The Central Bank of Nigeria has said that banks with cash problems will face suspension as punishment. This was made known in a circular made public yesterday.
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 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 circular, entitled: ‘Amendment of S4 Business Rules and Guidelines,’ said, “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.
“Henceforth, all SLF must be bought back latest by 10am on the maturity date, failing which encumbered securities would be automatically rediscounted.”
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 is hoped that the new rules will also help banks to desist from unethical practices and stop them from committing infractions.