CBN eases bank rules, opens money market to retail investors

THE Central Bank of Nigeria (CBN) has made major changes to how it manages cash in the banking system.

In a circular released on Wednesday, the bank removed old penalties that stopped banks from borrowing easily, restarted a key lending tool, and for the first time allowed individuals and companies to take part in its Open Market Operations auctions.

The changes, signed by Okey Umeano, Acting Director of the Financial Markets Department, took effect immediately.

Officials describe them as one of the biggest updates to Nigeria’s money market rules since the central bank tightened access to emergency funds in 2022.

Banks can now use the Standing Lending Facility — the central bank’s emergency borrowing window — on the same day they buy or sell foreign currency in the Nigerian Foreign Exchange Market or take part in government bond sales.

 Those two bans have been lifted. The only remaining rule is that banks still cannot borrow from the discount window and bid in an OMO auction on the same day.

The central bank has also restarted tenored repo operations. These deals, which had been suspended, will now run for periods of between 4 and 90 days. Officials say this will help the bank manage the amount of cash in the system more effectively and make its interest-rate decisions work better through the money market.

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The biggest structural change is to Open Market Operations. Until now, only banks and a few large institutions could take part in these auctions, which the central bank uses to inject or remove naira from the system. From now on, individuals, companies and non-bank financial firms can also take part. Banks will still place the bids and handle the payments on their behalf.

The way the auctions work…