The Central Bank of Nigeria (CBN) has made it compulsory for all current and intending settlement banks in the country to have treasury bills valued at ₦15 billion, which will be used as collateral for their settlement roles.
This was disclosed in the apex bank’s recently published Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2018/2019.
In addition to the ₦15 billion collateral requirement, prospective settlement banks will also be required to be capable of providing agency facility to other banks, clear on their behalf, and have enough branches across locations where the CBN is currently located. The compulsory collateral of ₦15 billion will be subject to periodic reviews.
Any bank applying for direct participation as a settlement bank shall be required to possess the capacity to provide the required clearing collateral of N15 billion, subject to periodic review. It shall have the ability to offer agency facilities to other banks and to clear and settle on their behalf. It shall also have an adequate branch network, in all the CBN locations.
The apex bank further stated that it would keep categorising banks into settlement and non-settlement banks, such that settlement banks would be those who are directly involved in the clearing houses, while the non-settlement banks who will not.
Banks that meet the specified criteria shall continue to be designated as “Settlement Banks.” Consequently, non-settlement banks, called “Clearing Banks” shall continue to carry out clearing operations through the settlement banks under agency arrangement. The terms of agency arrangements shall be mutually agreed between the Settlement Banks and the Clearing Banks.
Meanwhile, the CBN also restated its commitment to keep using the risk-based supervision (RBS) method for all regulatory purposes. This is with the objective of providing effective assessment of the safety and soundness of financial institutions in the country. The risk-based supervision method for banks “is achieved by evaluating their risk profile, financial condition, risk management practices and compliance with applicable laws and regulations.”
On a final note, the CBN directive required banks to seek profitability, albeit legally. It also enjoined banks to desist from charging excessive rates. In the same vein, lenders are to formulate the habit of publicly declaring their prime and maximum rates for lending.