There are indications that the Central Bank of Nigeria may not extend its inter-bank guarantee to Deposit Money Banks beyond December 31, 2011.The CBN, in the wake of the crises that rocked the banking sector in 2009, introduced the guarantee for the inter-bank market to ensure continued liquidity for all banks.It also guaranteed foreign creditors and correspondent banks credit lines to ensure confidence and maintain important correspondent banking relationships.The initial deadline for the removal of the guarantee on inter-bank transactions had been set for September; however, the CBN extended the deadline to December 31, 2011, in order to enable the banks continue normal business operations and help maintain stability of the banking system.It was gathered from a reliable source in the apex bank on Monday that the regulator would not extend the guarantee to the banks.The source, who pleaded anonymity because he was not permitted to speak officially, said, The guarantee will not be extended because the banking system is no longer risky to an extent.The guarantee was put in place when the whole crises started and the system was seen to be risky and unstable. The CBN cannot keep the inter-bank guarantee in place indefinitely.The source noted that there was no plan by the apex bank to continue with the guarantee, saying, If the CBN was extending it, there would have been an announcement before now. You cannot extend the guarantee on the expiration date.Meanwhile, the Managing Director, Financial Derivatives Company Limited, Mr. Bismark Rewane, said in the December edition of the bi-monthly Economic and Business Update that the removal of the guarantees could lead to an increase in the cost of borrowing due to an increased lending risk at the inter-bank market.He said, This could further squeeze market liquidity and lead to a rise in interest rates across all tenors. If the CBN, however, chooses to extend the guarantees, it could enhance confidence in the market, encourage lending and prevent a spike in the liquidity risk premium.When contacted, the Head, Corporate Affairs Department, CBN, Mr. Mohammed Abdullahi, said the apex bank had not concluded on the decision to take, saying, We still have four days to the expiration date. When the CBN concludes on the decision to take, we will inform the public.Reprieve had come the way of five rescued banks that concluded their merger deals with new investors before the September deadline as the CBN extended the inter-bank guarantee to them till December 31, 2011.The banks are Finbank Plc, Intercontinental Bank Plc, Union Bank of Nigeria Plc, Oceanic Bank International Plc and Equitorial Trust Bank Limited.The Deputy Governor, Financial Systems Stability, CBN, Mr. Kingsley Moghalu, had said in Lagos while announcing the extension of the guarantee to three of the banks that the CBN would continue to guarantee their financial transactions and those of others till the end of the year.He said, The CBN hereby announces that the recapitalisation process has reached a significant milestone with three of the rescued banks having moved beyond Memorandum of Association to the signing of Transaction Implementation Agreements with strategic partners.Accordingly, the CBN has now extended the inter-bank guarantee for these three banks until December 31, 2011.
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