CBN to begin online transactions for govt, banks


May 24, 2006/guardian




Another phase of the ongoing reforms in the financial sector will soon emerge as the Central Bank of Nigeria (CBN) begins online transactions for all the three tiers of government, commercial banks and other key players in the economy.

Initially slated for take-off at the end of the first quarter of 2006, the CBN is now test-running the full automation of the Nigerian funds transfer system, also known as Real Time Gross Settlement System (RTGS).

The new system will provide an online payment system where processing and settlement take place continuously in real time (that is, without being deferred) and gross (transaction by transaction).

When it kicks off, the CBN will drop the physical transfer of governments\' and banks\' funds from its branches in the states and its headquarters but monitors and effects transactions for the operators based on their accounts with the apex bank. The CBN\'s RTGS system, which is a product of its re-engineering and restructuring processes code-named Project EAGLES will also handle large value and time critical payments.

The progress on the RTGS system was announced on Monday by the CBN\'s Deputy Governor, Economic Policy, Dr. Obadiah Mailafia, at a seminar on Electronic Cards organised by Travelex Nigeria and Visa International in Lagos.

According to him, the funds transfer system when in operation will make all deposit money banks and discount houses direct participants.

Mailafia said that each bank would have an account at the CBN for settlement, adding that the apex bank also planned to establish an interface between the RTGS system and the Central Securities Clearing System (CSCS) of the Nigerian Stock Exchange (NSE).

He said: \"The CBN has to move funds between branches on behalf of banks and the three tiers of government. This will now be done online for all the branches for same day value. We are currently implementing a Real Time Gross Settlement System, which is one of the initiatives of the CBN restructuring project (Project EAGLES). The system is developed to operate a queuing mechanism (for insufficient funds), Repurchasing Order (REPO), liquidity facility and gridlock handling among others.\"

He explained that settlement of credit transfer instructions would be done when there was sufficient balance in the settlement account of the participants with the CBN and guaranteed for its finality and irrevocability.

\"Thus, it will help to reduce systemic risk as the central objective of the RTGS is to reduce systemic risk by preventing the failure of a payment or of a participant having a knock-on effects on other participants and thereby endangering the stability of the financial system,\" he said.

In addition, the system will significantly reduce the risk associated with the current net settlement and also accelerate the payment process while guaranteeing the finality and irrevocability of transfers and settlements.

Concerning participants in the new system, the apex bank said that the operators of the GTRS are the CBN (through its head office and branches), commercial banks, discount houses and the Nigerian Inter-Bank Settlement System (NIBSS) for non-settlement position of banks.

The apex bank will equally act as the operator of the RTGS, which will enable participants to achieve prompt settlement of payments by debiting and crediting their accounts with CBN.

It stressed that \"participants in the system must maintain accounts with the CBN and may use the system to transfer funds to each other directly and/or perform third party transfers for and on behalf of their customers/account holders.\"

Deferred net settlement obligations from clearing system such as cheques, Automated Teller Machine (ATM) and other cards transactions will also be settled over the CBN RTGS system, the bank said.

Another innovation in the new scheme is that it will have a time schedule for operations within which, participants are expected to effect all transfer instructions. The instructions will only be effected if and when the participants\' accounts are funded.

Some of the features of the RTGS system are instruction processing, settlement processing, liquidity risk management, queue management and settlement account monitoring

To prevent liquidity risk during the operation hours when participants experience shortfall in their settlement accounts, the apex said it would employ two liquidity mechanisms -the CBN will not settle the transfer instruction but place it in a queue to be settled on a first-in first-out basis for the smooth operation of the RTGS.

Second, for net settlement request for low value net settlement transactions, if a participant does not have sufficient funds to settle net position, this could prove a risk to the whole system. The CBN will collateralise intra-day credit facility, that will be accessed to enable participants to make payments.

The CBN, however, stressed that the collateral must be high, adding that any participant that enjoyed this facility must make the fund available in its account to cover the credit not later than the close of the day\'s business.

The participants, it said, would hook up to the CBN communication network to be able to feature in the payment system, noting that all access to the CBN network and applications would be authenticated.

The RTGS system is made up of three components -Terminal Access Device (TAD), Operation Control Terminal (OCT) and RTGS Server Application.

The TAD, the CBN said would be made available by it to be installed at the participants\' offices. This module will be used for data entry payment instructions, monitoring of participants\' own instructions as well as queue management.

The OCT will be installed at the CBN for monitoring and used as management tool for the RTGS.

The RTGS server application on the other hand will process high value payment instructions and will be installed at CBN\'s head office in Abuja.

The contract for the customisation and implementation of RTGS was awarded to IMS Systems Company Limited of Korea in May 2003 and awareness seminars were held for the financial sector in the second quarter of 2004.

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