Dipo Olowookere
By Dipo Olowookere
The Central Bank of Nigeria (CBN), in a bid to aid liquidity management and deepen the financial system, has introduced two new financial instruments called the Funding for Liquidity Facility (FfLF) and Intra-day Facility (IDF) at its window, for access by licensed Non-Interest Financial Institutions (NlFls).
A statement issued by the apex bank explained that the Funding for Liquidity Facility (FfLF) allows the CBN to provide a liquidity facility on overnight basis only and to be terminated on next business day.
According to the statement, authorized Non-Interest Financial Institution (NIFI) will provide eligible securities to the CBN as collateral for the facility.
It said the value of collateral will be a minimum of 110 percent 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 (that is N10 ” 1.1=N11 billion).
“The CBN shall specify acceptable collateral(s) 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 liquidity status from the CBN), Warehouse Receipt(s) 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 a zero per cent interest rate.
“The opening hours for FfLF shall be between 2.00pm — 3.30pm, and terminated on commencement of next business day.
“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 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 Market Support Committee (MSC) may approve an administrative charge in relation to the facility as it deems fit (in accordance with Section 4 (I) of the “Guidelines for the Operation of NIFI instruments by the CBN)”.
“The determination of the administrative charge would be based on the cost borne in providing the facility, which includes communication/correspondence cost; Printing/Stationary cost; and any other direct and actual cost(s) that do not contravene the principles of non- interest banking as provided in the CBN guidelines,” the apex bank said in the statement.
It added that the NIFI must be either in clearing and have a temporary debit balance and / or have a liquidity problem.
For the second instrument, the Intra- day Facility (IDF), the statement said the CBN will provide an Intra-day Facility (IDF) for settlement same business day and authorized NIFI shall provide eligible securities as collateral for the facility.
Also, the value of eligible securities shall be a minimum of 110 per cent of the value of the intra-day facility required by the NIFI.
For example, if a NIFI wishes to take an IDF of N10 billion, it would be required to provide eligible security collateral worth N11 billion (that is, N10 * 1.10 = N11 billion)
In addition, the CBN shall specify acceptable collateral(s) from time to time, which shall include, 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 regulatory treatment by the CBN), Warehouse Receipt(s) 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 operating hours for the IDF shall be between 9.00 a.m. and 2.30 p.m.
“Repayment of the IDF shall be between the hours of 10.00 a.m. and 3.00 p m. each business day.
“At termination, the transaction unwinds and the CBN receives back its funding and returns the collateral securities to the NIFI,
“In the event of failure to repay the IDF as and when due, the CBN shall rediscount the pledged securities at par and recover the facility amount and return the net value to the NIFI.
“The Market Support Committee (MSC) may approve an administrative charge in relation to the facility as it deems fit (in accordance with Section 4 (I) of the “Guidelines for the Operation of NIFI instruments by the CBN)”.
“The determination of the administrative charge would be based on the cost borne in pr0viding the facility, including but not limited to communication/correspondence cost; Printing/Stationary cost; and any other direct and actual cost(s) that do not contravene the principles of non- interest banking as provided in the CBN guidelines,” the statement said.
