the 5.00 per cent penalty, as stated in the S4 business rules, for participants who do not settle their ILF, which the system would convert to SLF at 36.75 per cent.
The apex bank reintroduced the collateral execution, that is the rediscounting of instruments pledged by participants at the penal rate by CBN, as stipulated in the approved repo (repurchase agreement) guidelines.
The repo means the same as the interest rate at which the CBN loans money to commercial banks.
On SDF, the apex bank said, “Under sections 12 and 30 of the CBN Act 2007, the Monetary Policy Committee (MPC), at its 296th meeting adjusted the Asymmetric Corridor to +500/-100bps from +100/-300bps around the Monetary Policy Rate (MPR).”
CBN explained that the adjustment of the SDF would be operationalised in a way that commercial and merchant banks enjoy 25.75 per cent for deposits up to N3.00 billion and 19 per cent for excess deposits above the initial N3.00 billion.
For payment service banks, 25.75 per cent would be for deposits up to N1.50 billion and 19.00 per cent for excess deposits above the initial N1.50 billion.
The rates increase in the SLF and SDF besides the incentives take immediate effect, the apex bank added.
The ICIR reported that the apex bank at its last monetary policy committee (MPC) in July raised the MPR rate by 50 basis points to 26.75 per cent.