CBN to penalise banks for borrowing without security
The Central Bank of Nigeria (CBN) says deposit money banks who borrow without adequate security will be suspended from the window for eight weeks.
In a circular released on Wednesday, the CBN announced new rules on how banks can borrow cash from fellow banks or the CBN to cover their temporary shortfalls or meet their obligations.
The regulator said that any commercial bank that fails to comply with the new directives will be suspended from its window for eight weeks.
The circular was signed by Alvan Ikoku, director, financial market of the apex bank.
“With reference to Section 10.1 of the S4 business rules and guidelines, which states among others that transaction with the CBN, any auction or two-way quote with the CBN must be settled. If it is in queue, it shall be given highest priority and when it fails to settle, the system shall generate an automatic Intra-day Liquidity Facility (ILF) backed by collateral to settle the transaction,” he wrote.
“Where there are no securities, the allotment shall be cancelled and the defaulter suspended from all auctions for eight weeks, effective from the date of default.
“The ILF shall be bought back or converted to Standing Lending Facility (SLF) by the participant by the close of business day, failing which it shall be automatically converted to SLF at the prevailing SLF rate plus 500 basis points.
“If any SLF is not purchased by the participant by the next business day, such participant shall not be eligible to access the CBN discount window until such outstanding obligation is settled in accordance with Section 27 of the Guidelines for the Conduct of Repurchase Transactions under the CBN Standing Facilities.
“Henceforth, all SLF must be bought back latest by 10am on the maturity date, failing which encumbered securities would be automatically rediscounted.”
With the new rules, CBN hopes to assess the quantum of liquidity in each bank and identify banks that are having liquidity challenges.
The CBN also hopes it may help banks to desist from unethical practices.
There are no comments at the moment, do you want to add one?
Write a comment