The Central Bank of Nigeria (CBN) has officially lifted the suspension on the Standing Lending Facility (SLF), a key mechanism that banks use to manage short-term liquidity needs. This decision comes after the Monetary Policy Committee (MPC) made significant adjustments to monetary policy rates during its 296th meeting.
New Operational Guidelines
In a statement signed by Dr. Omolara O. Duke, Director of the Financial Markets Department, the CBN outlined new guidelines that authorized dealers must follow:
- SLF Interest Rate: The interest rate for accessing the SLF is now set at 31.75%, reflecting a significant increase aimed at better managing liquidity within the banking system.
- Intraday Liquidity Facility (ILF): Dealers can access the ILF at no cost, provided the funds are repaid within the same day. This provision is designed to prevent systemic gridlock and ensure smooth financial market operations.
- Penalties for Late Settlement: A five percent penalty remains in place for participants who fail to settle their Intraday Liquidity Exposures (ILEs) by the end of the day. Any unsettled ILEs will automatically convert to an SLF, charged at a higher penal rate of 36.75%. This measure enforces discipline and timely settlements among market participants.
- Rediscounting Instruments: The CBN has reinstated the practice of rediscounting collateral pledged by participants, applying the penal rate as per approved repo guidelines. This move aims to tighten financial discipline among banks.
- Submission Window for SLF Requests: Authorized Dealers must submit their SLF requests through the Scripless Securities Settlement System (S4) between 5:00 PM and 6:30 PM to ensure efficient processing and avoid disruptions.
Monetary Policy Adjustments
The lifting of the SLF suspension follows the MPC’s decision to adjust the standing facilities’ corridor. The upper corridor around the Monetary Policy Rate (MPR) was raised to 5.00% from 1.00%, a move intended to tighten monetary policy, curb inflationary pressures, and stabilize the economy.
Changes to Standing Deposit Facility (SDF)
The CBN also announced changes to the Standing Deposit Facility (SDF) rate, now set at 25.75%. The rate applies to deposits up to N3 billion for Commercial and Merchant Banks, with excess deposits above this threshold charged at 19.00%. For Payment Service Banks, deposits up to N1.50 billion will attract the 25.75% rate, with excess deposits also charged at 19.00%.
These adjustments align with the MPC’s decision to alter the Asymmetric Corridor around the MPR to +500/-100 basis points, moving from the previous +100/-300 basis points, as stipulated in sections 12 and 30 of the CBN Act 2007.
Impact on the Banking Sector
The new guidelines and rates are expected to have immediate effects across the banking sector. Higher SLF rates could lead to tighter liquidity conditions, prompting banks to reassess their short-term funding strategies. The adjustments to the SDF may also influence how financial institutions manage their excess reserves.
Enforcement and Compliance
The CBN’s reintroduction of stricter penalties and collateral execution underscores its commitment to enforcing prudent risk management practices within the financial sector. The new regulations take effect immediately, and all Authorized Dealers are required to comply with the updated guidelines.