CBN out with guidelines on liquid asset status for Sukuk by states

The Central Bank of Nigeria (CBN) has issued the guidelines for granting liquid asset status to Sukuk instruments issued by state governments.

The details of the guidelines are contained in the CBN circular FMD/DIR/GEN/CIR/07/006 issued today, Thursday, October 6, 2016 and signed by Dr. (Mrs.) Angela Sere-Ejembi for Director, Financial Markets Department.

“In view of the need to foster financial system and economic growth and development, as well as complement the efforts of government at various levels, the Central Bank of Nigeria (CBN) has approved “Guidelines for Granting Liquid Asset Status to Sukuk Instruments Issued by State Governments”

The CBN said this becomes imperative “to enhance the diversification of sources of funding for development at the sub-national levels”.

“Consequently, members of the public and relevant stakeholders are requested to note the  said  Guidelines  as  contained  below  for  operations  in  the  Nigerian  financial markets”, the circular said.

Part of the guidelines said; “the  maximum  investment  a  bank  shall  make  in  any Sukuk issuance of  a state government  or  its  agencies  is  limited  to  10%  of  the  total  amount  outstanding  of that Sukuk. This is an investment limit per issue and not per issuer”

“The aggregate portfolio of a bank in Sukuk issued by state governments and their agencies shall not exceed 30% of the bank’s total portfolio in debt securities. Debt securities  for  this purpose include:  Nigerian Treasury Bills,  FGN Bonds,  FGN-guaranteed  notes, sovereign  debt notes, and  any other  Nigerian  sovereign  debt securities,  CBN bills, bonds collateralised with  FGN bonds, state  government bonds, state  government  agency bonds, corporate bonds and dated  preference shares”.

Among other items, the guidelines stated that the underwritten positions of the state government Sukuk shall not be regarded as investments and, therefore, will not be considered in determining these limits.

It, however,  stressed that a  monthly  return on  the underwritten  positions  and  the  sell-off  strategy shall  be  rendered  to  the Director, Banking  Supervision  Department  (BSD) of the CBN.