Banks earned N10.3 billion as interest on idle cash placed as deposit with the Central Bank of Nigeria (CBN) in 12 months from October 2014 to September 2015. This is however 62 percent lower than the N27.25 billion earned in the preceding period from October 2013 to September 2014. Banks access the Standing Lending Facility (SLF) of the CBN to borrow while they access the Standing Deposit Facility (SDF) to place their idle cash as deposit with the CBN.
Quarterly ActivitiesUp until November 24th the CBN charges 15 percent as interest rate on loans to
banks through the SLF while it pays 11 percent as interest on deposit placement through the SDF.
Vanguard analysis of various Quarterly Economic Reports of the CBN revealed sharp reduction in the amount of idle cash placed as deposits with the CBN from October 2014 to September 2015.
Analysis revealed that idle cash placed as deposits with the CBN by banks during this period fell by 70 percent to N24.77 trillion from N81.85 trillion in the preceding 12 months period from October 2013 to September 2014. However, the amount of money borrowed by banks from the CBN through the SLF rose by 33 percent to N6.86 trillion from N5.14 trillion.
According to the CBN Economic report for the first quarter of 2015, “Total request for the standing lending facility (SLF) granted during the review period was N1,644.07 billion (inclusive of intra-day liquidity facility converted to overnight repo), compared with N1,395.97 billion in the fourth quarter of 2014 and N3,169.26 billion in the corresponding quarter of 2014, respectively.
“Total standing deposit facility (SDF) granted during the review period was N4,741.61 billion, while the cost incurred stood at N2.26 billion, compared with the request of N10,986.01 billion and total cost of N4.002 billion in the preceding quarter of 2014.” The Economic Report for the second quarter revealed that “Total request for the standing lending facility (SLF) granted during the review period was N1,081.84 billion (inclusive of intra-day liquidity facility converted to overnight repo), compared with N1,734.26 billion in the first quarter of 2015.
Total Standing Deposit Facility (SDF) granted during the review period was N4,118.89 billion, while the cost incurred stood at N1.997 billion, compared with the request of N4,834.06 billion and total cost of N2.286 billion in the preceding quarter.” The Economic report for the third quarter of 2015 stated, “Developments at the CBN standing facilities window in the review quarter indicated higher patronage at the Standing Deposit Facility (SDF) window than at the Standing Lending Facility (SLF) window.
Total request for SLF transactions in the third quarter was N2,731.18 billion (inclusive of Intraday lending facilities that was converted to overnight repo), compared with N1,092.02 billion in the second quarter of 2015. The total deposit at the SDF window stood at N4, 393.98 billion compared with N4, 637.11 billion in the preceding quarter. This represented a daily average of N79.18 billion, while the interest paid during the review period amounted to N2.02 billion.”
Policy Effect
However, the sharp reduction in amount banks placed as deposit with the CBN was occasioned by a CBN policy that pegged such deposit at N7.5 billion per day for each bank. But on November 24, in order to discourage banks from placing idle cash in the SDF, the CBN reviewed interest rate on the SDF to 4.0 percent.
In a circular to banks on November 6th 2014, signed by the Mr. E.U Ukeje, Director, Financial Markets Departments, CBN, the apex bank stated, “It has been observed that banks and discount houses have preferences for keeping their idle balances at the Central Bank in the standing Deposit Facility (SDF) thereby constraining the process of financial intermediation.
“In order to encourage the banks to increase lending to the productive sector of the economy, the guidelines for the operations of SDF is hereby reviewed as follows: The remunerable daily placements by banks and discount houses shall not exceed N7.5billion. This shall be remunerated at the SDF rate of 10 percent per annum. “Any deposit by a bank or discount house in excess of the N7.5billion shall not be remunerated.”
Banks ‘patronage of the SDF is expected to decline further in the current period due to the reduction in the interest rate for the SDF by the CBN to 7.0 percent less of the Monetary Policy Rate (MPR minus 7.0%) from 2.0 percent less the MPR (MPR minus 2%). With the MPR reduced to 11 percent from 13 percent by the CBN on November 24th, the interest rate on the SDF is thus reduced to 4.0 percent from 11 percent.
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