CBN introduces “Special Bills” as part of efforts to control money supply in the economy

The Central Bank of Nigeria has announced the introduction of a Special Bill with unique features.

By Chidi Emenike

Nigeria central bank has announced the introduction of what it calls the “Nigeria Special Bills” in what it claims is an effort to deepen the financial markets.

The apex bank also claims the instrument avails it with an additional liquidity management tool for Nigeria’s financial system.

In a disclosure, signed by the Director of Banking Supervision of CBN, Bello Hassan, and seen by Nairametrics, it said the Special Bills contained the following features

1. It has a Tenor of 90 days
2. It comes with Zero coupon, as the applicable yield at issuance will be determined by the CBN.
3. The instrument will be tradable amongst banks, retail and institutional investors.
4. The instrument shall not be accepted for repurchase agreement transactions with the CBN and shall not be discountable at the CBN window.
5. The instrument will qualify as liquid assets in the computation of liquidity ratio for deposit money banks.

The central bank, yanked off retail and instituional investors from accessing the highly lucrative Open Market Operations bills where yields were previously high. It is unclear if this bills will replace the OMO bills or is permamnent.

What this means: With the introduction of the new Special Bills, the CBN aims to securitize the excess Cash Reserve Requirement balances of local banks by offering them short-dated zero-coupon special bills.

• Since May 2020, the central bank has sequestered over N6 trillion as part of its CRR debits of the accounts of deposit banks.
• Nigeria’s central bank expects commercial banks to maintain a loan to deposit ratio of 65% and thus debits the accounts of commercial banks who do not meet this target for excess deposits.
• According to Nairametrica analysts, this new bill provides the banks with an instrument which they can offer to investors in exchange for a return. For example, the banks can sell the “Special Bills” to investors who need fixed income instrument.

Why it matters: The claims the Special Bills is 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,” however Nairametrics undertands there could be more to this.

However, Nairametrics believes pressure from the banks who have complained about the frequent debits may have resulted in this new Special Bills. In some of the earnings calls listened into by Nairametrics, banks have often cited the drop in their interest income and margins.

What they are saying: A part of the recent CBN disclosure read thus: “The Central Bank of Nigeria (CBN) hereby announces the introduction of Special Bills as part of efforts to deepen the financial markets and avail the monetary authority with an additional liquidity management tool.”

What to expect: The CBN is expected to further clarify the issue and pricing of the recent instrument in coming days.

Chidi Emenike