As part of compelling the nation’s banks to perform their financial intermediation roles especially to the private sector, rather than concentrating on government instruments, Central Bank of Nigeria (CBN), on Wednesday set maximum Standing Deposit Facility (SDF) at N2bn.
According to the circular dated July 10, 2019, with reference: FMD/FIR/CON/OGC/12/019, titled “Re: Guidelines on accessing the CBN Standing Deposit Facility, which is a review of the earlier circular dated November 6, 2014, the new ceiling represents just 26.66% of the previously set remunerable daily bank placements of N7.5bn.
The circular signed by Angela Sere-Ejembi (Ph.D.), Director of its Financial Markets Department, at the CBN, said the SDF deposit of N2bn shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time.
The circular warned that with effect from Thursday, July 11, 2019, any deposit by banks in excess of the prescribed sum shall not be remunerated.
The 2014 circular, signed by E.U. Ukeje, Director, the Financial Markets Department, the CBN observed: “that and discount houses have a preference for keeping their idle balances at the Central Bank in the SDF thereby constraining the process of financial intermediation.”
The limit at the time, the CBN continued, was set “to encourage the banks to increase lending to the productive sector of the economy.”
At that time also, the SDF was remunerated at 10% per annum, the floor rate for the absorption of overnight excess liquidity from the banking system by the CBN.
The latest circular is part of efforts by the CBN to compel banks to channel loans to the nation’s real sector.
Only last week, the CBN, on July 3, 2019, circular to all banks, the apex bank ordered deposit money banks to maintain a minimum Loan to Deposit Ratio (LDR) of 60% by September 30, 2019.
Members of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) expressed disappointment that their decision at the meeting of March to cut benchmark Monetary Policy Rate (MPR) has not yielded the expected impact on market rates.
In their personal comment during the meeting of May, published by the apex bank, they expressed worry that rather than impacting credit to the domestic economy, banks continue to concentrate lending on government and risk-free financial assets.
They also noted that although Non-Performing Loans (NPLs) ratio is on the decline, it is still way above the prescribed regulatory threshold. The drop in NPL, they however noted, was driven more by significant asset portfolio write-offs than recoveries.
According to Prof. Festus Adenikinju, a member of the MPC for example, although rates on intermediate financial assets decreased, “maximum and prime lending rates rose in April, while rates on consolidated demand, savings, and terms deposit declined, further worsening the gap between the average lending and deposit rates.”