CBN Stops Treasury Bills’ Sales to Individuals and Small Firms

It’s a sad day for treasury bill investors in Nigeria as the Central Bank of Nigeria gave a directive to banks and other financial institutions to stop the sale of treasury bills to individuals and small firms.

The banks and financial institutions are to comply with this directive, effective, November 29, 2019.

With this new directive, only big corporations are forthwith allowed to invest in treasury bills.

Further investigations by The Total Entrepreneurs revealed that some banks are already sending SMS/email to their customers who are no longer eligible to invest in treasury bills.

However, for those customers who fall in this category but with existing treasury bills investments, the investments will be allowed to continue until the maturity date.

 

What is Treasury Bill?

Treasury bill is a short-term government debt security (money market instrument) issued at a discount on the redemption price. This simply means that if you invest in treasury bills, you earn your interest upfront and this interest earned is tax exempted. The Federal Government of Nigeria FGN issues treasury bills at discounted prices with a maturity period ranging between 91 and 364 days.

Benefits of Treasury Bills

Some of the benefits of investing in treasury bills include;

1. Low-risk investment
2. Source of fixed income
3. Low-cost investment (until now)
4. Favorable tax treatment
5. Security

 

Many Nigerians, including my organization investment in treasury bills. As a matter of fact, it was found that banks prefer to invest depositors funds in treasury bills because they are certain of profit than giving out loans to SMEs and startups, hence a CBN directive to banks to increase the lending deposit ratio from 60 to 65 percent to boost the economy.

Meanwhile, following the new directive to banks, a bank official said “Operators are trying to see if the November 29 deadline given for the implementation by the CBN could be extended, so as to create enough awareness. But there is no move for reversal of the directive“.

A source from the Central Bank said the directive was given to stop the mop-up of funds from the system through the treasury bills.

People prefer to keep funds in treasury bills than investing in businesses that can create jobs. 

According to the source, “Many people with huge cash prefer to keep their funds in treasury bills instead of investing the funds. Some people collect huge severance package, have huge funds but they have refused to invest the money. We want these funds to be useful in the economy so that they will be available in the banks and can be invested to create more jobs in the economy.”

However, a commercial banker said the inaccessibility of treasury bills might lead to an increase in savings deposits of the banks, attracting interest rates below that the treasure bills offered.

While we believe this is a good initiative as it will allow for the availability of more funds for SMEs seeking a loan, there is need to consider startups (small firms) that invest in treasury bills.

As an entrepreneur, what do you think about this new directive from CBN?

Kindly drop a comment.