Banking Sector Update - Reviewed SDF Guidelines: Clear Intent; Minor Impact

Regulators
1850 VIEWS
Proshare - Facebook Proshare - Twitter Proshare - Linked In Proshare - WhatsApp
Proshare

Friday, July 12 2019  09:32AM / CardinalStone Research  / Header Image Credit: CBN

 

The Central Bank of Nigeria (CBN) reviewed its guidelines to banks on accessing Standing Deposit Facility (SDF)1 . The highlights of the review are as follows:

 

The remunerable SDF placement for banks is now capped at N2.0 billion (compared to the previous cap of N7.5 billion)

Banks will not be remunerated for SDF placements above the stipulated maximum of N2.0 billion

The interest rate on the SDF shall be determined by the Monetary Policy Committee (MPC) from time to time

 

Our Initial Assessment

We view the review of SDF guidelines as the latest in a series of measures put forward by the CBN to accelerate credit growth in the domestic economy. The CBN had previously expressed its displeasure at banks’ deployment of excess cash to the SDF, rather than lend to productive sectors of the economy.

In our view, the recent review is not likely to have a significant impact on the Net Interest Margin (NIM) of banks. To this point, we note that the SDF pales in comparison to banks’ placements in investments securities from a size and interest rate standpoint. For context, total banking sector investments in CBN bills amounted to N3.9 trillion as at March 2019 (December 2018: N3.9 trillion) compared to SDF of N68.9 billion.

The new measure is also not likely to drive real sector lending, given that banks are still able to redirect excess cash to money market instruments at the secondary market. In our view, this factor may have contributed to the bullish sentiment in the T-Bill market in today’s session (average T-bill yields: -100bps to 11.0%). Similarly, we believe that the new cap on SDF placements could also force banks to direct some excess funds to interbank placements subject to the level of system liquidity.

However, we note that sustained declines in the value and frequency of OMO sales and the implied build-up of system liquidity (as observed in the last few months) could lead to a decline in returns from such investments.

 

Proshare Nigeria Pvt. Ltd.

 

Overall, the recent revision of SDF guidelines is unlikely to drive material credit creation in isolation. We, therefore, believe that the apex bank is likely to introduce additional policies to complement the recently issued regulatory measures.

 

Proshare Nigeria Pvt. Ltd.


 Proshare Nigeria Pvt. Ltd.


Related News

  1. CBN Delivers Another News On Standing Deposit Facility of Nigerian Banks
  2. CBN Issues Guidelines on Accessing Standing Deposit Facility; Effective Thursday July 11, 2019
  3. One Week After CBN Directive On 60% Min. LDR – ETI, GTBank and 7 Others Record Drop In Share Price
  4. Loan-to-Deposit Requirement Credit-Negative for Nigerian Banks
  5. CBN Releases Modalities For The Implementation of The Creative Industry Financing Initiative
  6. DMBs No Longer Require Prior Approval From CBN To Offer Mobile Money Wallet Services
  7. CBN’s New Minimum LDR Requirement May Worsen NPLs
  8. CBN Mandates DMBs To Maintain Loan To Deposit Ratio Of 60% Effective Sept 30, 2019
  9. CBN Directs MFBs To Implement Resolutions On The Revised National Financial Inclusion Strategy

Proshare Nigeria Pvt. Ltd.
READ MORE:
Related News
SCROLL TO TOP