CBN Expands Discount window operations


Perhaps in tacit admission that Nigerian banks may have started experiencing slight liquidity pressures in line with recent events that have occurred in major financial centers around the world - an upshot of the meltdown of the global financial markets, the Central Bank of Nigeria (CBN) on Tuesday 28th October 2008 announced that it had expanded its discount window operations. 


The discount window (DW) which is the medium through which the CBN grants secured lending facilities and outright advances to Banks and Discount houses was expanded to admit non Federal government bonds (including state bonds and commercial papers) as eligible collateral instruments, and to extend the tenor of liquidity provided under the discount window operations to include structured facilities with maturities of up to 360 days. The CBN also hopes that expansion of the DW would engender more robust processes of injection and absorption of excess liquidity in the money market.


Key elements of the Expanded Discount Window operations as stipulated by the CBN include:

* The provision of two categories of facilities namely; the overnight standing facility and fixed tenor repo (for a period not exceeding one year).


* Increase in the tenor of borrowing from the window from overnight to 360 days.


* Increase in the number of financial instruments acceptable as collateral in the window to include non federal government securities such as;

 - State government bonds,

 - NDIC Accommodation bills

 - Bankers acceptances and guaranteed commercial papers

 - Promissory notes


* Widening of the base of financial markets from which the instruments are drawn


* The broadening of financial innovations to support the operations of the discount window.


Market Information from the CSL Equity Market Note.
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