… as apex bank denies, says directive only affects OMO

Following an earlier report that the Central Bank of Nigeria (CBN) has ordered commercial banks and other financial institutions not to sell treasury bills to individuals and small firms from November 29, 2019, the apex bank has said its directive only affect the Open Market Operations.

What it means: The development means that the treasury bills is still open to individuals and small firms.

CBN directed that all banks to exclude individuals and local corporates from investing in Open Market Operations (OMO) auctions with effect from October 23, 2019.

In a circular signed by Director, Financial Markets Department, CBN, Angela Sere-Ejembi, and cited by Nairametrics, the banker insisted that participation of the financial institutions at the auction should be on proprietary and non-proprietary basis, without the participation of the investors mentioned above.

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Good side of the directive: The development is expected to drive foreign inflows by restricting individuals and local corporate, leaving only the banks and foreign investors to participate at the auction.

Nairametrics huwaii

On the flip side: There are concerns by some experts that the direction of the apex regulator is still unclear.

For instance, Comercio Partners Limited explained that its concerns remain the seeming unclear direction of the CBN with regards to monetary policy.

It stated, “This is a follow up to the circular released last week warning banks that all demand at auctions must be effective and fully backed by appropriate funding after observing high levels of unfunded bids at the OMO auction.  

“Whether this is a move aimed at protecting the Naira, checking the excesses of banks or managing its OMO issuance cost, the move would certainly engender some level of uncertainty, which markets do not like.”  

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However, the report indicated that it is only big corporate organisations that would be allowed to do treasury bills investments and that the banks were already notifying their customers of the new directive. But the existing treasury bills investments would be allowed to continue till the end of their maturity dates.

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Treasury, bills, calendar, Central Bank

If the apex regulator reverse it’s move to restrict individuals from trading treasury bills, it could also lead to an increase in savings deposits of the banks, attracting interest rates below what the treasury bills offered.

A source from the CBN, who pleaded anonymity as the bank would soon issue an official statement, said the move was to stop the mop-up of funds from the system through the treasury bills.

[READ MORE: CBN sets up committee to recover N36 billion credit facility]

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Why CBN gave the directive: He said, “Many people with huge cash prefer to keep their funds idle in treasury bills instead of investing the funds. Some people collect huge severance package, have huge funds but they have refused to invest the money. 

“We want these funds to be useful in the economy so that they will be available in the banks and can be invested to create more jobs in the country.” 

6 COMMENTS

  1. CBN has said that it is not excluding individuals from treasury bills only from the OMO space. Is this something you want to clarify for your readers? Thanks in advance.

  2. Excluding individual from treasury bill,there must be another avenue provided by which individual can grow. The young must grow. There should not be any restriction.

    • Is an open market, why excluding individual investors, something is wrong , the upper class, owners of strong cooperations want to keep it to themselves via the CBN. That mean it is only for the big wigs.
      Those at the other side of the divide should to invest in other terrains. Remember there is no more box to think out of it, just think and start-up.

  3. Does this mean individuals can no longer buy treasury bills through their banks? Why deny individuals of their rights to invest their funds in a relatively safe investment avenue?

  4. I think, when policies are rolled out, the issuing institution, need to look at both sides of the coin. It was 50M, & above, now individual, monetary policy makes think twices.

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