By Jeph Ajobaju, Chief Copy Editor
Special Bills with unique features have been introduced by the Central Bank of Nigeria (CBN) to control money supply and boost the financial markets.
It also claims the instrument gives it an additional liquidity management tool for the financial system.
A disclosure signed by CBN Director of Banking Supervision, Bello Hassan, quoted by Nairametrics, said the “Nigeria Special Bills” contain the following features
· A tenor of 90 days.
· Zero coupon, as the applicable yield at issuance will be determined by the CBN.
· Tradable among banks, retail and institutional investors.
· Not accepted for repurchase agreement transactions with the CBN and not discountable at the CBN window.
· Qualify as liquid assets in the computation of liquidity ratio for deposit money banks.
The CBN yanked off retail and institutional investors from accessing the highly lucrative Open Market Operations bills where yields were previously high.
Nairametrics says it is unclear if these bills will replace the OMO bills or are permanent.
CBN aim
The CBN aims to use the Special Bills securitise the excess Cash Reserve Requirement balances of banks by offering them short-dated zero-coupon special bills.
· Since May 2020, the CBN has sequestered over N6 trillion as part of its CRR debits of the accounts of deposit banks.
· It expects commercial banks to maintain a loan to deposit ratio of 65 per cent and thus debits the accounts of those who do not meet this target for excess deposits.
· The new instrument provides banks with a tool they can offer to investors in exchange for a return. They can sell the Special Bills to investors who need fixed income instrument.
The Special Bills are in line with the CBN’s goal of “ensuring optimal regulation of systemic liquidity and promoting efficient financial markets in support of economic recovery and sustained growth.”
But there could be more this, according to Nairametrics.
Pressure from banks that have complained about frequent debits may have resulted in this new Special Bills. In some earnings calls listened into by Nairametrics, banks often cite the drop in their interest income and margins.
The CBN is expected to further clarify the new instrument and its pricing in the coming days.