Nigeria’s central bank offers liquidity cushion to non-interest financial institutions through two new instruments

Nigeria’s central bank Thursday said it was offering liquidity access to non-interest financial institutions (NIFIs) operating in the country through the introduction of two new financial instruments for the purpose of aiding liquidity management and deepening the financial system.

The new facilities, which will be available to the institutions through the apex bank’s window, are the Funding for Liquidity Facility (FfLF) and the Intra-day Facility (IDF).

The non-interest financial institutions that would be eligible to access the FfLF are expected to either be in clearing and have a temporary debit balance and or have a liquidity problem, the central bank circular stated.

The circular signed by Alvan Ikoku, the bank’s director in charge of financial markets department and sent Wednesday to all NIFIs licensed by the central bank, but made public Thursday, outlined key features of both instruments whose major purpose is to provide liquidity to help NIFI’s tide themselves when constrained and such a need arises.

The liquidity to be provided by the Nigeria central bank would come in the form of a loan that requires collateral of a minimum of 110 percent, the circular stated. For the FfLF, for instance, among others, the circular stated as features the following:

Provision of overnight liquidity facility on overnight basis only, to be terminated on next day basis; NIFIs to provide eligible securities to the CBN as collateral for the facility; the value of collateral to be a minimum of 110 percent of the value of the facility; the CBN to specify acceptable collateral from time to time, including but not limited to CBN Safe Custody Account (CSCA) Deposit, CBN Non-Interest Note (CNIN), CBN Asset-Backed Security (CBN-ABS), Sukuk (that has received liquidity status from the CBN), among others.

See also: Nigeria’s central bank governor says monetary policy offers limited tools for economic recovery

The central bank also stated that the transaction under this window shall be at zero percent interest rate, with opening hours for the FfLF being between 2.00 p.m. and 3.30 p.m. and that it was expected to be terminated on commencement of the next business day.

When the FfLF matures, the central bank circular stated that the transaction unwinds and the CBN receives back its funding and returns the collateral to participating NIFIs, adding that “failure to provide adequate funding in the account for the un-winding of transaction at maturity, the Bank (CBN) shall rediscount the pledged securities at par and recover the facility amount and return the net value to the NIFI.”

The features of the Intra-day Facility (IDF) are essentially the same as those of the FfLF, particularly with regard to the requirement of the 110 percent collateral principle, the circular stated, adding that the CBN will provide the IDF for the purposes of settlement same business day.

But the operating hours for the IDF will run between 9.00 a.m. and 2.30 p.m. with repayment expected to be made between the hours of 10.00 a.m. and 3.00 p.m. each business day.