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CBN issues revised guidelines on lending windows
The Central Bank of Nigeria (CBN), has issued a revised guideline to all Banks and Discount Houses in Nigeria on how to access the it’s Lending Windows and Repurchase Transactions.
The apex bank directive was contained in a circular dated July 26 2012 with reference number BSD/DIR/ GEN/LWR/ 05/047, which was signed by A.O Idris, for the bank’s Director of Banking Supervision.
“As part of the process of unwinding the extraordinary measures introduced in the wake of the Global Financial Crisis and to ensure the effectiveness of Monetary Policy, any Bank or Discount House that obtains funds from any CBN Lending Window is not allowed to simultaneously place Funds in the Inter-Bank Market” the Circular said.
According to the CBN, Deposit Money Banks/Discount Houses that also place funds on the Inter-Bank Market are not allowed to concurrently access the Window.
The CBN said any Institution that contravenes the policy will be suspended from the Apex Bank’s Money Market Window. In addition, the Institution shall forfeit the profits it would have made on the transaction.
The CBN further affirmed that the Circular takes immediate effect and supersedes all others relating to the subject.
Nigeria’s CBN had earlier released guidelines for the conduct of repurchase transactions under its standing facilities.
It can be recalled that the International Monetary Fund (IMF), gave its approval to the restrictive monetary policy stance adopted by the CBN’s Monetary Policy Committee (MPC) since last year.
The IMF stated this in its recently released staff report for 2011 Article IV Consultation.
Part of the 80-page document, also recommended that the apex bank focuses on a clear inflation objective and allow for gradual adjustment of the naira.
The MPC had recently surprisingly increased the Cash Reserve Ratio (CRR) to 12 per cent, from 8 per cent. The committee had also reduced the Net forex Open Position (NOP) to 1 per cent from 3 per cent. However, the MPC left the Monetary Policy Rate (MPR) unchanged at 12 per cent and also kept the Standing Deposit Facility (SDF) and Standing Lending Facility (SLF) rates on hold at 10 per cent (MPR-200 bps) and 14 per cent (MPR+200 bps).
But the IMF said: “Staff supported the tightening of monetary policy over the past year and the adjustment of the soft exchange rate band last October.
Staff discussed the CBN’s decision to intervene heavily in the forex market during much of 2011 to avoid a depreciation of the currency.
“Staff considered that this policy could have risked excessively depleting reserves. Staff recommended focusing on a clear inflation objective and allowing gradual adjustment of the naira over time in response to market conditions.
“It indicated that more empirical work on the pass-through from exchange rates to inflation would strengthen the CBN’s ability to detect and respond to inflationary pressures. With increased openness of the capital account, the exchange rate will become more sensitive to interest rate differentials and shifts in international investor sentiment.”
The IMF argued that with the recapitalisation of the then rescued banks in late 2011, the resolution of the 2009 banking crisis had been largely achieved.
It also welcomed the initiatives to strengthen regulatory and supervisory framework in Nigeria.
“Stricter regulations on corporate governance and risk management; programmes to improve the CBN’s ability to assess systemic risks; and initiatives to boost cross-agency and cross-border cooperation among regulators will help to avoid a repeat of conditions that prevailed prior to the 2009 crisis,” it added.
