The introduction of special bills by the Central Bank of Nigeria (CBN) may be an attempt to achieve the dual objective of managing system liquidity and supporting money flows to the real sector without injecting fresh liquidity.
According to financial experts, it remains unclear whether the special bills will trade on an equal footing with existing treasury bills and its utility for immediate risk asset creation would be limited.
The CBN had disclosed that the introduction of the special bills is expected to deepen the financial markets and avail the monetary authority with an additional liquidity management tool. The apex bank further said the features of the special bills are: a tenor of 90 days; zero-coupon; CBN determined yield at issuance; tradable among banks, retail and institutional investors; unacceptable for repurchase agreement transactions with the CBN which is non-discountable at the CBN window.
Commenting on this, analysts at Cordros Capital, said, this is another attempt by the apex bank to achieve the dual objective of managing system liquidity and supporting money flows to the real sector without injecting fresh liquidity.
“However, we note that it remains unclear whether the special bills will trade pari-passu with existing treasury bills”, they said.
Also commenting, Equity research analyst at FBNQuest, Tunde Abidoye, said, the introduction of the bills would boost banks’ liquidity ratio while adding that the bills may not be as liquid an asset as they appear initially.
“Going forward, the excess Cash Reserve Requirements (CRRs) will be eligible for conversion into the special bills and used in the computation of liquidity ratio. As such, banks will see an improvement in their liquidity ratio. This is quite significant, particularly for tier 2 banks because their liquidity ratios are already close to the regulatory minimum of 30 per cent. Also, although the yield has not been determined by the CBN, the circular indicates that banks will be able to earn some return on the bills as opposed to the zero yields on their excess CRR.
The CBN’s press release mentions a 90-day tenor. However, we understand that the CBN has the discretion to roll the bills over with a view to extending its maturity.
