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CBN bars banks from buying bills to boost lending

The Central Bank of Nigeria has barred banks from buying bills for their own accounts at an open market auction held on Thursday, a move intended to force them to lend rather than invest in government debt, traders said on Friday.

According to Reuters, the CBN is stepping up a campaign to get credit flowing. Last week, it limited the size of interest-bearing deposits it would hold for banks, the latest in a series of measures aimed at reviving a sluggish economy.

The central bank, which had not issued market stabilisation bills for about a week before Thursday’s auction, told banks that their bids must be backed by customer demand. In the past, banks bought government debt rather than assume risk by lending.

It was unclear if the order applied to Thursday’s auction only. Traders said banks could still purchase bills on the secondary market.

At Thursday’s open market auction, the CBN offered N75bn ($245.14m) of bills, drawing demand totalling N475bn for the various maturities. The bank sold one-year bills at a yield of 12.25 per cent.

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A trader said Thursday’s auction was aimed at non-bank investors, adding that the central bank had considered offering bills directly to foreign investors to support the currency.

The CBN had been issuing securities at high yields to mop up naira, a policy it maintained for more than two years to attract foreign inflows into bonds and support the naira.

It was unclear which option the apex regulator wants to pursue: boosting credit flow locally or maintaining a stable currency in the face of high inflation and dollar shortages.

At its last rate meeting in March, the bank cut rates by 50 basis points for the first time since November 2015, saying it wanted to signal a new direction. Analysts expect another 50-bp rate cut next Tuesday.

Bankers expressed doubt that the measure would do much to boost lending unless credit risk was addressed through reforms.