The Central Bank of Nigeria (CBN), prevented commercial banks from buying bills for their own accounts at an open market auction held on Thursday, July 18, 2019. This, according to traders, was because the apex bank wanted to force the banks to lend rather than invest in government debt.
While it is unclear if the CBN ban applied to Thursday’s auction alone, the apex bank made it known that bids must be backed by customer demand.
Thursday’s auction: At Thursday’s open market auction, the central bank offered N75 billion of bills, drawing demand totaling N475 billion for various maturities. The apex bank sold one-year bills at a yield of 12.25 percent.
According to a trader, the auction was aimed at non-bank investors. The trader also claimed that the CBN has considered offering bills directly to foreign investors to support the naira currency.
With the new development, Nairametrics understands that the CBN is advancing its move to make credit facilities available to the real sector. This is expected to revive the economy.
CBN’s approach: In a bid to end banks’ reluctance to lend to the real sectors, the Central Bank directed that banks’ daily deposits placement through the CBN’s Standing Deposit Facility (SDF), shall no longer exceed N2 billion.
This new policy was recently disclosed in a circular titled, “Guidelines on accessing the CBN Standing Deposit Facility.”
Penalty: According to the circular signed by the Director of Financial Markets Department of the apex bank, Angela Sere-Ejembi, daily deposits by any bank in excess of N2 billion shall not attract interest payments.
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Why the new policy matters: In recent times, deposit money banks have been reluctant to lend to the key sectors, a trend which the CBN is determined to put an end to. Hence, the aim of the latest directive is to unlock the credit market, whilst making funds available to the real sector which, currently, is starved of funds. Ultimately, this will encourage lending activities and stabilise as well as encourage economic growth.