CBN limits daily standing deposit facility to 2bn naira

The Central Bank of Nigeria (CBN) recently introduced a new policy capping the daily deposit through its Standing Deposit Facility to 2 billion naira, significantly reducing the liquidity available to banks. This move is aimed at prompting deposit money banks to increase lending to the real economy and manage their liquidity more efficiently. The restriction is expected to push banks towards alternative investment opportunities like government securities and longer-dated bonds, ultimately driving them to lend to various sectors. Nnamdi Nwizu, Co-Managing Partner at Comercio Partners, shared insights on the implications of this new development in a recent interview with CNBC Africa. Nwizu highlighted that the reduced liquidity limit could benefit the CBN by cutting its costs of liquidity management. He emphasized that with the market liquidity at around $500 billion and 20 banks in the sector, limiting each bank to $2 billion would enable the central bank to save significantly while nudging the banks to lend more. He also pointed out that most banks were already at the 60% LDR threshold, suggesting that the immediate impact might not be as drastic as anticipated. However, Nwizu noted that the CBN could potentially adjust the LDR ratio in the future to push banks further towards lending. Additionally, he discussed the impact of potential rate cuts by the U.S. Federal Reserve, highlighting that a cut could influence global bond yields and possibly drive interest in Nigerian instruments. Overall, the new deposit limit is poised to reshape the lending landscape in Nigeria and drive banks towards supporting the real economy.