CBN Introduces Two New Non-interest Banking Instruments

In a bid to aid liquidity management and deepen the financial system, the Central Bank of Nigeria (CBN) has introduced two new financial instruments known as – Funding for Liquidity Facility (FfLF) and Intra-day Facility (IDF), at its window, for access by non-interest financial institutions (NIFIs) under its regulation.

The central bank stated this in a circular signed by its Director, Financial Markets Department, Dr. Alvan Ikoku, a copy of which was posted on its website friday.

This central bank listed some of the features of the FfLF to include that it would provide liquidity facility on overnight basis only and to be terminated on next business day.

Some other features include: “Authorised non-interest financial institutions to provide eligible securities to the CBN as collateral for the facility. The value of the collateral to be maximum of 110 per cent of the value of the facility. For example, if a NIFI wishes to take a FfLF of N10 billion, it would be required to provide eligible security collateral worth N11 billion.

“The CBN shall specify acceptable collaterals from time to time. These shall include, but not limited to the following securities: CBN safe custody account (CSCA) deposit, CBN non-interest note (CNIN), CBN Asset-backed security (CBN-ABS). Sukuk (that has received status from the CBN, warehouse receipts as provided in the CBN Act 2007, and any other collateral designated by the CBN that does not contravene the CBN guidelines for NIFI’s operations.
“The transaction shall be at zero per cent interest rate. At maturity, the transaction unwinds and the CBN receives back its funding and returns the collateral to the NIFI. Failure to provide adequate funding in the account for the unwinding of transaction at maturity, the CBN shall rediscount the pledge securities at par and recover the facility amount and return the net value to the NIFI,” it explained.

On the other hand, it listed some of the features of the IDF to include that the CBN would provide an IDF for settlement, on same day business while authorised NIFI are expected to provide eligible securities as collateral for the facility.