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By CHUKWUMA KELECHUKWU
In obvious move to discourage dumping of idle cash at the Standing Deposit Facility (SDF), the Central Bank of Nigeria (CBN) has limited interest payment on bank deposits to amount not exceeding N2billion.
Banks dump excess cash at the CBN facility for overnight lending to other banks in critical need of cash on interest not only based on benchmark interest rate but also demand and supply.
Lenders awash with liquidity make brisk business daily by lending to other banks, and consequently deny credit to productive sector and households.
It is against this backdrop, that the apex bank issued the ‘Guidelines on accessing the CBN Standing Deposit Facility’, which limits interest payment on bank daily placements on SDF to N2billion only.
The circular signed by the Director, Financial Markets Department, Angela Sere-Ejembi, and sent to all banks on Wednesday said the provisions of the circular took effect on Thursday, July 11.
The circular reads in part, “With reference to the circular to all banks and discount houses, Re: Guidelines on accessing the CBN Standing Deposit Facility, Ref: FMD/DIR/GEN/CIR/05/020 and dated November 6, 2014, after further review, the remunerable daily placements by banks at the SDF shall not exceed N2bn.
“The SDF deposit of N2bn shall be remunerated at the interest rate prescribed by the Monetary Policy Committee from time to time.
“Any deposit by a bank in excess of N2bn shall not be remunerated.
“The provisions of this circular took effect on July 11, 2019.”
In the November 6, 2014 circular, the CBN had expressed worry over lenders’ preference for keeping their idle balances at the CBN in the SDF, saying it constrained lending to the productive sector of the economy.
Before now, CBN guideline set remunerable deposit limit of N7.5billion at 10 per cent interest per annum.
BADEJO ADEMUYIWA has 23 years experience as a Finance Writer, specialising in Insurance and Investigative Reporting.
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