New CBN’s SDF Policy May Reduce Liquidity Mgt Cost, Analysts Say


Obinna Chima

The new Central Bank of Nigeria’s (CBN) policy on Standing Deposit Facility (SDF) which became effective yesterday, may lead to a reduction in cost of managing system liquidity for the banking sector regulator, analysts have said.

The CBN announced on Wednesday that it would no longer remunerate daily bank deposit in excess of N2 billion placed at its SDF.

The SDF is a window where banks can place excess funds overnight with the CBN. The interest to be earned on such funds is determined with reference to the lower band of the asymmetric corridor around the Monetary Policy Rate as prescribed by the Monetary Policy Committee (MPC).

Commenting on the development, the Head of Research and Strategy at the FSDH, Mr. Ayodele Akinwunmi, also said the central bank would now have access to more funds from the banking system at no cost than before.

“This means that the amount of excess money that Nigerian banks can place with the CBN to earn overnight interest rate of 8.5 per annum has been reduced from N7.5 billion to N2 billion. Any amount in excess of N2billion will not earn interest income for banks.

“This, in a way, will reduce the interest income of banks going forward. It will also force banks to trade more with one another in the interbank market than before.

“It may also reduce the cost of managing system liquidity for the CBN as the apex bank will now have access to more funds from the banking system at no cost than before.

“In addition, interbank interest rates may drop further as a result of increased system liquidity.

“This is part of the efforts of the CBN to increase banks’ credit to the real sector of the economy in order to stimulate growth of the economy,” he explained in a note to THISDAY.

However, he reiterated the need for efforts of the CBN to be supported by appropriate fiscal policies and incentives to reduce the risk of lending to the economy and also develop new businesses and sectors that bank loans can be directed to.

But a banking analyst at Moody’s, Peter Mushangwe, said the latest measure signalled the central bank’s intention to stimulate lending to the real economy.

“However, in our view, this directive is unlikely to force Nigerian banks to grow their lending aggressively. Already, banks were only remunerated up-to N7.5 billion, and any amount above N7.5 billion was not remunerated.

“Assuming banks would lend out amounts above the new N2 billion placement ceiling, the additional lending would be only N5.5 billion per bank, and will likely be less than one of total loans outstanding. In our view, the additional liquidity will likely move to the interbank market rather than lending.”

But analysts at CSL Stockbrokers Limited, maintained that, “measures such as these fail to address the fundamental issues behind banks’ reluctance to lend and would only result in banks looking for innovative ways to get around the rules.”

According to the firm, the low risk appetite among banks for lending to the real sector could be attributed to the high risks in the operating environment which hinders the survival of SMEs and the profitability of businesses in general.