NIBSS Confirms Collapse of Inter-bank Market
By Ayodele Aminu
The Nigeria Inter-bank Settlement System (NIBSS) has confirmed that the inter-bank market where banks borrow from one another to meet their financial obligations is no longer active.
It made this confirmation while presenting its progress on the Nigeria Automated Clearing System (NACS) in Lagos at the 275th edition of the Bankers' Committee meeting recently.
Apart from helping banks settle their financial transactions, NIBSS is the company directly responsible for the operations of the Nigeria Automated Clearing System (NACS) through which all the cheques and other financial instruments are cleared.
The Managing Director of NIBSS, Mr. Paul Lawal, in the report presented to the Bankers' Committee noted that the inter-bank market has experienced reduced transactions in the past two months.
"Transaction volume dipped by 14.5 per cent from 26,717 in June and July, to 22,849, with a corresponding drop of 8.5 per cent in transaction value, from N3.69 trillion to N3.37 trillion."
He however observed that the automated clearing house activities remained stable.
"The 76 clearing banks presented a total of 1,288,322 clearing items valued at N980 billion at the Automated Clearing sessions in August and September, 2004. This represents an increase of 7.4 per and 3.2 per cent in volume and value, respectively, over the activity level in June and July, 2004," the NIBSS boss explained.
The Bankers' Committee sub-committee on monetary and fiscal policies also corroborated NIBSS's observation about the lull in activities in the inter-bank market.
Specifically the sub-committee, which also presented its report on the developments in the financial system, maintained that the inter-bank market remained inactive.
"The interest rate situation was reported to have improved. Although interest rates can be said to be fairly stable, the key issues had been the security and stability of the funds. The inter-bank market remained inactive," the report stated.
It would be recalled that the Central Bank of Nigeria (CBN) had withdrawn N8bn public funds out of the N74.5 billion of such money in the system three months ago, a situation that led to a crisis in the financial system.
Mostly affected were banks that depended entirely on public sector funds as the big banks which accounted for over 70 per cent of funds in the inter-bank market recalled their matured placements and refused to roll over or grant new ones. Since then, some banks have been defaulting in meeting the financial obligations of their depositors, while others have always been in and out of the clearing system having overdrawn the accounts with their settlement banks.
Mostly affected are small and medium sized banks, especially those that have used public funds to finance various housing projects that have long gestation period.
In addition to this was the flight to safety by customers through panic withdrawal of their funds from banks perceived as not having the financial muscle to meet the N25 billion new capital base announced on July 6, 2004, by the CBN Governor, Prof. Charles Soludo. Indeed, the apex bank had, in its 2004/2005 monetary policy guidelines, stated categorically that it could move public sector funds in and out of the system depending on the liquidity situation in the country. The sudden withdrawal of the public sector funds by the CBN in the early 90s was responsible for the distress of several banks at the time.
The Bankers' Committee which is chaired by the Governor of the Central Bank of Nigeria (CBN), is an association of the chief executives of banks and selected financial institutions which meet bi-monthly to discuss the state of affairs in the industry.
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