CBN Lifts Restrictions on Banks’ Access to FX, Government Securities at Discount Window

The Central Bank of Nigeria (CBN) has lifted its previous restrictions on banks’ access to foreign exchange and government securities at the Discount Window (DW), with the decision taking immediate effect.

The regulatory change means banks participating in the foreign exchange market or purchasing government securities will no longer be automatically barred from accessing the Discount Window to obtain liquidity.

Under the revised framework guiding Nigerian banks’ activities in the foreign exchange and money markets, the CBN said it reviewed existing market practices and developments across the foreign exchange, money and fixed-income markets.

Referring to financial institutions, the CBN said it had removed restrictions on access to the Discount Window for participants in the Nigerian Foreign Exchange Market (NFEM) and institutions involved in primary auctions of government securities.

However, the apex bank reaffirmed its existing limitation on institutions accessing the Discount Window on the same day.

The CBN also revised the framework governing access to the Standing Lending Facility (SLF), Tenored Repo Operations and participation in Open Market Operations (OMO).

As part of the changes, the CBN reinstated Tenored Repo Operations, allowing repo transactions across approved tenors of four to 90 days. The measure is aimed at improving liquidity management, strengthening money market operations and enhancing the implementation of monetary policy.

The circular also stated that participation in OMO transactions in both the primary and secondary markets would be open to all eligible investors through Deposit Money Banks (DMBs).

Eligible investors include individuals, corporates and non-bank financial institutions, while DMBs will continue to facilitate bids and transaction settlements on their behalf.

The CBN stated that the volume, tenor and frequency of OMO issuances would be determined by prevailing liquidity conditions and monetary policy objectives. Auctions will continue to use the existing single-bid auction format.

Removing restrictions on banks’ access to the CBN’s Discount Window generally allows lenders greater flexibility to obtain liquidity support from the apex bank when required.

Market analysts said the move would strengthen banks’ ability to manage short-term liquidity needs more efficiently. It could also support stability in the banking sector by providing a reliable source of funds during periods of cash flow pressure.

The regulator’s decision to broaden access to liquidity is expected to promote smoother functioning of the financial system by ensuring banks can obtain central bank funding when needed.

The move could also reduce the risk of systemic shocks arising from liquidity shortages and strengthen the effectiveness of monetary policy transmission