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Buhari CBN

CBN issues new lending rules for commercial banks, announces sanctions

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As part of its sustained efforts in controlling financial activities, the Central Bank of Nigeria (CBN) has 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.

In a circular to announce the new regulation, the apex bank also said it will penalise Deposit Money Banks that have liquidity challenges with a temporary suspension from its lending window.

According to CBN, 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 said in parts; ‘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.”

“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.”

SLF 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.

Just as analysts say the new rules were meant to help the CBN to assess the quantum of liquidity in each bank, they argued that the new regulation will assist the regulator to identify banks that are having liquidity problems.

Apart from keeping commercial banks on their toes, the rule will help banks to desist from unethical practices and stop them from committing infractions.


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