CBN introduces new financial instrument, “Special Bills” into Nigeria money market

Central Bank of Nigeria CBN, has introduced “Special Bills” in an effort to deepen the financial markets. The apex bank in a circular titled the Introduction of Central Bank of Nigeria Special Bills No BSD/DlR/GEN/LAB/131086 signed by Bello Hassan, Director Banking Supervision said “The Central Bank of Nigeria (CBN) hereby announces the introduction of Special Bills as part of efforts to deepen the financial markets and avail the monetary authority with an additional liquidity management tool. 

The features of the CBN Special Bills are as follows; tenor of 90 days; zero coupon, applicable yield at issuance will be determined by the CBN; the instrument will be tradable amongst banks, retail and institutional investors; the instrument shall not be accepted for repurchase agreement transactions with the CBN and shall not be discountable at the CBN window; and will qualify as liquid assets in the computation of liquidity ratio for deposit

money banks”.

According to the CBN “The CBN will continue to ensure optimal regulation of systemic liquidity and promote efficient financial markets in support of economic recovery and sustained growth. The central bank, barred retail and institutional investors from accessing the highly lucrative Open Market Operations bills where yields were previously high. With the introduction of the new Special Bills, the CBN aims to securitise the excess Cash Reserve Requirement balances of local banks by offering them short-dated zero-coupon special bills. 

Since May 2020, the central bank has spent over N6 trillion as part of its CRR debits of the accounts of deposit banks. Nigeria’s central bank expects commercial banks to maintain a loan to deposit ratio of 65% and thus debits the accounts of commercial banks who do not meet this target for excess deposits. The new bill provides the banks with an instrument which they can offer to investors in exchange for a return. For example, the banks can sell the “Special Bills” to investors who need fixed income instrument.