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Financial Services

CBN introduces “Special Bills” as part of efforts to control money supply in the economy

The Central Bank of Nigeria has announced the introduction of a Special Bill with unique features.

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CBN Gov Godiwn Emefiele

Nigeria central bank has announced the introduction of what it calls the “Nigeria Special Bills” in what it claims is an effort to deepen the financial markets.

The apex bank also claims the instrument avails it with an additional liquidity management tool for Nigeria’s financial system.

In a disclosure, signed by the Director of Banking Supervision of CBN, Bello Hassan, and seen by Nairametrics, it said the Special Bills contained the following features

READ: CBN Governor alleges parallel market used for bribes and corruption

  1. It has a Tenor of 90 days
  2. It comes with Zero coupon, as the applicable yield at issuance will be determined by the CBN.
  3. The instrument will be tradable amongst banks, retail and institutional investors.
  4. The instrument shall not be accepted for repurchase agreement transactions with the CBN and shall not be discountable at the CBN window.
  5. The instrument will qualify as liquid assets in the computation of liquidity ratio for deposit money banks.

The central bank, yanked off retail and instituional investors from accessing the highly lucrative Open Market Operations bills where yields were previously high. It is unclear if this bills will replace the OMO bills or is permamnent.

Specta

READ: Frantic CBN allows diaspora remittances to be withdrawn in dollars and sold anywhere including black market

What this means: With the introduction of the new Special Bills, the CBN aims to securitize the excess Cash Reserve Requirement balances of local banks by offering them short-dated zero-coupon special bills.

  • Since May 2020, the central bank has sequestered over N6 trillion as part of its CRR debits of the accounts of deposit banks.
  • Nigeria’s central bank expects commercial banks to maintain a loan to deposit ratio of 65% and thus debits the accounts of commercial banks who do not meet this target for excess deposits.
  • According to Nairametrica analysts, this new bill provides the banks with an instrument which they can offer to investors in exchange for a return. For example, the banks can sell the “Special Bills” to investors who need fixed income instrument.

Why it matters: The claims the Special Bills is in line with the “CBN’s goal of ensuring optimal regulation of systemic liquidity and promoting efficient financial markets in support of economic recovery and sustained growth,” however Nairametrics undertands there could be more to this.

However, Nairametrics believes pressure from the banks who have complained about the frequent debits may have resulted in this new Special Bills. In some of the earnings calls listened into by Nairametrics, banks have often cited the drop in their interest income and margins.

READ: Bankers’ Committee embarks on cybersecurity & fraud awareness initiative, launches Moni Sense campaign

What they are saying: A part of the recent CBN disclosure read thus: “The Central Bank of Nigeria (CBN) hereby announces the introduction of Special Bills as part of efforts to deepen the financial markets and avail the monetary authority with an additional liquidity management tool.”

What to expect: The CBN is expected to further clarify the issue and pricing of the recent instrument in coming days.

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Chidi Emenike is a graduate of economics, a Young African Leadership Initiative Fellow and an Investment Foundations certificate holder. He worked as a graduate Teaching Assistant in the Federal College of Education Kano and is also a trained National Peer Group Educator on Financial Inclusion

1 Comment

1 Comment

  1. Stanley

    December 3, 2020 at 6:38 am

    The CBN is doing a good job with regulating financial institutions, but should be cautious not to overdo it. However, it is obvious that the ability of the financial sector to spur the larger economy remains very low despite the best efforts of the CBN. Decades of misappropriation and embezzling of funds meant for infrastructural development at all levels, are taking their toll on the economy and there are no shortcuts to bridging this infrastructural gap. Even the current government seem overwhelmed, while the impact of her borrowings for capital expenditures remains very insignificant. We are now reaping the end results which include poor business survival rates, lack of effective production value chains, skyrocketing costs, poor production potential and competitiveness. These are evident, even in the performance of most top publicly quoted local manufacturers in the country who have seen the size of their businesses shrink significantly over the years due to exploding costs etc, thereby limiting their capacity to expand into and compete in other regional markets. Even when a handful of these companies see occasional growth in certain performance ratios, it still lags behind the rate of the local currency devaluation. For SMEs in production, it’s more of a battle for survival than anything else.

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Debt Securities

Ecobank Nigeria secures N50 billion 10-Year subordinated loan

Ecobank Nigeria has secured a N50 billion, 10-year bilateral subordinated loan.

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Ecobank Nigeria

Ecobank Nigeria, a subsidiary of Ecobank Transnational Incorporated (‘’ETI’’) has announced that it has secured a N50 billion, 10-year bilateral subordinated loan.

This is according to a disclosure signed by the Group Head, Adenike Laoye and sent to the Nigerian Stock Exchange, as seen by Nairametrics.

The bilateral funding will enable the bank to maintain stable liquidity and improve its balance sheet, especially the capital adequacy ratio by an estimated circa 300 basis points.

What they are saying

The disclosure from the bank read thus:

“Ecobank Transnational Incorporated (“ETI”), the parent of the Ecobank Group, announces that one of its significant subsidiaries, Ecobank Nigeria, secured N50 billion, 10-Year bilateral subordinated loan.

Specta

“The bilateral funding provides stable medium-term liquidity to the balance sheet of Ecobank Nigeria and positively improved its balance sheet ratios, especially the capital adequacy ratio by circa 300 basis points. The transaction proceeds would be deployed to support Micro, Small and Medium Scale Enterprises (“MSMEs”) and Small Corporates.”

What you should know

Ecobank Transnational Inc. had earlier recorded 11% rise in its interest income to N139.6 billion for Q3 2020, as captured by Nairametrics.

  • Subordinated loans have lower priority than other debt instruments in case of liquidation. They are only repayable after other debts have been paid.
  • This debt can either be secured or unsecured and it typically has a lower credit rating and higher yield than other senior debt.

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Financial Services

Niger Insurance Plc gets shareholders nod to restructure business

Niger Insurance Plc has announced plans to restructure its insurance business into distinct but mutually dependent business entities.

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Edwin Igbiti

Niger Insurance Plc has obtained shareholders’ approval to restructure its insurance business into general, life and business insurance, with each segment to be structured as a separate legal entity.

This is part of the resolutions passed at the 50th Annual General Meeting of Niger Insurance Plc., held on 20th of January, 2021 at Peninsula Hotel in Lekki, Lagos.

The decision to restructure the company is in a bid to make it more efficient and profitable to stakeholders, especially as efforts are geared towards overturning a loss of about 1,1723.2% Year-on-Year, earlier made by the company in its last reported financial statement, Q2, 2020, as reported by Nairametrics.

Other key decisions reached at the 50th AGM include;

  • The re-appointment of Mr Ebi Enaholo and Mrs. Olufemi Owopetu as Directors of the company.
  • Acceptance of the presented financial statement for the year ended December 31, 2019 and the report of the audit committee, directors and auditors.
  • Directors were authorized to fix the remuneration of the auditors.
  • Directors were authorized to appoint external auditors to replace retiring auditors of the company.
  • The appointment of four individuals as members of the audit committee.
  • A decision to restructure the company’s business capital was also reached.

In case you missed it: The shareholders of Niger Insurance Plc in the 49th Annual General Meeting approved the decision by the company’s board to raise additional capital to the tune of N15 billion, in a bid to meet the revised recapitalization targets for general and life insurance companies.

Specta

What you should know: The House of Representatives had in December 2020 directed NAICOM to suspend the mandatory deadline for the first phase of 50%-60% of the minimum paid-up share capital for insurance and reinsurance firms.

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Financial Services

CBN says revised new cheque book to become fully operational from April 1, 2021

The CN has announced plans to discontinue the use of old cheque books with effect from March 31, 2021.

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The Central Bank of Nigeria (CBN) has in a circular to all Deposit Money Banks (DMBs), accredited Cheque Printers/Personalisers, and the Nigeria Interbank Settlement System (NIBSS), stated that the revised cheque book will become fully operational from April 1, 2021.

The apex bank has directed all DMBs to enlighten their customers on the revised cheque book, introduced across all banks as full enforcement of its usage will commence on the stated date.

READ: CBN reviews minimum interest rates on savings deposit to 1.25%

The disclosure is contained in a circular that was issued by the CBN and signed by its Director Banking Services, Mr Sam Okojere.

The CBN in the circular noted that the clarification became necessary as some stakeholders had been interpreting the circular differently from the intended purpose.

Specta

READ: CBN moves to ring-fence Disco collections

The CBN in the circular stated, ‘’Please refer to our circular dated 9th December, 2020, referenced BKS/DIR/CIR/GEN/02/042 on the above subject.

It has come to our notice that some stakeholders interpret the circular differently from the intended purpose. Consequently, it has become imperative for the CBN to issue the following clarifications;

  1. The parallel run, in which old and new cheques are allowed to co-exist, will end on 31st March 2021, and thus only new cheques would be allowed in the clearing system from 1st April 2021.
  2. Full enforcement of the second edition of the Nigeria Cheque Standard (NCS) and Nigeria Cheque Printers Accreditation Scheme (NICPAS) Version 2.0 will commence April 1, 2021 and the NCS/NICPAS 2.0. Sanction grid will be fully operational on April 1, 2021.
  3. All deposit money banks are (therefore) directed to actively enlighten their customers and ensure necessary provisions are put in place for a smooth migration to the New standard.
  4. The extension of full implementation date from Jan. 1 to April 1, 2021 is due to outbreak of the Covid-19 pandemic and the impact it had on the Nigeria Cheque Standard (NCS) and Nigeria Cheque Printers Accreditation Scheme (NICPAS) Version. 2.

READ: CBN grants approval for banks to debit accounts of loan defaulters 

What you should know

  • It can be recalled that in an earlier circular issued on the revised cheque book, the CBN had put the cut-off date for the parallel run of the old and new cheques at August 31, 2020.
  • This was further extended to December 31, 2020, with only new cheques intended to be allowed in the clearing system from January 1, 2021, due to the outbreak of the coronavirus pandemic and the impact it had on the project.
  • This further adjustment of the deadline gives room for more sensitization by the deposit money banks to their customers, taking into consideration the disruptions that have happened in the economy.

READ: CBN temporarily suspends cheque clearing during Coronavirus lockdown

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