CENTRAL BANK OF NIGERIA
JUNE 2011
JUNE 2011
FINANCIAL
STABILITY
REPORT
FINANCIAL
STABILITY
REPORT
CBN FINANCIAL STABILITY REPORT JUNE 2011
iii
The Financial Stability Report (FSR) is published semi-annually by
the Central Bank of Nigeria (CBN). Copies of this edition may be
obtained from the Director, Financial Policy and Regulation
Department, Central Bank of Nigeria, Abuja, Nigeria or from the
CBN website: www.cbn.gov.ng.
ISSN: 2141-9396
For comments and feedback, please email us at
CBN FINANCIAL STABILITY REPORT JUNE 2011
Deputy Governor
(Operations)
Deputy Governor
(Corporate Service)
Deputy Governor
(Economic Policy)
Deputy Governor
(Fin. System Stability)
The Board
Directorates
Departments
Human
Resources
Procurement &
Support Services
Finance
Medical
Services
Security
Services
Legal
Services
Monetary
Policy
Financial
Markets
Trade &
Exchange
Research
Statistics
Financial Policy
& Regulation
Banking
Supervision
OFI
Supervision
Development
Finance
Banking &
Payment System
Currency
Operations
Branch
Operations
Information
Technology
Reserve
Management
Governor
Corporate
Secretariat
Strategy &
Performance Mgt
Governors’
Department
Risk
Management
Internal
Audit
Board of Directors
iv
CBN's Organogram
CBN FINANCIAL STABILITY REPORT JUNE 2011

T a b l e o f C o n t e n t s
v
LIST OF FIGURES
viii
LIST OF TABLES
ix
LIST OF BOXES
x
APPENDIX..
x
LIST OF ABBREVIATIONS AND ACRONYMS
xi
GOVERNOR'S STATEMENT
xiii
KEYNOTE REMARKS
xv
1.0
OVERVIEW

2.0
THE STRUCTURE OF THE NIGERIAN FINANCIAL SYSTEM

2.1
Major Stakeholders

2.2
Other Stakeholders in the Nigerian Financial System..

2.2.1
The Financial Services Regulation Coordinating
Committee (FSRCC) ..

2.2.2
Self-Regulatory Organisations (SROs)

2.2.3
Advisory Fora

3.0
MACROECONOMIC AND FINANCIAL DEVELOPMENTS..

3.1
Global Macroeconomic and Financial Developments..

3.1.1
Global Output

3.1.2
Global Inflation

3.1.3
Global Energy Prices..

3.1.4
Policy Interest Rates

3.1.5
Exchange Rates

3.1.6
Stock Markets

3.2
Domestic Macroeconomic and Financial Developments

3.2.1
The Real Sector

3.2.2
Inflation..

3.2.3
The Fiscal Sector..

3.2.4
The Financial Sector

3.3
The External Sector

3.3.1
External Reserves Management

3.3.2
Movements in External Reserves

3.3.3
Foreign Exchange Flows

3.3.4
Demand for and Supply of Foreign Exchange

3.3.5
Exchange Rate Movements

3.4
Key Risks in the Nigerian Financial System

3.4.1
Credit Risk

3.4.2
Liquidity Risk

3.4.3
Market Risk

3.4.4
Operational Risk

3.4.5
Reputational Risk

3.5
Outlook for the Second Half of 2011

4.0
DEVELOPMENTS IN THE FINANCIAL SECTOR

4.1
Promoting Financial System Stability

4.2
The Revised Microfinance Policy, Regulatory and
Supervisory Framework

4.3
Institutional Capacity Building

4.4
International Economic Relations and Cooperation

4.4.1
The WAMZ Committee of Experts Deliberated on the
Report of Financial Sector Assessment and Development


CBN FINANCIAL STABILITY REPORT JUNE 2011
vi
4.4.2
AfDB's Cooperation with Nigeria for the Development
of SMEs

4.4.3
Cooperation with other African Central Banks

4.5
Access to Finance

4.5.1
The Agricultural Credit Guarantee Scheme
Fund (ACGSF)

4.5.2
The Agricultural Credit Support Scheme (ACSS) ..

4.5.3
The Commercial Agricultural Credit Scheme (CACS)

4.5.4
The Refinancing/Restructuring Small and Medium
Enterprises Manufacturing Fund

4.5.5
The Small and Medium Enterprises Credit
Guarantee Scheme (SMECGS)

4.5.6
The Power and Aviation Intervention Fund (PAIF)

4.5.7
The Nigerian Incentive-Based Risk Sharing System
for Agricultural Lending (NIRSAL)

4.5.8
Microfinance Banking Activities ..

4.5.9
Primary Mortgage Institutions' Activities

4.6
Non-Interest Banking

4.7
Anti-Money Laundering/Combating the Financing of
Terrorism (AML/CFT)

5.0
REGULATORY AND SUPERVISORY ACTIVITIES

5.1
Macro-Prudential Supervision

5.1.1
Financial Soundness Indicators (FSIs)

5.1.2
The Banking Sector Stress Test

5.2
Licensing and Approvals

5.2.1
Bureaux-de-Change

5.2.2
Microfinance Banks

5.2.3
Finance Companies

5.2.4
The New Banking Model Compliance Plan

5.3
Supervision of Banks and Other Financial Institutions

5.3.1
Deposit Money Banks (DMBs)

5.3.2
Discount Houses

5.3.3
Other Financial Institutions

5.4
Cross-border Supervision

5.4.1
Closure of Foreign Subsidiaries

5.4.3
The College of Supervisors of the West African
Monetary Zone (CSWAMZ)

5.4.4
Memoranda of Understanding (MoUs)

5.5
The Financial Services Regulation Coordinating
Committee (FSRCC)

5.6
Supervisory Challenges

5.6.1
Towards Recovery from the Global Economic
and Financial Crises

5.6.2
Weak Corporate Governance

5.6.3
Inadequate Legal Framework

5.6.4
Data Integrity

5.6.5
Inadequate Supervisory Capacity

5.6.6
Growing Complexity in the Operations of
Financial Institutions

5.6.7
The Activities of Illegal Finance Operators in the Economy

5.7
Consumer Protection

5.8
The Focus of Supervision


CBN FINANCIAL STABILITY REPORT JUNE 2011
vii
6.0
THE NIGERIAN PAYMENTS SYSTEM

6.1
The Payments System Vision 2020 (PSV 2020)

6.2
Developments in the Payments System

6.2.1
The Real-Time Gross Settlement (RTGS) System

6.2.2
Cheque Clearing

6.2.3
Electronic Card Payments

6.2.4
Automated Teller Machine (ATM) Transactions

6.2.5
Mobile Banking ..

6.3
Payments System Challenges

7.0
PRESERVING THE INTEGRITY OF THE FINANCIAL SYSTEM

7.1
The Asset Management Corporation of Nigeria (AMCON)

7.2
The Implementation of International Financial Reporting
Standards (IFRS)

7.3
Update on Credit Information Bureaux

7.3.1
CBN's Credit Risk Management System (CRMS)

7.3.2
Private Credit Bureaux (PCBs)

7.4
The Financial System Strategy 2020 (FSS 2020)

8.0
CONCLUSION

GLOSSARY

Appendix 1: Result of the Banking Sector Stress Test at end-June 2011


CBN FINANCIAL STABILITY REPORT JUNE 2011


viii
L i s t o f F i g u r e s
Figure 1: Structure of the Nigerian Financial System at end-June 2011

Figure 2: Percentage Growth Rate of Non-Oil GDP

Figure 3: Contribution of Oil and Non-oil GDP to Total Output

Figure 4: Inflationary Trend (Year-on-Year)

Figure 5: Federal Government's Fiscal Operations

Figure 6: Trends in Major Monetary Aggregates..

Figure 7: Trends in Net Domestic Credit

Figure 8: Distribution of Deposit Money Banks (DMBs) Loans and
Advances by Maturity

Figure 9: Distribution of MB's Deposit Structure..

Figure 10: Market Concentration Ratios of DMBs (Assets)

Figure 11: Money Market Rates Between First Half of 2008 and First Half of 2011

Figure 12: Lending and Deposit Rates Between First Half of 2008 and
First Half of 2011

Figure 13: FGN Bond Auctions

Figure 14: OTC Trades in FGN Bonds

Figure 15: WDAS-SPT Demand and Supply in US$ Million

Figure 16: WDAS, Inter-Bank and BDC Rates for July 2010 - June 2011

Figure 17: Selected Credit Ratios, Dec. 2010 June 2011

Figure 18: Banking Sector Capital Adequacy Ratios, 2010 - 2011

Figure 19: Banking Industry NPLs to Total Loans, 2010 - 2011

Figure 20: Selected Profitability Ratios of the Nigerian Banking Industry,
2010 - 2011

Figure 21: Banking Industry Liquidity Ratios

Figure 22: CBN's RTGS Transactions, July 2010 - June 2011

Figure 23: Volume and Value of Cheques Cleared, July 2010 - June 2011

Figure 24: Electronic Card Transactions, July 2010 - July 2011

Figure 25: Volume of Electronic Card Transactions, January - June 2011

Figure 26: Value of Electronic Card Transactions, January - June 2011

Figure 27: Selected CRMS Statistics, 2010 2011


CBN FINANCIAL STABILITY REPORT JUNE 2011

ix

L i s t o f T a b l e s
Table 1: Global Output, Prices and Projections for 2011 and 2012

Table 2: Monetary Policy Rates for Selected Countries, Jan 2010 - June 2011

Table 3: End-Period Exchange Rates of Selected Countries
(Values in currency units to US$)

Table 4: Global Stock Indices

Table 5: Transactions on the Nigerian Stock Exchange

Table 6: NSE Sectoral Performance in the First Half of 2011

Table 7: FGN Bond Auctions, January - June 2011

Table 8: Corporate Bonds Issued, January - June 2011

Table 9: Outstanding Corporate Bonds

Table 10: Selected Financial Soundness Indicators in the Nigerian Banking Sector


CBN FINANCIAL STABILITY REPORT JUNE 2011


L i s t o f B o x e s
Box 1: Summary of Stress Test Result


A p p e n d i x
Appendix 1: Result of the Banking Sector Stress Test at end-June 2011

..
..
x
CBN FINANCIAL STABILITY REPORT JUNE 2011

List of Abbreviations and Acronyms
xi
AACBs
AADFIs
ACGSF
ACSS
AFC
AGRA
AIPs
AMCON
AML/CFT
ASCE
ASI
ATMs
AU
BCEAO
BDCs
BOA
BOFIA
BOI
BSE Sensex
CAC 40
CACS
CAR
CBN
CIBN
CIFTS
CR6
CRMS
CSWAMZ
D-8
DAX
DFIs
DMBs
DMO
EGX CASE 30
EBAs
EMV
FATF
FCs
FCT
FGN
FMBN
FMF
FSIs
FSRCC
FTSE 100
GDP
GSE
HHI
-
Association of African Central Banks
-
Association of African Development Finance Institutions
-
Agricultural Credit Guarantee Scheme Fund
-
Agricultural Credit Support Scheme
-
African Finance Corporation
-
Alliance for a Green Revolution in Africa
-
Approval in Principles
-
Asset Management Corporation of Nigeria
-
Anti-Money Laundering and Combating the Financing of Terrorism
-
Abuja Securities and Commodity Exchange
-
All Share Index (Nigerian Stock Exchange Index)
-
Automated Teller Machines
-
The African Union
-
Banque Centrale des Etats de l'Afrique de l'Ouest
(Central Bank of West African States)
-
Bureaux de Change
-
Bank of Agriculture
-
Banks and Other Financial Institutions Act 1991 (as amended)
-
Bank of Industry
-
Bombay Stock Exchange (Indian Stock Index)
-
Cotation Assisteé en Continu (French Stock Index)
-
Commercial Agricultural Credit Scheme
-
Capital Adequacy Ratio
-
Central Bank of Nigeria
-
Chartered Institute of Bankers of Nigeria
-
CBN Interbank Fund Transfer System
-
Concentration Ratio (of the six largest banks)
-
Credit Risk Management System
-
College of Supervisors of the West African Monetary Zone
-
Group of Eight Developing Countries
-
DeutscherAktien Index (German Stock Index)
-
Development Finance Institutions
-
Deposit Money Banks
-
Debt Management Office
-
Egyptian Stock Index (Cairo and Alexandria Stock Exchange)
-
Eligible Bank Assets
-
Euro MasterCard Visa
-
Financial Action Task Force
-
Finance Companies
-
Federal Capital Territory
-
Federal Government of Nigeria
-
Federal Mortgage Bank of Nigeria
-
Federal Ministry of Finance
-
Financial Soundness Indicators
-
Financial Services Regulation Coordinating Committee
-
Financial Times Stock Exchange Index (UK Stock Index)
-
Gross Domestic Product
-
Ghanaian Stock Exchange Index
-
Herfindahl-Hirschman Index
IFC
-
Islamic Finance Council
CBN FINANCIAL STABILITY REPORT JUNE 2011
IFRS
IFSB
IGBC
IILMC
IMF
JSE
KYC
L/C
M1
M2
MCP
MDAs
MENA
MFBs
MFIs
MICEX
ML/FT
MoUs
MPR
NACRDB
NAICOM
NASB
NDIC
NEXIM
NFIU
NGAAP+
Nikkei 225
NIBSS
NIRSAL
NPLs
NSE
NSE 20
OBB
OFIs
PAIF
PCBs
PENCOM
PFAs
PFCs
PMIs
POS
PSV 2020
ROSCAs
RTGS
S&P
SEC
SMEs
SMECGS
SROs
TSX
WAMZ
WDAS
WEO
-
International Financial Reporting Standards
-
Islamic Financial Services Board
-
Indice de la Bolsa de Valores de Columbia (Columbian Stock Index)
-
International Islamic Liquidity Management Corporation
-
International Monetary Fund
-
Johannesburg Stock Exchange (South African Stock Index)
-
Know Your Customer
-
Letter of Credit
-
Narrow Money Supply
-
Broad Money Supply
-
Microfinance Certification Programme
-
Ministries, Departments and Agencies
-
Middle East and North African countries
-
Microfinance Banks
-
Microfinance Institutions
-
Moscow Inter-Bank Currency Exchange (Russian Stock Index)
-
Money Laundering and Financing of Terrorism
-
Memoranda of Understanding
-
Monetary Policy Rate
-
Nigerian Agricultural Co-operative and Rural Development Bank
-
National Insurance Commission
- Nigerian Accounting Standards Board
-
Nigeria Deposit Insurance Corporation
-
Nigerian Export-Import Bank
-
Nigeria Financial Intelligence Unit
-
Nigerian Generally Accepted Accounting Principle
-
Japanese Stock Index
-
Nigerian Interbank Settlement System
-
Nigerian Incentive-based Risk Sharing System for
Agricultural Lending
-
Non-Performing Loans
-
Nigerian Stock Exchange
-
Nairobi Stock Exchange (Kenyan Stock Index)
-
Open Buy Back
-
Other Financial Institutions
-
Power and Aviation Infrastructure Fund
-
Private Credit Bureaux
-
National Pension Commission of Nigeria
-
Pension Fund Administrators
-
Pension Fund Custodians
-
Primary Mortgage Institutions
-
Point of Sale
-
Payments System Vision 2020
-
Rotating Savings and Credit Associations
-
Real-Time Gross Settlement System
-
Standard and Poor's
-
Securities and Exchange Commission
-
Small and Medium Enterprises
-
Small and Medium Enterprises Credit Guarantee Scheme
-
Self- Regulatory Organisations
-
Toronto Stock Exchange
-
West African Monetary Zone
-
Wholesale Dutch Auction System
-
World Economic Outlook
xii
CBN FINANCIAL STABILITY REPORT JUNE 2011
xiii
Governor’s Statement
The Financial Stability Report (FSR) is a bi-annual publication of the Bank that focuses
on developments in the financial system and highlights measures taken to address
vulnerabilities. The Bank commenced this publication in June 2010 and this edition is
the third in the series. We are encouraged by stakeholder comments on previous editions
as well as the growing interest in the publication.
The global economy is going through a number of challenges in the aftermath of the
recent global economic and financial crises. The major concern has been the rising debt
profile, especially in the Euro zone, particularly Greece, Ireland, and Portugal; as well as
uncertainties in Italy and Spain. The earthquake and tsunami in Japan triggered certain
events, some of which were of global concern, such as the use of nuclear energy for
power generation. The crises in the Middle East and North African (MENA) countries
affected oil supplies and positively impacted Nigeria's/African oil exports.
On the domestic front, the country continued to experience numerous challenges, such
as poor infrastructure, inflationary pressures and unemployment. Also, the overdependence on oil as the major foreign exchange earner and the import-dependent
nature of the economy exerted significant pressure on foreign reserves. The financial
system also witnessed a number of challenges, arising mainly from weak corporate
governance, undercapitalisation of some banks and low credit growth to the real sector.
The global financial crisis also compounded some of these challenges.
Notwithstanding the above, the smooth conduct of the April 2011 elections instilled
confidence in the system, with potential for an improved business environment and
increased Foreign Direct Investment (FDI). Also, the newly enacted National Sovereign
Investment Authority (NSIA) Act, 2011, is expected to lead to a more efficient
management of the nation's excess earnings from crude oil.
During the review period, the Bank continued monetary tightening, the implementation
of risk-based and consolidated supervision, and the new banking model as well as and
the International Financial Reporting Standards (IFRS). The Bank also re-introduced
cross-border and on-site supervision of subsidiaries of Nigerian banks.
CBN FINANCIAL STABILITY REPORT JUNE 2011
xiv
Thus, like the previous editions, this edition of FSR, provides readers with information
on developments in the Nigerian financial system and the measures taken by the Bank
with a view to enhancing market discipline, transparency and accountability. I,
therefore, commend this Report to all stakeholders in the Nigerian financial system and
the general public.
Sanusi Lamido Sanusi (CON)
Governor, Central Bank of Nigeria
CBN FINANCIAL STABILITY REPORT JUNE 2011
Keynote Remarks
The global economic and financial crises, which slowed growth in the global economy in
the past few years, also affected the stability of the financial markets. The global
financial system has continued to witness slow recovery from the impact of the crises.
The uncoordinated unwinding of the stimulus packages has further slowed the recovery.
However, as the world economy gradually recovers from the effects of the crises, there is
need for more proactive and effective supervisory and regulatory measures to strengthen
the recovery and safeguard the soundness and stability of the financial system.
In this regard, the CBN continued to pursue initiatives and policies aimed at
strengthening the financial system. In addition, it continued to provide incentives to
other sectors of the economy such as agriculture, aviation and power. It is believed that
the outcome of these initiatives will result in a more stable financial system and higher
standards of living. As the Nigerian banking system recovers from the global economic
and financial crises, the Bank's focus remains the recapitalisation of the eight rescued
banks, ring-fencing all deposit money banks (DMBs) from risky non-banking business,
and promoting a safe and sound financial system.
This edition of Financial Stability Report highlights the Bank's assessment of key risks
in the financial system and vulnerabilities to financial stability emanating from
developments in the domestic and international environment, as well as measures taken
by the Bank to ensure the efficiency and soundness of the financial system. Hence, this
Report is designed to provide a medium for informed discussion and understanding into
the management of the risks inherent in the financial system and the economy at large.
Dr. Kingsley Chiedu Moghalu
Deputy Governor, Financial System Stability
xv
CBN FINANCIAL STABILITY REPORT JUNE 2011
OVERVIEW
1.0
This edition of CBN's Financial Stability Report (FSR), which covers the period of
January to June 2011, reviews developments in the global and domestic economic scene
and their impact on the Nigerian financial system. It discusses the various interventions
by the Central Bank of Nigeria (CBN) in response to identified and potential challenges.
Section 2 presents the structure of the Nigerian financial system. The section identifies
the major stakeholders and highlights the reporting relationships in the system. Section 3
contains reviews of the global and domestic macroeconomic and financial
developments. This section notes that the debt crisis in the Euro Zone, the escalating
crisis in the MENA countries, and rising commodity prices affected the rate of global
economic recovery across regions. While growth was largely subdued in the industrial
countries, the emerging and developing economies recorded a high growth performance.
The depreciation of the US dollar led to currency appreciation in most countries, while
the performance of global stock markets remained largely mixed, with the Nigerian
Stock Market recording a marginal rise in the All-Share Index. The domestic economy
grew by 7.93 per cent, driven by the non-oil sector. Tight monetary policy moderated
expansion in money supply and aggregate credit and constrained inflationary pressures,
especially in the second quarter. Domestic interest rates, generally, trended upwards
while the Naira exchange rate was under severe pressure from heightened demand for
foreign exchange.
Section 4 of the report discusses the actions taken by the DMBs in compliance with the
requirements of the new banking model with respect to a new operating structure and
minimum capitalization levels. Furthermore, developments encompassing the adoption
of new policy frameworks for MFBs and non-interest (Islamic) banking, and the
implementation of the IFRS, are also analysed. The Bank's engagement with
international financial and regional institutions is also discussed here.
Section 5 presents highlights of the regulatory and supervisory activities in the Nigerian
financial system. The Nigerian banking sector was relatively sound during the review
period, as most of the financial soundness indicators revealed an improvement over the
levels at end-December 2010, with the exception of earnings and profitability which
dropped sharply. The improved capital adequacy level, which stood at 9.9 per cent, was

CBN FINANCIAL STABILITY REPORT JUNE 2011
1.9 percentage points higher than the Basel II minimum requirement. The ratio of nonperforming loans to total risk assets also improved significantly.
In order to identify and measure the vulnerabilities and resilience of the banking sector to
shocks, a stress test was conducted during the period. The result revealed that credit risk
was the most significant, followed by exchange rate risk. The Bank also conducted an
examination/special examination of 5 discount houses, 119 microfinance banks and 101
PMIs to determine their financial health and capital adequacy. The outcomes of these
exercises are also analysed in this section.
Section 6 contains discussion on the developments in the implementation of the
Payments System Vision 2020 (PSV 2020) initiative whose overarching objective is to
ensure a payments system that is nationally utilized and internationally recognized.
Emphasis was on encouraging the usage of electronic payments channels as against
cash-based transactions, in order to enhance efficiency, reliability and availability, as
well as facilitate transactions at minimal cost and risk.
Section 7 presents highlights of some on-going initiatives aimed at safeguarding
stability of the financial system. These include AMCON, IFRS, CRMS, PCBs and FSS
2020.
Section 8 concludes the Report and reiterates the point that promotion of a sound and
stable financial system remained a core mandate of the CBN, given the critical role of
financial stability in the achievement of government's macroeconomic objectives. This
section recapitulates the various measures taken by the Bank during the review period
pursuant to that mandate, the challenges faced, and the focus of macro-prudential
activities in the second half of 2011.

CBN FINANCIAL STABILITY REPORT JUNE 2011
STRUCTURE OF THE NIGERIAN FINANCIAL
SYSTEM
2.0
2.1
Major Stakeholders
There were no significant changes in the structure of the Nigerian financial system
during the reporting period. At end-June 2011, the regulatory/supervisory institutions in
the financial system were the Central Bank of Nigeria, the Nigeria Deposit Insurance
Corporation, the Securities and Exchange Commission, the National Insurance
Commission and the National Pension Commission. The operators were 24 deposit
money banks (DMBs), five (5) discount houses (DHs), 866 Microfinance Banks
(MFBs), 108 finance companies (FCs), 101 primary mortgage institutions (PMIs), 31
pension fund administrators (PFAs) - including seven (7) closed PFAs, - five (5) pension
fund custodians (PFCs), one (1) Stock Exchange, one (1) Securities and Commodities
Exchange, 1,997 bureaux de change (BDCs), 690 securities brokerage firms, five (5)
development finance institutions (DFIs), 1 public credit bureau, 3 private credit bureaux,
49 registered insurance companies and the Asset Management Corporation of Nigeria
(Figure 1).
In addition to these formal institutions, a number of informal institutions continued to
play a vital role in the financial system. These include NGO-MFIs, community-based
organisations, such as financial cooperatives, rotating savings and credit associations
(ROSCAS), and self-help groups.
The Presidency and the National Assembly exercise statutory oversight over the Federal
Ministry of Finance (FMF) and the CBN, while the FMF supervises the NDIC, SEC and
NAICOM.

CBN FINANCIAL STABILITY REPORT JUNE 2011
Figure 1: Structure of the Nigerian Financial System at end-June 2011


Presidency/National Assembly

Federal Ministry of
Finance

Central Bank of Nigeria

NAICOM
NDIC

SEC

DMO
AMCON

ASCE

NSE

Federal MortgageBank of Nigeria
Urban Development Bank
Nigeria Export-Import Bank
Bank of Agriculture
Bankof Industry
Pension Fund Custodians
Insurance Brokers & Adjusters
Reinsurance Companies
Insurance Companies
Registrars
Securities Brokerage Firms
Issuing Houses
Microfinance Banks
Deposit Money Banks
Discount Houses
Finance Companies
Primary Mortgage Institutions
Bureaux–de-Change
Pension Fund Administrators

PENCOM

CBN FINANCIAL STABILITY REPORT JUNE 2011
2.2
Other Stakeholders in the Nigerian Financial System
2.2.1
The Financial Services Regulation Coordinating Committee (FSRCC)
2.2.2
Self-Regulatory Organisations (SROs)
2.2.3
Advisory Fora
The FSRCC coordinates and harmonises regulatory activities in the Nigerian financial
system. The Committee is chaired by the CBN with the FMF, the NDIC, SEC,
NAICOM, and CAC as members, while PENCOM, the NSE, Abuja Securities and
Commodities Exchange and the Federal Inland Revenue Service (FIRS) are observermembers.
The SROs provide training and advocacy and enforce codes of ethics and standards for
members. They include: the Association of Corporate Trustees, the Association of
Bureaux-de-Change Operators of Nigeria, the Association of Stock-broking Houses of
Nigeria, the Association of Issuing Houses of Nigeria, the Bankers Committee, the
Capital Market Solicitors Association, the Financial Markets Dealers Association, the
Finance Houses Association of Nigeria, the Equipment Leasing Association of Nigeria,
the Mortgage Banking Association of Nigeria, and the National Association of
Microfinance Banks.
Other self-regulatory professional bodies also operate in the financial system. These
include the Association of National Accountants of Nigeria (ANAN), the Chartered
Institute of Bankers of Nigeria (CIBN), the Chartered Institute of Stockbrokers (CIS),
and the Institute of Chartered Accountants of Nigeria (ICAN).
Different fora exist where regulators in the financial system formally meet with
operators in the various segments of the financial system. These include the Bankers
Committee, the Committee of Microfinance Banks of Nigeria, the Committee of
Mortgage Institutions of Nigeria, the Clearing House Committee, the Institute of Capital
Market Registrars, and the National Payments System Committee.

CBN FINANCIAL STABILITY REPORT JUNE 2011
3.0
MACROECONOMIC AND FINANCIAL
DEVELOPMENTS
3.1
Global Macroeconomic and Financial Developments
3.1.1
Global Output
The pace of global economic recovery in the first half of 2011 slowed as downside risks
grew amidst weaknesses in the US economy, heightened concerns over the sovereign
debt crisis in the Euro zone and the devastating effect of the tsunami in Japanese. These
developments increased the risks associated with economic recovery and kept the global
financial system fragile. The IMF World Economic Outlook (WEO) Update, June 2011,
indicated that the advanced economies recorded weak growth owing to low aggregate
demand, while the emerging and developing economies had strong growth arising from
high commodity prices and strong domestic demand. Consequently, global output grew
at an annualized rate of 4.3 per cent in the first quarter of 2011, and was projected to
remain at that level in June 2011.
Growth in global output decelerated in the first half of 2011 to 4.3 per cent, from 4.7 per
cent in the second half of 2010. In the advanced economies, output grew by 2.2 per cent,
compared with the projection of 2.7 per cent. The subdued growth was attributed to
supply disruptions owing to the earthquake in Japan and increases in global oil prices,
which reduced household real incomes and private consumption. This trend was
projected to be reversed and growth to improve to 2.5 per cent in the second half of 2011.
In the US, real GDP grew at an average of 2.3 per cent in the first half of 2011. This was
projected to improve to 2.5 per cent in the second half of 2011 due to expected strong
growth in household domestic demand and a declining unemployment rate as a result of
the positive impact of the fiscal stimulus packages implemented in 2010.
In the emerging and developing economies, output growth averaged 6.5 per cent in the
first half of 2011 and was projected to improve to 6.6 per cent in the second half of 2011,
largely due to increased demand for primary commodities by the emerging economies in
Asia. In Developing Asia and Latin America, and the Caribbean, growth decelerated
from 9.6 and 6.1per cent in the second half of 2010 to 8.4 and 4.6 per cent, respectively,
in the first half of 2011 (Table 1).
1IMF, World Economic Outlook, January 25, 2011

CBN FINANCIAL STABILITY REPORT JUNE 2011
Output growth in the Middle East and North African (MENA) countries dwindled
during the first quarter of 2011 as economic activities were hampered by political and
social unrest. However, estimates for the second quarter of 2011 indicated
improvements, as some of the oil and mineral producing states in the region were
expected to resume full operations. Consequently, growth in the MENA countries in the
first half of 2011 was projected to average 4.0 per cent, compared with 5.5 per cent in
Sub-Saharan Africa where growth continued to strengthen, with robust domestic
demand and exporters benefiting from rising commodity prices.
Global inflation accelerated in the first half of 2011 arising from the more-than-expected
increases in commodity prices. According to the WEO June 2011Update, inflation in
advanced economies averaged 2.6 per cent in the first half of 2011, indicating an upward
change from the 1.5 per cent in the second half of 2010. Similarly, US inflation rose to a
monthly average of 2.4 per cent in the first half of 2011, from 1.0 per cent during the
second half of 2010.
Inflation in the emerging and developing economies declined to an estimated 6.0 per cent
in June 2011, from the 6.3 per cent recorded in the second half of 2010. On the other
hand, inflationary pressure in Sub-Saharan Africa persisted during the first half of 2011
owing to strong domestic demand and exchange rate misalignment. Overall, inflation is
likely to remain high for the rest of 2011.
World crude oil prices averaged US$116.90 per barrel in the first half of 2011,
representing an increase of 46.50 per cent over the average price of US$79.80 per barrel
recorded in the second half of 2010. Oil prices were estimated to remain above US$100
per barrel for the rest of 2011 in anticipation of a rebound in Japan's output and a sluggish
supply response. The lingering political crisis in the MENA countries is also expected to
sustain prices at that level.
3.1.2
Global Inflation
3.1.3
Global Energy Prices

CBN FINANCIAL STABILITY REPORT JUNE 2011

2009 2010 2011

2010 2011 2012
World output


Advanced economies -3.4 3.0

United States

Euro area

Germany

France

Italy

Japan

United Kingdom

Developing Asia

China

India

Latin America and Carribean -1.7

Brazil

Mexico

Middle East and North Africa 2.5

NA
NA
NA
Sub-Sahara Africa

NA
NA
NA
Consumer prices
Advanced economies

Emerging and Developing

Economies

3The quarterly estimates and projections account for approximately 76 percent of the emerging and developing economies.

Source: World Economic Outlook Update June 2011
Note: Country weights used to construct aggregate growth rates for groups of countries were revised.
1The quarterly estimates and projections account for 90 percent of the world purchasing-power-parity weights.
2The quarterly estimates and projections account for approximately 77 percent of the emerging and developing economies.
Table 1: Global Output, Prices Projections for 2011 and 2012
3.1.4
Policy Interest Rates
In most advanced and emerging economies, policy interest rates remained largely
unchanged. In the US, the Federal Funds rate was left at 0.25 per cent, while Japan
maintained its zero interest rate policy. In China, the monetary authorities favoured
monetary tightening in the first quarter of 2011. In April 2011, the rate was further
tightened to 6.31 per cent, from 6.06 per cent in March, and remained unchanged
throughout the second quarter (Table 2). In the UK and South Africa, the Bank of

Emerging and Developing

Economies
CBN FINANCIAL STABILITY REPORT JUNE 2011
England and the Reserve Bank of South Africa retained their rates at 0.5 and 5.5 per cent,
respectively, during the first half of 2011.
Although the Euro Zone was faced with a debt crisis, the primary concern of the
European Central Bank (ECB) remained the maintenance of price stability.
Consequently, the ECB policy rate remained unchanged at 1.0 per cent during the first
quarter of 2011, but was raised to 1.25 per cent in the second quarter.
On the other hand, Nigeria, Brazil, Chile, Kenya, and India adopted a tight monetary
policy stance during the period under review (Table 2).

Source: From their Respective Central Bank Websites


0.1

0.1

0.1

0.5

0.5

0.5

3.1.5
Exchange Rates
The U.S. Dollar depreciated against most major currencies in the period under review.
In North America, the Canadian Dollar and Mexican Peso appreciated against the U.S.
Dollar by 0.59 and 1.51 per cent, respectively. Similarly, in South America, the Brazilian
Real and Colombian Peso appreciated against the U.S. Dollar by 4.27 and 6.22 per cent,
respectively, while the Argentine Peso depreciated against the U.S. Dollar by 1.42 per
cent (Table 3).
In Europe, the British Pound depreciated against the U.S Dollar by 0.48 per cent, while
the Euro and Russian Ruble appreciated against the U.S. Dollar by 2.96 and 2.01 per
Table 2: Monetary Policy Rates for Selected Countries, Jan 2010 - June 2011

CBN FINANCIAL STABILITY REPORT JUNE 2011
cent, respectively. In Asia, the Japanese Yen and Chinese Renminbi appreciated against
the U.S. Dollar by 3.26 and 1.33 per cent, respectively, while the Indian Rupee
depreciated against the U.S Dollar by 0.51 per cent.
In Africa, the Nigerian Naira and the Kenyan Shilling depreciated against the U.S.
Dollar by 0.17 and 6.97 per cent, respectively, while the South African Rand, Egyptian
Pound and Ghanaian Cedi appreciated against the U.S. Dollar by 0.01, 0.04 and 0.08 per
cent, respectively.
Currency
2010:Q1
2010:Q2
2010:Q3
2010:Q4
2011:Q1
2011:Q2
2011Q1 and
Q2 % Change
YTD % Change
AFRICA
Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH
AMERICA
Canada
Dollar

Mexico
Peso

SOUTH
AMERICA
Brazil
Real

Argentina
Peso

Colombia
Peso

EUROPE
UK
Pound
Sterling

Euro Area
Euro

Russia
Ruble

ASIA
Japan
Yen

China
Remnibi

India
Rupee

Source: Bloomberg

YTD = Year to Date

Table 3: End-Period Exchange Rates of Selected Countries
(Values in currency units to US$)
3.1.6
Stock Markets
Stock markets across the world recorded mixed performance in the first half of 2011,
arising from an uneven economic recovery, persistent high levels of unemployment, the
sovereign debt crisis, rising commodity prices and geopolitical tensions.
In Africa, the stock markets followed the global trend during the period under review.
The Nigerian Stock Exchange (NSE) All-Share Index (ASI) and the Ghanaian GSE AllShare Index rose by 0.85 and 18.89 per cent to 24,980.20 and 1,188.91 respectively at
end-June 2011, from 24,770.50 and 1,000.00, at end-December 2010, respectively. The

CBN FINANCIAL STABILITY REPORT JUNE 2011
NSE ASI rose owing to improved liquidity, while the rise in the GSE All-Share index was
largely attributable to rising commodity prices which boosted share prices of mining
companies. However, the South African JSE, the Kenyan NSE 20 and the Egyptian EGX
CASE 30 indices declined by 0.79, 9.34 and 24.77 per cent to 31,864.54, 70.50 and
5,373.00 at end-June 2011, from 32,118.89, 77.76 and 7,142.14, at end-December 2010,
respectively. The South African JSE, declined, despite rising commodity prices,
following investors' divestment as a result of speculation that South African stocks were
overvalued. On the other hand, the Kenyan NSE 20 declined owing to uncertainty driven
by political concerns, high inflation, rising interest rates and a depreciating Kenyan
shilling, while Egypt's EGX CASE 30 decline was attributed to political crisis which
eroded investor confidence.
In North America, positive economic indicators in the US and the bail-out loan to Greece
by the ECB and the IMF, which temporarily restored confidence in the Euro zone,
boosted the U.S index, as the S&P 500 rose by 5.01 per cent to 1,320.64 at end-June
2011, from 1,257.64 at end-December 2010. However, the Canadian S&P/TSX
Composite and Mexican Bolsa indices declined by 1.06 and 5.17 per cent to 13,300.87
and 36,558.07 at end-June 2011, from 13,443.22 and 38,550.79, respectively at endDecember 2010.
In South America, the equities market declined in the first half of 2011 amid speculations
that a number of countries in the region would introduce measures aimed at curbing
inflation, thus limiting economic growth. Consequently, the Brazilian Bovespa, the
Argentine Merval and the Columbian IGBC indices declined by 9.95, 4.62 and 9.22 per
cent, to 62,403.64, 3,360.64 and 14,067.73 at end-June 2011, from 69,304.81, 3,523.59
and 15,496.77, respectively at end-December 2010.
In Europe, stock market indices trended upwards in the first half of 2011, except the
Russian MICEX which declined. The United Kingdom's FTSE 100, the French CAC 40
and the German M-DAX rose by 0.78, 4.66 and 6.68 per cent to 5,945.71, 3,982.21 and
7,376.24 at end-June 2011, from 5,899.94, 3,804.78 and 6,914.19, respectively at endDecember 2010. The Russian MICEX declined by 4.12 per cent to 100.06 at end-June
2011, from 104.36 at end-December 2010. Rising crude oil prices were not sufficient to
support growth on the MICEX as the decline in domestic growth and the credit
environment dragged the index down.

CBN FINANCIAL STABILITY REPORT JUNE 2011
All the indices in the Asian market declined. The Japanese Nikkei 225, the Chinese
Shanghai A and the Indian BSE Sensex declined by 4.04, 1.64 and 8.11 per cent to
9,816.09, 2,762.08 and 18,845.87 at end-June 2011, from 10,228.92, 2,808.08 and
20,509.09, respectively at end-December 2010. The development was attributed to the
fall in manufacturing output in China resulting from sluggish recovery in industrialized
countries. The decline in the Japanese index, on the other hand, was attributed to the
combined effects of the Tsunami and nuclear crises which impacted adversely on
manufacturing output (Table 4).
% Change
Country
Index
30-Jun-11
31-Mar-11
31-Dec-10
30-Jun-10
31-Dec-10
to 30-June-

30-Jun-10 to
31-Dec-10
Africa
Nigeria
All Share Index
24,980.20

24,621.21

24,770.52

25,409.00

0.85%
-2.51%
South Africa
JSE African ASI
31,864.54

32,204.06

32,118.89

26,258.82

-0.79%
22.32%
Kenya
Nairobi NSE 20
70.50

72.56

77.76

74.40

-9.34%
4.52%
Egypt
EGX CASE 30
5,373.00

5,463.72

7,142.14

6,033.09

-24.77%
18.38%
Ghana
GSE All Share
1,188.91

1,071.50

1,000.00

1,162.78

18.89%
-14.00%
North America
US
S&P 500
1,320.64

1,325.83

1,257.64

1,030.71

5.01%
22.02%
Canada
S&P/TSX Comp.
13,300.87

14,116.10

13,443.22

11,294.42

-1.06%
19.03%
Mexico
Bolsa
36,558.07

37,440.51

38,550.79

31,156.97

-5.17%
23.73%
South America
Brazil
Bovespa Stock
62,403.64

68,586.70

69,304.81

60,935.90

-9.96%
13.73%
Argentina
Merval
3,360.64

3,388.03

3,523.59

2,185.01

-4.62%
61.26%
Columbia
IGBC General
14,067.73

14,469.66

15,496.77

12,449.90

-9.22%
24.47%
Europe
UK
FTSE 100
5,945.71

5,908.76

5,899.94

4,916.87

0.78%
19.99%
France
CAC 40
3,982.21

3,989.18

3,804.78

3,442.89

4.66%
10.51%
Germany
DAX
7,376.24

7,041.31

6,914.19

5,965.52

6.68%
15.90%
Russia
MICEX
100.06

106.79

104.36

76.68

-4.12%
36.10%
Asia
Japan
NIKKEI 225
9,816.09

9,755.10

10,228.92

9,382.64

-4.04%
9.02%
China
Shanghai SE A

Domestic Macroeconomic and Financial Developments
Domestic macroeconomic performance was strong in the first half of 2011. Gross
Domestic Product (GDP) growth rate was 7.3 per cent in the first half of 2011, driven
largely by the non-oil sector. Money supply grew moderately during the review period.
Headline year-on-year inflation moderated to 10.20 per cent at end-June 2011, from
11.80 per cent at end-December 2010. Interest rates rose consistently with the upward
review of the monetary policy rate during the review period. However, the effects of the

Table 4: Global Stock Indices
CBN FINANCIAL STABILITY REPORT JUNE 2011
rise in interest rates were cushioned by CBN's interventions, which enhanced the flow of
credit to the real sector, particularly agriculture, SMEs and infrastructure. The exchange
rate was relatively stable, although it marginally depreciated in all segments of the
market. At the WDAS, interbank and BDC segments, it depreciated by 2.1, 2.4 and 2.7
per cent, respectively, when compared with the levels in the first half of 2010. External
reserves declined to US$31.89 billion at end-June 2011, from US$32.34 billion at endDecember 2010, but remained above the international minimum benchmark of three
months import cover.
GDP growth was projected at 7.98 per cent for 2011, which is 0.13 percentage point
above the actual growth rate of 7.85 per cent recorded in 2010. The growth rate in the
second quarter of 2011 was estimated at 7.93 per cent, compared with 7.43 per cent in the
first quarter of the year and 8.29 per cent in the fourth quarter of 2010. The outcome was
driven mainly by the non-oil sector, particularly agriculture, which grew, respectively,
by 5.39 and 5.79 per cent in the first and second quarters of 2011, and constituted 35.0
and 41.48 per cent, respectively of the total GDP. Oil GDP grewby 2.9 and 3.4 per cent in
the first and second quarters of 2011, respectively.
3.2.1
The Real Sector
Figure 2: Percentage Growth Rate of Non-Oil GDP
Figure 3: Contribution of Oil and Non-oil GDP to Total Output

CBN FINANCIAL STABILITY REPORT JUNE 2011
3.2.2
Inflation
Domestic inflation moderated slightly in the first half of 2011, but remained at a doubledigit level in the period. Headline inflation stood at 10.2 per cent at end-June 2011,
compared with 11.8 per cent at end-December 2010, representing a 1.6 percentage points
decline. The decline was due largely to the stability in the supply of petroleum products.
3.2.3
The Fiscal Sector
Fiscal Operations
The retained revenue and aggregate expenditure of the Federal Government stood at
N1,307.33 billion and N1,997.85 billion, respectively, at end-June 2011 (Figures 6). At
that level, Federal Government-retained revenue fell by 22.46 per cent below the level at
end-December 2010. Consequently, the fiscal operations of the Federal Government
resulted in an overall deficit of N690.52 billion at end-June 2011, compared with the
actual deficit of N427.93 billion recorded in the second half of 2010.
Figure 5: Federal Government's Fiscal Operations
Figure4: Inflationary Trend (Year-on-Year)

CBN FINANCIAL STABILITY REPORT JUNE 2011
3.2.4
The Financial Sector
3.2.4.1 Monetary and Credit Developments
Growth in money supply was modest in the first half of 2011. Broad money supply (M2),
rose by 5.7 per cent to N12,177.4 billion at end-June 2011, compared with 6.9 per cent or
N11,488.7 billion at end-December 2010 and the indicative benchmark of 13.75 per
cent, or N17,710.00 billion, for fiscal 2011. The development reflected the respective
13.7 and 2.3 per cent growth in other assets (net) and domestic credit (net) of the banking
system.
Aggregate bank credit to the domestic economy (net) rose by 2.3 per cent to N8,908.5
billion at end-June 2011, compared with the revised 8.8 per cent growth recorded at endJune 2010. The development reflected the respective 5.1 and 1.5 per cent growth in credit
to the Federal Government and the private sector.
Reserve money grew by 11.9 per cent to N2,065.1 billion at end-June 2011, from 11.6 per
cent or N1,845.7 billion at end-December 2010. At that level, reserve money was 16.6
per cent higher than the indicative benchmark of N1,771.4 billion for 2011fiscal year.
Figure6: Trends in Major Monetary Aggregates
Figure 7: Trends in Net Domestic Credit

CBN FINANCIAL STABILITY REPORT JUNE 2011
3.2.4.2 The Maturity Structure of DMBs' Loans &Advances and Deposits
Analysis of the structure of DMBs' outstanding credits at end-June 2011 indicated that
short-term maturities remained dominant in the credit market. Outstanding loans and
advances maturing one year and below accounted for 62.2 per cent of the total, which
was a slight improvement over the 65.3 per cent at end-December 2010. The mediumterm (≥1yr and < 3yrs) and long-term maturities (3yrs and above) stood at 14.6 and 23.2
per cent, respectively, compared with 12.6 and 14.1 per cent, respectively at end-June
2010, (Figure 9). Deposits of below one year constituted 96.6 per cent of the total.
Further analysis showed that 73.3 per cent of the deposits had a maturity of less than 30
days, while long-term deposits of more than three (3) years constituted only 1.0 per cent
at end-June 2011 (Figure 10).
Figure 3: Distribution of Deposit Money Banks (DMBs)
Loans and Advances by Maturity
Figure 4: Distribution of DMB's Deposit Structure

CBN FINANCIAL STABILITY REPORT JUNE 2011
3.2.4.3 The Market Structure of the Banking Industry
The oligopolistic structure of the banking industry persisted in the first half of 2011.
Based on total assets and market share of total deposits, the concentration ratios of the
largest six banks stood at 55.22 and 53.85 per cent, respectively, compared with 52.36
and 53.90 per cent at end-December 2010. The market share of the largest bank, with
respect to assets and deposits, stood at 13.79 and 14.31 per cent, respectively, at end-June
2011. The oligopolistic structure of the banking sector was further confirmed by the
respective Herfindahl-Hirschman Index (HHI) of 699.1 and 690.1 for total deposits and
assets respectively (Figure 11).
Figure 10: Market Concentration Ratios of DMBs (Assets)
3.2.4.4 Interest Rates
Rates at all segments of the money market rose in tandem with the upward reviews of the
MPR in March and May 2011. Consequently, the average inter-bank call rate stood at
9.21 per cent for the first half of 2011, compared with 2.52 per cent in the second half of
2010. At the Open-Buy-Back (OBB) segment, the average rate rose to 8.24 per cent at
end-June 2011, from 2.29 per cent in the second half of 2010. The OBB 7- and 30-day
NIBOR rates also moved in tandem with the inter-bank call rates. The symmetric
corridor of +/- 200 basis points around the MPR for lending and deposit facilities was
maintained during the review period.
Available data showed that the average term deposit rate rose marginally by 0.06
percentage point to 4.40 per cent in the first half of 2011. The maximum lending rate rose
by 0.16 percentage point to 22.00 per cent, while the average prime lending rate declined
by 0.96 percentage point to 15.77 per cent. Consequently, the spread between the
average term deposit and maximum lending rates narrowed by 0.92 percentage points to
17.40 per cent in the first half of 2011, from 18.32 per cent in the second half of 2010.

CBN FINANCIAL STABILITY REPORT JUNE 2011
Figure 11: Money Market Rates Between
First Half of 2008 and First Half of 2011
Figure 12: Lending and Deposit Rates Between
First Half of 2008 and First Half of 2011
3.2.4.5 The Capital Market
3.2.4.5.1 The Nigerian Stock Market
Activities in the stock market were influenced by improved liquidity and the successful
conduct of the 2011 general elections. Consequently, ASI rose by 0.85 per cent to close
at 24,980.20 at end-June 2011, from 24,770.52 at end-December 2010. Market
capitalization also rose by 1.01 per cent to N7.99 trillion at end-June 2011, from N7.91
trillion at end-December 2010. This was mainly attributed to capital appreciation and
additional listings.
The volume and value of transactions increased by 31.75 and 1.78 per cent to 50.46
billion and N367.60 billion at end-June 2011, from 38.30 billion and N361.16 billion at
end-December 2010, respectively. However, the number of deals declined by 1.97 per
cent to 729,365 at end-June 2011, from 744,028 at end-December 2010 (Table 5).

CBN FINANCIAL STABILITY REPORT JUNE 2011
Period
Volume
Value

Market Cap.
No. of
Index
January–June 2011

50.46

367.60

7.99
729,365

24,980.20
July–December
38.30

361.16

7.91

744,028

24,770.52
Percentage Change

31.75

1.78

1.01

(1.97)

0.85
Table 5: Transactions on the Nigerian Stock Exchange
Source: NSE Monthly Statistics and Annual Report 2010.
The banking sector accounted for 52.73 per cent of the volume of equities traded in the
review period, compared with 58.37 per cent in the second half of 2010. The five most
active sectors: banking, conglomerates, insurance, mortgage, and food/beverages and
tobacco, accounted for 84.02 per cent of the volume traded during the review period,
compared with 79.7 per cent in the second half of 2010 in which the banking, insurance,
food/beverages and tobacco, ICT, and mortgage sectors were the major contributors.
The increase was attributed to renewed investor confidence in the conglomerate sector,
which was not among the top five (5) most active sectors in the second half of 2010, but
ranked second in the period under review.

Sector
Volume
Value ( N)
Deals
Banking
26,582,601,439

228,172,228,568.19

412,233

Conglomerates
8,453,857,810

21,004,735,560.03

21,091

Insurance
4,197,201,243

3,984,906,089.61

34,799

Mortage Companies
1,883,045,540

1,244,999,913.58

4,146

Food/Beverages &
Tobacco
1,236,550,802

31,416,160,143.09

60,431

Sub-Total
42,353,256,834

285,823,030,274.50

532,700

Others
8,057,700,502

87,832,656,306

201,063

Equity Traded
50,410,957,336

373,655,686,580.32

733,763

Table 6: NSE Sectoral Performance in the First Half of 2011
3.2.4.5.2 The Bond Market
A.
Primary Market Auctions
a.
Federal Government of Nigeria (FGN) Bonds
The value of FGN Bonds increased by 13.10 per cent to N3.28 trillion at end-June 2011,
from N2.90 trillion at end-December 2010. It remained the dominant instrument in the
bond market, constituting 60.41 per cent of the total outstanding bonds of N5.43 trillion
at end-June 2011, and accounted for 62.96 per cent of Federal Government's outstanding

CBN FINANCIAL STABILITY REPORT JUNE 2011
domestic debt stock of N5.21 trillion at end-June 2011.
During the first half of 2011, a new 3-year 10.50 per cent FGN 2014 bond was issued,
while existing 3- and 5-year FGN Bonds were reopened. The total amount on offer stood
at N396.50 billion with public subscription of N861.11 billion and allotment of N396.50
billion (Figure 14 and Table 7).The bid rates ranged from 5.50 to 15.00 per cent for the 3year tenor and 8.75 to 15.50 per cent for the 5-year tenor, while the average stop rates
were 10.84 per cent for the 3-year tenor and 12.05 per cent for the 5-year tenor. The oversubscription was attributed to investor appetite for the short end of the yield curve, as it
had higher returns with a lower risk.
Figure 13: FGN Bond Auctions
BOND
TRANCHES
TENOR
ISSUE
(BILLION=N=)
SUBSCRIPTION(BI
LLION=N=)
ALLOTMENT
(BILLION=N=)
RANGE OF BIDS
CUTOFF
RATE
MATURITY
DATE
JANUARY 19,2011
5.5%FGN2013
3YEAR

4.00%FGN 2015
5YEAR

Sub-Total
60.00
137.45
60.00
FEBRUARY 16,2011
5.5%FGN2013
3YEAR

4.00%FGN 2015
5YEAR

Sub-Total
66.50
140.01
66.50
MARCH 16,2011
10.5%FGN2014
3YEAR (New issue)

4.00%FGN 2015
5YEAR

Sub-Total
60.00
102.27
60.00
APRIL 20,2011
10.5%FGN2014
3YEAR

4.00%FGN 2015
5YEAR

Sub-Total
70.00
129.22
70.00
MAY 18,2011
10.5%FGN2014
3YEAR

4.00%FGN 2015
5YEAR

Sub-Total
70.00
199.01
70.00
JUNE 15,2011
10.5%FGN2014
3YEAR

4.00%FGN 2015
5YEAR

Sub-Total
70.00
153.15
70.00
TOTAL
396.50
861.11
396.50
Table 7: FGN Bond Auctions, January - June 2011

CBN FINANCIAL STABILITY REPORT JUNE 2011
a.
Sub-National Bonds
b.
Corporate Bonds
The sub-national bonds segment was not active in the first half of 2011 as there was no
issue during the period, compared with N50 billion issued in the second half of 2010. At
end-June 2011, total sub-national bonds outstanding were N248.50 billion, representing
4.60 per cent of total bonds outstanding.
There was one issue of corporate bonds during the review period, compared with three in
the second half of 2010. The total value of corporate bonds offered declined by 97.06 per
cent to N2.50 billion in the first half of 2011, from N85.00 billion in the second half of
2010. The total amount allotted was N1.50 billion, compared with N72.50 billion in the
second half of 2010. Total outstanding corporate bonds stood at N93.17 billion,
representing 1.71 per cent of the outstanding bonds of N5.43 trillion (Tables 8 and 9).
Issuer

Issue Date

Maturity
Date
Offer
(N
Allotment

(N
Tenor
(Years)
ChellaramsPlc
6-Jan-11
6-Jan-16
2.50
1.50

Table 8: Corporate Bonds Issued, January - June 2011


Crusader Nigeria
Plc
30-Sep-08

30-Sep-13

Listed

4.00

4.00

Guaranty Trust
Bank Plc
18-Dec-09

18-Dec-14

Listed
100.00

13.17

NGC Sterile Ltd

1-Apr-10

31-Dec-14

Private
Placement
2.00

2.00

UACN Property
Dev. Co. Plc

17-Aug-10

17-Aug-15


15.00

15.00

United Bank for
Africa Plc
30-Sep-10

30-Sep-17


35.00

20.00

Flourmills of
Nigeria Plc

9-Dec-10

9-Dec-15


35.00

37.50

Chellarams PLC

6-Jan-11

6-Jan-16


2.50

1.50

Table 9: Outstanding Corporate Bonds

CBN FINANCIAL STABILITY REPORT JUNE 2011
a.
Asset Management Corporation of Nigeria (AMCON) Bonds
A.
Secondary Market Activities
a.
Over-the-Counter (OTC) Trading in FGN Bonds
The AMCON issued two 3-year zero-coupon consideration bonds with a total face value
of N534.48 billion to 22 banks in the first half of 2011, in exchange for their Eligible
Bank Assets (EBAs). The total face value of bonds issued by AMCON since its
inception stood at N1.81 trillion at end-June 2011. This represented 33.28 per cent of the
total outstanding bonds.
The OTC trading in FGN bonds declined by 25.53 per cent to N4.20 trillion in 35,374
deals in the first half of 2011, from N5.64 trillion in 48,686 deals recorded in the second
half of 2010 (Figure 15). This development was attributed to the decline in bond prices,
following the increase in the Monetary Policy Rate to 8.00 per cent in May 2011,
compared with 6.25 per cent at end-December 2010. The decline in prices informed
investor preference to hold onto the bonds to avoid capital losses on disposal.
Figure 14: OTC Trades in FGN Bonds
3.3
The External Sector
3.3.1
External Reserves Management
Nigeria's external reserve management is largely driven by the need to safeguard the
international value of the Naira. To achieve this objective, the Bank continued the
implementation of its Strategic Asset Allocation initiative which classifies the CBN's
portion of the foreign reserves into Liquidity, Investment and Stable tranches. The other
portions of the reserves are the Federation and the Federal Government. Meanwhile, the

CBN FINANCIAL STABILITY REPORT JUNE 2011
proportion of external reserves under the control of the CBN is expected to drop as the
Excess Crude Account would be transferred to the Nigeria Sovereign Investment
Authority (NSIA) following the enactment of the Nigeria Sovereign Investment
Authority Act in April 2011.
The gross external reserves at end-June 2011 stood at US$31.89 billion, representing a
decrease of US$0.45 billion, or 1.39 per cent, from the level of US$32.34 billion at endDecember 2010. A breakdown of the external reserves by currency shows that 79.29 per
cent were held in US Dollars, 2.59 per cent in Pounds Sterling, 9.58 per cent in Euro and
8.54 per cent in other currencies.
Total foreign exchange inflow during the first half of 2011 was US$19.57 billion,
compared with US$14.87 billion in the second half of 2010, representing an increase of
31.61 per cent. This was due to increases in oil receipts and other government revenues.
Total outflow in the review period was US$20.53 billion, made up of foreign direct
payments, drawings on letters of credit and external debt service, among others. The
total outflow was lower than the US$20.89 billion recorded in the second half of 2010 by
1.72 per cent. Outflows during the period were largely in respect of market interventions
through the WDAS and BDC windows, which accounted for US$17.00 billion or 82.80
per cent. Others included public sector uses and debt servicing which amounted to
US$3.53 billion or 17.20 per cent. The net outflow during the review period was
US$0.96 billion, compared with US$6.00 billion in the second half of 2010.
The Bank conducted 48 auctions in the first half of 2011 at the Wholesale Dutch Auction
System Spot (WDAS-SPT) window. The total amount of foreign exchange demanded
stood at US$17.91 billion, while amounts offered and sold were US$15.37 billion and
US$14.99 billion respectively, during the period. In the second half of 2010, total
demand for and sales of foreign exchange stood at US$15.37 billion and US$12.99
billion, respectively, while the amount on offer was US$13.01 billion.
The foreign exchange Wholesale Dutch Auction System Forward (WDAS-FWD)
commenced on Wednesday, March 23, 2011. The WDAS-FWD was introduced with the
aim of deepening the foreign exchange market in order to minimise distortions in
3.3.2
Movements in External Reserves
3.3.3
Foreign Exchange Flows
3.3.4 Demand for and Supply of Foreign Exchange

CBN FINANCIAL STABILITY REPORT JUNE 2011
exchange rate pricing and smoothen demand for foreign exchange. The forward auctions
are conducted weekly and offered in tenors of 1-, 2- and 3-months.
The total amount demanded at the WDAS-FWD window was US$1.12 billion, while
US$953.52 million was sold during the period under review. The difference, therefore,
represented bids below the Bank's reserve rate. The sum of US$547.43 million matured
at the WDAS-FWD segment in the first half of 2011.
In addition to the WDAS auctions, special allocations of US$1.60 billion were made to
BDCs on a non-competitive basis in the first half of 2011. This represented a decrease of
42.03 per cent from the US$2.76 billion sold to BDCs in the second half of 2010. The
decrease was traceable to the withdrawal of the operating licences of class 'A' BDCs in
November 2010.
Figure 15: WDAS-SPT Demand and Supply in US$ Million
3.3.5
Exchange Rate Movements
The average exchange rate of the Naira at the WDAS-SPT window depreciated by 1.76
per cent to N153.31/US$ at end-June 2011, from N150.66/US$ in the second half of
2010. At the inter-bank segment of the market, the average exchange rate of the Naira
depreciated by 2.02 per cent to close at N154.47/US$, from N151.42/US$ at endDecember 2010. Similarly, the exchange rate at the BDC segment depreciated by 2.35
per cent to close at N156.95/US$, from N153.35/US$ at end-December 2010 (Figure
17).
The premium between the WDAS-SPT and BDC exchange rates increased by 33.69 per
cent to N3.73 in the first half of 2011, from N2.79 in the second half of 2010. The
premium between WDAS-SPT and inter-bank exchange rates also increased by 45.34

CBN FINANCIAL STABILITY REPORT JUNE 2011
Figure 16: WDAS, Inter-Bank and BDC Rates for
July 2010 - June 2011
3.4
Key Risks in the Nigerian Financial System
3.4.1
Credit Risk
The risks in the Nigerian financial system eased during the review period. This was due
to the impact of AMCON's activities, effective regulatory interventions and gradual
global economic recovery, driven by the economies of BRICS (Brazil, Russia, India,
China, and South Africa) and other emerging economies. However, given the current
state of the intervened banks and the prolonged recapitalisation process, the risks
highlighted below continued to pose threats to the stability of the financial system.
The banking industry risk assets quality continued its modest improvement as the nonperforming loans (NPLs) to total loans ratio declined by 4.69 percentage points to 10.81
per cent at end-June 2011, from 15.5 per cent at end-December 2010. The decrease in
NPLs was driven largely by the acquisition of eligible bank assets by AMCON. In
absolute terms, the NPLs declined by 44.68 per cent from N1,413.63 billion at endDecember 2010 to N782.06 billion at end-June 2011,. Sub-standard, doubtful and lost
loans stood at N236.57 billion, N107.53 billion and N437.96 billion or 30.25, 13.75 and
56.00 per cent of total NPLs, respectively, at end-June 2011. Loan loss provisions
declined from N822.59 billion at end-December 2010 to N585.15 billion at end-June
2011.

per cent to N1.25 in the first half of 2011, compared with N0.86 in the second half of
2010.
CBN FINANCIAL STABILITY REPORT JUNE 2011
Figure 17: Selected Credit Ratios, Dec. 2010 June 2011
The total credit of N7,706.43 billion at end-December 2010 decreased to N7,231.29
billion at end-June 2011. The top 10, 20, 50 and 100 obligors accounted for 15.12, 20.92,
31.72 and 40.29 per cent, respectively, of the industry gross credit of N7,231.29 billion,
indicating a high concentration.
Liquidity in the banking sector improved marginally as the average liquidity ratio rose
by 2.79 percentage points to 50.25 per cent at end-June 2011, from 47.46 per cent at endDecember 2010. This was driven by the increase in total deposits to N9.424 trillion at
end-June 2011 from N9.368 trillion at end-December 2010. Other factors included low
volatility of deposits, significant reduction in the assets/liabilities mismatch, and the
CBN guarantees of inter-bank market transactions and foreign credit lines to banks.
Banking industry trading books' sensitivity to movements in interest rates, measured by
composite volatility in interest rates, increased from +0.01286 in December 2010 to
+0.03286 in June 2011. This indicated that a one percentage point parallel change in
interest rates would have resulted in a 3.29 per cent increase or decrease in net interest
income. Thus, interest rate risk, based on sensitivity of banking trading books to interest
rates volatility, increased by 200 basis points which was within tolerable limits.
Similarly, interest rate risk from the re-pricing of interest-sensitive financial
assets/liabilities was low, owing to the large spread between deposit and lending rates,
which stood at an average of 19.22 percentage points.
3.4.2
Liquidity Risk
3.4.3
Market Risk
3.4.3.1 Interest Rate Risk

CBN FINANCIAL STABILITY REPORT JUNE 2011
3.4.3.2 Exchange Rate Risks
3.4.4
Operational Risk
3.4.5
Reputational Risk
3.5
Outlook for the Second Half of 2011
Exchange rates remained stable at the WDAS, interbank and BDC markets during the
period under review. However, given the huge net FX position, the banking industry
remained vulnerable to exchange rate volatility occasioned by persistent demand
pressure.
During the review period, 1,379 fraud and forgery cases involving a total of N6.50
billion, with a loss of N1.93 billion occurred in the banking industry, as against 2,841
cases involving a total of N11.57 billion with a loss of N8.04 billion at end-December
2010. Similarly, 116 ATM-related cases valued at N17.16 million were reported in the
first half of 2011, as against 411 cases amounting to N82.17 million recorded in the
second half of 2010.
At end-June 2011, 2,652 complaints were processed out of a total of 2,742 received by
the CBN. The processed complaints resulted in the refund of N3.96 billion,
US$198,118.75 and EUR10,000.00, to customers, arising from excess charges and other
unethical actions. These efforts mitigated reputational risk in the industry. However, the
spate of litigations against the Bank's effort at recapitalizing intervened banks exposed
the financial system to increasing reputational risk.
The GDP is projected to grow by 7.98 per cent in 2011, compared with 7.85 per cent in
2010, while growth rates in the third and fourth quarters of 2011 are projected to be 7.92
and 8.46 per cent, as against 7.86 and 8.36 per cent, respectively, recorded in the
corresponding periods of 2010. The major drivers of the projected growth in GDP are
agriculture, wholesale and retail trade, and the telecommunications sectors of the
economy. However, growth prospects might be constrained by the slow economic
recovery and debt concerns in the developed economies, as well as rising inflation in
some emerging economies.
A tight monetary policy stance is expected to further dampen inflationary pressures,
while the exchange rate should remain relatively stable. The current initiatives aimed at
increasing productivity in the real sector as well as sustained reforms in other sectors are
expected to yield a positive impact on GDP growth.

CBN FINANCIAL STABILITY REPORT JUNE 2011
The introduction of a Central Securities Depository in the second half of the year, should
enhance securities and collateral management, and the planned issuance of N1.33
trillion NTB would further deepen the money market. The demand for repo is projected
to range from N150 billion to N230 billion in the second half of the year as market
players may utilise their AMCON Bonds for accessing the CBN window.
The capital market might experience increased activity, following the projected issuance
of FGN bonds (3-, 5- and 10-year tenors) worth N420.00 billion in the second half of
2011.

CBN FINANCIAL STABILITY REPORT JUNE 2011
4.0
DEVELOPMENTS IN THE FINANCIAL SECTOR
4.1
Promoting Financial System Stability
The new banking model which was introduced in 2010 provided, among others, for the
following:
Classification of banks into Commercial, Merchant, and Specialised;
Classification of their operations into International, National, and Regional;
Banks' divestment from non-bank subsidiaries or the transfer of such
subsidiaries to Holding Companies, latest by May 2012; and
Banks with real estate subsidiaries to divest from such subsidiaries, latest by June
2013.
Consequently, Approvals-in-Principle (AIPs) were granted to 17 deposit money banks
(DMBs) during the review period to pursue their respective compliance plans. Of the 17
DMBs, 9 opted for “International”, 6 “National” and 2 “Regional” bank status. Also, 13
DMBs opted to divest from their non-bank subsidiaries, while four (4) chose the Holding
Company (HoldCo) structure. The processing of the applications of the remaining 7
DMBs was deferred pending the conclusion of their recapitalisation plans. It is
envisaged that the emerging structure would elicit ownership interest in the industry,
with good prospects for attracting Foreign Direct Investment (FDI).
The capital requirements for banks and other financial institutions at end-June 2011 were
prescribed as follows:
Commercial bank:
o
International
-
N50 billion
o
National
-
N25 billion
o
Regional
-
N10 billion
Merchant bank
-
N15 billion
Non-interest bank:
o
National
-
N10 billion
o
Regional
-
N5 billion
Primary Mortgage Institution
-
N5 billion
Microfinance bank:
o
National
-
N2 billion
o
State
-
N100 million
o
Unit
-
N20 million

CBN FINANCIAL STABILITY REPORT JUNE 2011
During the review period, the CBN sustained its support for the recapitalization drive of
the eight banks in which it had intervened in order to contain systemic distress.
Following the delay in the recapitalization process arising from litigations instituted by
some shareholders, the deadline was extended to September 30, 2011, from June 30,
2011. It was expected that the litigations would have been resolved before the deadline to
enable the affected banks conclude their recapitalization programmes.
Meanwhile, AMCON expressed its readiness to bail out the affected banks, through
acquisition, while it continued to impact positively on the financial system by acquiring
eligible bank assets (EBAs) to enhance liquidity and deepen the capital market.
The Revised Microfinance Policy, Regulatory and Supervisory Framework was
approved in April, 2011. The revision was informed by the challenges encountered in the
implementation of the 2005 Microfinance Framework.
The new policy regime categorised MFBs and prescribed their minimum capital
requirements as follows:
Unit MFBs:
o
Minimum paid-up capital of N20 million,
o
Authorized to operate in one location only;
State MFBs:
o
Minimum paid-up capital of N100 million,
o
To operate within a State or the Federal Capital Territory (FCT); and
National MFBs:
o
Minimum paid-up capital of N2 billion, and
o
To operate in more than one State, including the FCT.
The new policy recognised the need for the establishment of a Microfinance
Development Fund to provide for the wholesale funding of MFBs/MFIs. Furthermore,
the Fund will support the growth of the subsector by providing a refinancing/guarantee
facility, capacity building, financial education, and other promotional activities. It would
be financed by government and facilities from international development finance
institutions.
The policy also provides for the extension of the Interest Drawback Programme (IDP) to
4.2
The Revised Microfinance Policy, Regulatory and Supervisory Framework

CBN FINANCIAL STABILITY REPORT JUNE 2011
MFB clients in agriculture-related businesses. In addition, subsidized training/capacity
building programmes would be made available to staff of MFBs.
In line with its commitment to entrench a sound financial system, the Bank continued to
build capacity through targeted training of staff in the following areas:
Sensitisation training on IFRS and its implementation;
Training of supervisors from the Bank and the NDIC on the risk-based
supervisory methodology;
Pilot training on the utilization of Financial Institutions' Application Processing
System (FIAPS);
Microfinance training programme for supervisors from the Bank and the NDIC,
co-sponsored by the German Technical Corporation (GTZ);
Initiation of the Microfinance Certification Examination (MFCE) by the Bank in
collaboration with the Chartered Institute of Bankers of Nigeria (CIBN). A total
of 319 candidates completed the certification examination in the period; and
Training of staff on the financial markets and Non-interest (Islamic) Banking.
The meeting of the West African Monetary Zone Experts Committee held in Accra,
Ghana, from May 25 to 27, 2011 discussed the results of studies on:
A Framework for the Harmonizing
Foreign Exchange Markets and the
Pooling of Reserves in the WACB;
Financial Sector Assessment and Development of an Appropriate Architecture in
the WAMZ: Design of the ECO Unit of Account; and
Impact of Electoral Cycles on Macroeconomic Convergence and the Twin
Deficits Hypothesis in the WAMZ.
The Board of Directors of the African Development Bank (AfDB) Group, on May 26,
2011, approved two sovereign-guaranteed programmes, totaling US$200 million to the
Nigerian Export-Import Bank (NEXIM) for financing export-oriented Small and
Medium-sized Enterprises (SMEs), and US$500 million to the Bank of Industry (BOI)
for financing domestic SMEs in Nigeria. The funds were to be channelled through
4.3
Institutional Capacity Building
4.4
International Economic Relations and Cooperation
4.4.1
The WAMZ Committee of Experts Deliberated on the Report of Financial
Sector Assessment and Development
4.4.2
AfDB's Cooperation with Nigeria for the Development of SMEs

of

CBN FINANCIAL STABILITY REPORT JUNE 2011
NEXIM and the BOI by way of multi-tranche Lines of Credit. A portion of the proceeds
of the programmes was to be used to pay for Technical Assistance and capacity building
in NEXIM, BOI, and the SMEs.
The NEXIM programme was designed to mobilize significant financial resources for
Nigeria's export-oriented SMEs operating in various sectors of the economy and
contributing to economic development through increased employment opportunities,
foreign exchange earnings and regional trade integration. NEXIM envisages significant
economic outcomes through this programme, including creating about 55,000 new jobs
for its SME clients, US$ 1.6 billion in new foreign exchange inflows, an estimated 7.0
per cent increase in non-oil exports, and a 10.0 per cent increase in the country's share of
ECOWAS exports.
The funds for the BOI were to be deployed towards systematic poverty reduction;
employment generation; and wealth creation through entrepreneurial, social and
economic development. The programme was to cover for loans to SMEs and financing
of capital projects in the form of cluster and infrastructure development.
The associated Technical Assistance packages were designed to strengthen capacity at
NEXIM, BOI and the SMEs. In summary, the programmes were expected to generate
significant additional lending to export-oriented SMEs at a time when lending by
commercial banks to these schemes was grossly inadequate.
The Association of African Central Banks (AACB) held its 2011 Seminar on, “Financing
Development in Africa: What Role for Central Banks?” at the National Bank of
Rwanda, Kigali, from 30th May to 1st June 2011, in which the central bankers defined a
role for central banks in financing development in Africa. Nigeria was one of the five (5)
African central banks that shared their experiences with participants at the Seminar. The
objective of the seminar was to identify alternative sources of financing development in
Africa and to further strengthen AACBs goal of promoting the exchange of ideas and
experiences on monetary, financial and banking matters.
At the end of the Seminar, participants agreed that central banks had a key role to play in
financing development. A central bank's role could be in the form of direct intervention
to address a specific development issue and/or indirectly, given that development is
4.4.3
Cooperation with other African Central Banks

CBN FINANCIAL STABILITY REPORT JUNE 2011
largely a long-term phenomenon. A key recommendation of the Seminar was that
African central banks revisit their laws to include financing development especially
where financing development had not been explicitly provided for in existing
legislation. Members expressed their desire to leverage on the experiences of Nigeria,
The Gambia and Egypt in their efforts to finance development in their respective
countries. The recommendations of the Seminar were to be submitted to the Assembly of
Governors of the AACB at their next meeting later in the year.
A total of 11,410 loans, valued at N2.19 billion were guaranteed in the first half of 2011,
bringing the total loans guaranteed under the Scheme since its inception in 1978 to
709,610, valued at N44.34 billion.
Under the Interest Drawback Programme (IDP), 7,430 claims valued at N68.93 million
were settled during the review period. This reflected a decline of 41.53 and 42.77 per
cent in volume and value, respectively, when compared with 12,552 claims valued at
N120.43 million settled in the second half of 2010. The cumulative IDP claims settled
since its inception to June 30, 2011 were 127,902, valued at N720.64 million.
At end-June 2011, total disbursements under the Scheme remained unchanged at N19.43
billion to 103 agricultural projects as was recorded at end-December 2010. The total
amount paid by the Bank as interest rebate since the inception of the Scheme was
N844.28 million.
The sum of N34.68 billion was disbursed to 45 projects during the period under review,
compared with N38.59 billion disbursed to 44 projects in the second half of 2010. This
reflected a decline of 40.5 and 23.7 percent in value and volume, respectively. A total of
N131.5 billion had been disbursed to 14 DMBs in respect of 148 projects at end June
2011.
The sum of N199.67 billion, out of the N200 billion earmarked for the Scheme, had been
released to the Bank of Industry (BOI) for disbursement to 539 projects by June 2011.
4.5
Access to Finance
4.5.1
The Agricultural Credit Guarantee Scheme Fund (ACGSF)
4.5.2
The Agricultural Credit Support Scheme (ACSS)
4.5.3
The Commercial Agricultural Credit Scheme (CACS)
4.5.4
The Refinancing/Restructuring Small and Medium Enterprises
Manufacturing Fund

CBN FINANCIAL STABILITY REPORT JUNE 2011
4.5.5
The Small and Medium Enterprises Credit Guarantee Scheme (SMECGS)
4.5.6
The Power and Aviation Intervention Fund (PAIF)
4.5.7
The Nigerian Incentive-Based Risk Sharing System for Agricultural
Lending (NIRSAL)
4.5.8
Microfinance Banking Activities
4.5.9
Primary Mortgage Institutions' Activities
Two (2) projects valued at N120 million were guaranteed under the Scheme during the
review period, bringing the total amount guaranteed at end-June 2011 to N227.5 million
for 4 projects.
At end-June 2011, N41.9 billion had been disbursed for eight (8) airline projects out of
the N300 billion earmarked for the Scheme. No disbursements had yet been made with
respect to the power sector.
The Bank commenced the implementation of NIRSAL, aimed at encouraging banks to
lend to the agricultural and agricultural finance value chain by offering them incentives
and technical assistance.
Provisional data indicated that total assets of MFBs increased to N187.17 billion at endJune 2011 from the revised figure of N170.34 billion at end-December 2010,
representing a growth of 9.88 per cent. Paid-up share capital and shareholders' funds
increased by 7.22 and 7.77 per cent to N44.54 billion and N47.42 billion respectively at
end-June 2011, from N41.54 billion and a revised figure of N44.00 billion respectively at
end-December 2010. The deposit liabilities increased by 12.31 per cent to N85.06 billion
in June, 2011, from the revised figure of N75.74 billion in December 2010. The net loans
and advances also increased by 23.81 per cent to N65.46 billion at end-June 2011,
compared with the revised figure of N52.87 billion at end-December 2010.
Provisional data showed that the total assets increased marginally to N360.02 billion at
end-June 2011, from N358.81 billion at end-December 2010, representing a growth of
0.34 per cent. Net loans and advances increased by 1.63 per cent to N135.05 billion at
end-June 2011, from N132.88 billion at end-December 2010. The paid-up share capital
and shareholders' funds also increased by 2.87 and 6.77 per cent to N64.18 billion and
N89.21 billion, from N62.39 billion and N83.55 billion, respectively. However, deposit
liabilities decreased by 4.90 per cent to N177.79 billion at end-June 2011, from N186.95
billion at end-December2010.

CBN FINANCIAL STABILITY REPORT JUNE 2011
4.6
Non-Interest Banking
4.7
Anti-Money Laundering/Combating the Financing of Terrorism
(AML/CFT)
The CBN released the Framework and Guidelines for the Regulation and Supervision of
Non-Interest (Islamic) Banking in Nigeria. Subsequently, the Bank granted ApprovalsIn-Principle (AIPs) to one applicant for a full-fledged non-interest (Islamic) bank and a
window to a DMB to offer non-interest (Islamic) banking products. The AIPs require the
institutions to meet the prescribed conditions for the granting of a banking licence within
six (6) months.
In continuation of the Bank's efforts at combating money laundering and financing of
terrorism, the following activities were undertaken during the period under review:
Verification of banks' compliance with the Know-Your-Customer (KYC)
requirement;
Preparation of a draft AML/CFT Risk-Based Examination and Regulation
Manuals for financial institutions;
Review of the Intergovernmental Action Group Against Money Laundering in
West Africa (GIABA)'s Country Report on Nigeria for the year 2010; and
Establishment of an Enforcement Unit responsible for monitoring compliance.
The Anti-Terrorism Bill (ATB) was passed into law in the first half of 2011, while the
Money Laundering Prohibition Act (MLPA) was amended during the period. The Acts
criminalised terrorist financing and addressed issues of freezing, seizure and
confiscation of both laundered money and terrorist funds.

CBN FINANCIAL STABILITY REPORT JUNE 2011
REGULATORY AND SUPERVISORY
ACTIVITIES
5.0
5.1
Macro-Prudential Supervision
5.1.1
Financial Soundness Indicators (FSIs)
5.1.1.1 Capital Adequacy
The Nigerian banking sector remained relatively sound as financial soundness indicators
revealed a sustained improvement since January 2010 (Table 10).
The ratio of regulatory capital to risk weighted assets was 9.9 per cent at end-June 2011,
reflecting an increase of 2.9 percentage points above the level at end-December 2010
and 1.9 percentage points higher than the Basel II minimum requirement of 8.0 per cent.
However, the end-June 2011 level was slightly lower than the country's benchmark of
10.0 per cent. The ratio of tier 1 capital to risk weighted assets of 6.3 per cent at end-June
2011 was 2.2 percentage points higher than the 4.1 per cent achieved at end-December
2010.

CBN FINANCIAL STABILITY REPORT JUNE 2011
S/N
2010 (Revised)
2011 (Provisional)


(1)
(2)
(3)

Capital Adequacy


Regulatory capital to risk-weighted assets
6.9
7.0
9.9

Tier 1 capital to risk-weighted assets
4.4
4.1
6.3

Asset Quality


NPLs to total loans

38.3
20.1
11.6

NPLs net provision to capital

147.1
64.2
34.7

Sectoral Distribution of Loans to Total
Credits


Deposit takers

0.1
0.1
0.0

Other financial corporation

2.9
2.8
2.0
Other domestic sectors
93.4
92.2
92.2
Government
3.6
4.9
5.8

Earnings/Profitability
Return on equity (ROE)
11.8
65.4
4.5
Return on assets (ROA)
0.4
2.1
0.2
Interest margin to gross income
50.6
46.8
53.8
Non-interest expenses to gross income
60.9
33.8
71.3
Personnel expenses to non-interest expenses
40.8
40.8
53.8
Foreign exchange trading gains (losses) to
gross income
2.1
0.7
3.2

Liquidity
Liquid assets (core) to total assets
17.7
18.0
23.3
Liquid assets (core) to short-term liabilities
19.4
19.8
25.7
Table 10: Selected Financial Soundness Indicators in the Nigerian Banking Sector
The FSIs are computed based on IMF Guidelines

CBN FINANCIAL STABILITY REPORT JUNE 2011
Figure 18: Banking Sector Capital Adequacy Ratios, 2010 - 2011
5.1.1.2 Asset Quality
The quality of risk assets in the sector improved in the second half of 2011 as revealed by
the ratio of non-performing loans to total loans, which reduced to 11.6 per cent at endJune 2011, from 20.1 per cent at end-December 2010. Also, the ratio of non-performing
loans net of provisions to capital declined to 34.7 per cent at end-June 2011, from 64.2
per cent at end-December 2010. The improvement was mainly attributed to the purchase
of EBAs by AMCON and improved risk management practices by banks.
Figure 19: Banking Industry NPLs to Total Loans, 2010 - 2011

CBN FINANCIAL STABILITY REPORT JUNE 2011
5.1.1.3 Earnings and Profitability
The return on equity (ROE) dropped sharply to 4.5 per cent in the review period from
65.4 per cent in December 2010 (Figure 21). The unusually high ROE recorded in
December 2010 was as a result of the sale of EBAs to AMCON that necessitated the
write-back of provisions made on those assets. Similarly, the return on assets (ROA)
decreased to 0.2 per cent in June 2011 from 2.1 per cent in December 2010. This decline
was corroborated by the rising ratio of expenses: at 71.3 and 53.8 per cent, the ratios of
non-interest expenses to gross income and personnel expenses to non-interest expenses
rose by 37.5 and 13.0 percentage points, respectively, over their levels in the preceding
half year.
Figure 20: Selected Profitability Ratios of the
Nigerian Banking Industry, 2010 - 2011
5.1.1.4 Liquidity
Indicators revealed a sustained improvement in liquidity in the system since 2010. The
ratio of core liquid assets to total assets increased by 5.3 percentage points to 23.3 per
cent at end-June 2011, from 18.0 per cent at end-December 2010. Similarly, the ratio of
liquid assets to short-term liabilities increased by 5.9 percentage points to 25.7 per cent at
end-June 2011 (Figure 22).

CBN FINANCIAL STABILITY REPORT JUNE 2011
5.1.2
The Banking Industry Stress Test
In accordance with a key objective of macro-prudential supervision, a stress test was
conducted as at June 30, 2011 to identify and measure the vulnerability and resilience of
the industry to shocks.
The test result indicated that credit risk was the most significant risk faced by the banking
industry, followed by exchange rate risk. The industry was adjudged to be less
vulnerable to liquidity and interest rate risks (Appendix 1) than in the previous six (6)
months.
It is expected that the on-going reforms in the industry would address the identified
weaknesses in the short to medium term.
Figure 21: Banking Industry Liquidity Ratios
Credit Risk
Liquidity Risk
Interest Rate Risk
The main vulnerability of the banks stemmed from credit risk, particularly their
exposure to the Financial sector, the General sub-sector, and Oil & Gas Sub-sector.
The ratio of banking industry NPLs to gross loans stood at 14.5 per cent, while those
of the large, medium and the small banks were 11.0, 14.9 and 26.9 per cent,
respectively. These figures are relatively high and any further deterioration in asset
quality would lead to significant capital impairment.
Liquidity risk was rated low in the banking industry as only a few banks showed
significant vulnerability to liquidity shocks.
The results of the sensitivity analysis on “returns on assets”, and “returns on
equity” revealed that the entire banking industry , categorised banks and individual
banks are less vulnerable to interest rate risk as their pre-shock positions (in terms of
capital impairment, ROA and ROE) declined only marginally, even after the most
strained shocks applied.

Box 1: Summary of Stress Test Result
CBN FINANCIAL STABILITY REPORT JUNE 2011
Exchange Rate Risk
FX Trading Risk
The banking industry (the big, medium and small banks), was exposed to
considerable foreign exchange rate risk. The impact was higher with the
depreciation of the Naira. The depreciation of the Naira had significant impact on
most banks. This was due largely to a high FX asset position relative to total risk
weighted assets and total qualifying capital, which stood at 13.72% and 296.85%,
respectively. The entire banking industry, categorised and individual banks, were
exposed to considerable exchange rate risk.
The banking industry showed less vulnerability to FX trading risk. The banks'
pre-shock positions, both in terms of impact on ROA and ROE changed only
marginally even after an induced 100% decline in FX trading income. This was
due mainly to the high net profit positions of the banks relative to size of the FX
trading income.
5.2
Licensing and Approvals
5.2.1
Bureaux-de-Change
5.2.2
Microfinance Banks
5.2.3
Finance Companies
5.2.4
The New Banking Model Compliance Plan
5.3
Supervision of Banks and Other Financial Institutions
5.3.1
Deposit Money Banks (DMBs)
In the first half of 2011, 38 new BDCs were granted licences, bringing the total number to
1,997.
A total of 123 applications were received of which 28 were granted licences, while the
remaining 95 were being processed.
Two (2) applications were received. One (1) was issued a licence, while the other was
granted an AIP status.
Approval in Principles (AIPs) were granted to seventeen (17) of the twenty four (24)
DMBs that submitted their compliance plans as required in the new banking model. The
processing of the applications of the remaining seven (7) DMBs was deferred, pending
the conclusion of their recapitalisation plans.
A Target Examination of DMBs, as at December 31, 2010, was conducted during the

CBN FINANCIAL STABILITY REPORT JUNE 2011
review period to assess their asset quality and ascertain the levels of provision required in
their 2010 audited financial statements. The reports noted that most of the banks had sold
substantial portions of their non-performing loans (NPLs) to AMCON, thereby
significantly reducing their required provisions at end-December 2010.
Examination of the five discount houses revealed that three of them had a composite risk
rating of “above average”, while two were rated “moderate”.
The risk management functions in the discount houses were rated as “needs
improvement” owing to weaknesses in risk management and poor corporate governance
practices arising from weak board oversight and non-appointment of independent
directors.
The capital of four of the discount houses was above the minimum regulatory
requirement. However, one discount house did not meet the minimum capital adequacy
requirement of 10% for the level of its operations for most of the examination period. Its
capital was, therefore, rated “weak”, while the capital ratings of the other four discount
houses were “acceptable”.
The earnings of three discount houses were rated as “acceptable” and two as “needs
improvement”.
Following the revocation of the banking licences of 224 MFBs on September 24, 2010,
121 of these were granted provisional licences as a result of fresh injection of capital and
recoveries of bad loans. Special examination was conducted to verify fresh capital
injections and compliance with the conditions for the granting of licences. The exercise
was carried on 119 of the 121 MFBs during the review period, while 2 were exempted
because one had been acquired and the other was holding an AIP.

Highlights of the examination reports include the following:
74 or 62.2 per cent of the 119 MFBs had injected fresh capital to shore-up their
shareholders' funds, unimpaired by losses, to meet the minimum requirement of
N20 million;
5.3.2
Discount Houses
5.3.3
Other Financial Institutions
5.3.3.1 Microfinance Banks (MFBs)

CBN FINANCIAL STABILITY REPORT JUNE 2011

11 or 9.2 per cent of the MFBs injected additional capital which were, however,
insufficient to bring the shareholders' funds, unimpaired by losses, to the
regulatory minimum level; and
34 or 28.6 per cent of the MFBs were “technically insolvent” and “terminally
distressed” owing to the failure of their shareholders to inject additional capital
necessary to increase the shareholders' funds, unimpaired by losses, to the
regulatory minimum of N20 million.
Following the non-issuance of provisional licences to 103 of the 224 MFBs whose
licences were revoked in September 2010, the Nigeria Deposit Insurance Corporation
(NDIC) commenced their liquidation and payment of insured deposits.
During the review period, the Bank also commenced special examination of MFBs that
were classified “marginal” and “unsound”, based on the CBN/NDIC joint target
examination in 2010.
The analysis of the operational status of the licensed 101 PMIs was concluded within the
review period. The review led to the classification of 29 PMIs as 'sound', five (5) as
'marginal', 18 as 'unsound' and 22 as 'insolvent'. One (1) PMI was newly licensed and not
due for a regulatory performance review, nine (9) were undergoing restructuring, while
17 had closed shop. Consequently, the institutions were notified of the following
regulatory decisions:
PMIs classified as “marginal” were required to inject fresh capital or liquid assets
necessary to bring their prudential ratios within the acceptable limits.
PMIs classified as “unsound” were, in addition to the requirement specified
above: prohibited from paying dividends; restricted from making new
investments in fixed assets and subsidiaries without the prior approval of the
CBN; advised to embark on aggressive loan recovery; and placed on the
CBN/NDIC watch list.
PMIs classified as “technically insolvent” were, in addition to the requirements
specified above, restricted from any new lending except to the extent of
recoveries made; and given a month's deadline to submit their turnaround
business plans outlining, inter alia, how fresh funds would be injected into the
institutions.
The PMIs were required to fulfil the above conditions within six months, while a joint
CBN/NDIC special examination was to be carried out on the technically insolvent PMIs
5.3.3.2 Primary Mortgage Institutions (PMIs)

CBN FINANCIAL STABILITY REPORT JUNE 2011
at the expiration of the deadline. The examination was programmed preparatory to the
revocation of the licence and takeover for NDIC liquidation of the institutions that failed
to actualize their turn-around plans.
Notice of intent to revoke the licences of the PMIs that had closed shop would be
published, while members of the public would be allowed to express objections within a
period of 90 days, as specified by the relevant banking laws of Nigeria.
In order to stabilise and reduce overheads as well as comply with the new banking model,
three (3) Nigerian banks were granted approval to either divest or close their foreign
subsidiaries, while one other was granted approval to discontinue the process of
establishing a foreign subsidiary.
Some central banks in the region increased the minimum capital requirement of banks in
their jurisdictions during the review period. As a result, Nigerian banks with subsidiaries
in the zone were granted approval to comply with the new capital requirements.
The third meeting of the College was held at the Central Bank of Nigeria, Abuja, from 8th
to 9th February 2011, while the fourth meeting was held at the Central Bank of The
Gambia, Banjul, from 1st to 3rd June 2011. Some of the decisions reached at the
meetings include the following:
The decision of the Committee of Governors of ECOWAS at its meeting held in
Dakar, to admit BCEAO and Cape Verde to join the CSWAMZ on an observer
status was noted and adopted;
Regulatory reports should be standardised;
Supervisory processes in the Zone should be harmonised to prevent regulatory
arbitrage;
Members should adopt the electronic Financial Analysis and Surveillance
System (e-FASS) as a supervisory tool;
Members were urged to implement the RBS, the IFRS, the Basel II and the Basel
Core Principles for Effective Banking Supervision; and
Financial Stability Report should be produced for the Zone.
5.4
Cross-border Supervision
5.4.1
Closure of Foreign Subsidiaries
5.4.2
Capital Augmentation for Banks in West Africa
5.4.3
The College of Supervisors of the West African Monetary Zone (CSWAMZ)

CBN FINANCIAL STABILITY REPORT JUNE 2011
The achievements of the College during the review period include the following:
Capacity building initiatives on IFRS and a Foundation Course on Banking
Supervision held in April and June 2011, respectively;
Creation of a portal by WAMI for information-sharing among supervisors;
Development of a framework on corporate governance for banks and other
financial institutions to strengthen supervisory standards; and
Approval for the conduct of joint examinations in The Gambia, Ghana, Guinea
and Sierra Leone by Nigeria and the host supervisors in order to further
strengthen cross-border supervision.
During the review period, the CBN signed four MoUs with the Central Bank of Kenya,
the National Bank of Rwanda, the Bank of Zambia and Banking Commission of the West
African Monetary Union (BCEAO), bringing the total number of such memoranda to 12.
The FSRCC embarked on a number of initiatives, including the following:
Developing a website, www.fsrcc.gov.ng, to create public awareness of the
collaborative efforts of member agencies;
Drafting a framework for consolidated supervision and examination of financial
conglomerates; and
Commissioning studies on the effect of the bond market on the financial
soundness of investing banks and the impact of AMCON on the performance of
banks and the capital market.
The supervisory challenges that were faced during the period centred on the efforts to
manage the lingering effects of the global economic and financial crises and the Bank's
subsequent intervention in some deposit money banks. The challenges are highlighted
hereunder, in sub-sections 5.6.1 to 5.6.7.
Despite various interventions by governments and central banks to address the effects of
the global financial and economic crises, recovery had been slow. In Nigeria, the
challenges to achieve sustained recovery included the following:
Containing inflation exacerbated by the quantitative easing and an

5.4.4
Memoranda of Understanding (MoUs)
5.5
The Financial Services Regulation Coordinating Committee (FSRCC)
5.6
Supervisory Challenges
5.6.1
Towards Recovery from the Global Economic and Financial Crises

CBN FINANCIAL STABILITY REPORT JUNE 2011
accommodating monetary policy stance adopted in response to the global
financial crisis;
Recovery of credits granted for capital market transactions and to the oil and
gas sector;
Encouraging banks to lend to the real sector of the economy;
Attracting foreign investment; and
Maintaining exchange rate stability in the face of negative real interest rates and
persistent demand pressure.
The challenges faced in the area of corporate governance persisted, although they were
less serious. The observed improvement was due largely to the resolute enforcement of
the provisions of the Code of Corporate Governance for Banks in Nigeria, with the
strong cooperation of other stakeholders, including the law enforcement agencies and
the judiciary.
The inadequacy of the legal framework constituted a major factor which undermined the
effectiveness of supervision, especially in the area of regulatory interventions.
Meanwhile, an Anti-Terrorism Act was enacted while the Money Laundering
(Prohibition) Act of 2004 was amended during the period under review. Efforts are also
being intensified to amend the Banks and Other Financial Institutions Act, 1991.
In order to promote data integrity, a proposal to design and install a system that would be
used to carry out forensic checks on banks' applications was being considered.
Meanwhile the Approved Persons' Regime in Banks was approved and is being
implemented. Furthermore, the electronic Financial Analysis and Surveillance System
(eFASS), the main platform used by Financial Institutions for the rendition of returns to
the supervisory authorities is being reviewed with the support of the developers to bring
on stream identified user requirement modules.
The adoption of the RBS and Consolidated Supervision methods in the supervision of
financial institutions has faced some challenges in terms of the skills required for their
successful implementation. The CBN, therefore, has embarked on the training and

5.6.2
Weak Corporate Governance
5.6.3
Inadequate Legal Framework
5.6.4
Data Integrity
5.6.5
Inadequate Supervisory Capacity

CBN FINANCIAL STABILITY REPORT JUNE 2011
retraining of staff, especially in the areas of risk-based supervision and consolidated
supervision to address the challenges.
In order to address concerns over the growing complexity in the products and operations
of financial institutions in Nigeria, a number of initiatives have been adopted and are
being implemented. These include: the new banking model to ring-fence banks from
risks arising from non-bank businesses; the strengthening of the supervisory processes
through the RBS and consolidated supervision; intensification of efforts aimed at
improving corporate governance and risk management practices in supervised
institutions; and the signing of MoUs with some countries to streamline areas of
cooperation for effective supervision.
The CBN intensified efforts to check the menace of illegal Fund Managers, otherwise
known as “wonder banks”, which continued to pose a challenge to the financial sector
during the review period. In this regard, the CBN sustained its extensive media campaign
embarked upon since December 2010, using the print and electronic media as well as
mobile telephony to caution the public on the activities of illegal Fund Managers. Banks
were also made to refund the amounts illegally withdrawn from the accounts of “wonder
banks” maintained with them after the judgment of the Investment and Securities
Tribunal and to transfer same to an escrow account in the CBN. In addition, a
surveillance team was constituted to monitor and close down offices of illegal Fund
Managers once they are identified. Also, the consent of the Attorney General of the
Federation was obtained for the courts to appoint Liquidators for the 30 “wonder banks”
that accounted for about 50 per cent of the total deposits illegally mobilized from the
public. Furthermore, the EFCC/SFU commenced criminal proceedings against some
operators of “wonder banks”.
During the review period, the Bank received 682 complaints, bringing the total to 2,742
from March 1, 2010 to end-June 2011. The complaints are mostly on excess charges,
fraudulent withdrawals, non-crediting of accounts, cheque conversions, among others.
Of the complaints received in the review period, 610 or 89.44 per cent had been
processed, resulting in the refund of N1.68 billion. The total number of complaints
5.6.6
Growing Complexity in the Operations of Financial Institutions
5.6.7
The Activities of Illegal Finance Operators in the Economy
5.7
Consumer Protection

CBN FINANCIAL STABILITY REPORT JUNE 2011
processed, so far stood at 2,652 or 96.72 per cent, while total refunds, so far amounted to
N3.96 billion, US$198,118.75, and €10,000.
With the planned adoption of the International Financial Reporting Standards (IFRS) by
Nigerian banks in 2012, the CBN issued a Guidance Document on the IFRS during the
review period. Banks were required to submit quarterly progress reports on their IFRS
implementation efforts. Surveillance activities would, therefore, focus on ensuring a
seamless transition from the NGAAP+ to the IFRS.
In order to promote financial stability, supervisory activities in the second half of 2011
will focus on strengthening the Financial Stability Committee (FSC), in conjunction
with other bodies through the FSRCC, on the identification of early warning signals on
systemic distress. The implementation of the revised banking model that requires banks
to divest from their non-banking subsidiaries and the framework for the regulation of the
Credit Bureau will also be in focus and be closely monitored.
The activities of the AMCON will aim at ensuring that banks' NPL ratios are kept below
the prudential maximum of 5.0 per cent. The CBN will also ensure that strategic
investors in the intervened banks entrench good corporate governance and risk
management practices.
5.8
The Focus of Supervision

CBN FINANCIAL STABILITY REPORT JUNE 2011
THE NIGERIAN PAYMENTS SYSTEM
6.0
Consistent with the objectives of the Payments System Vision 2020, the Bank adopted
payment policies that focused on migration from a cash-based to an e-payment-driven
system. In addition, circulars and guidelines were issued towards promoting the
efficiency, safety and reliability of the payments system.
The implementation of the PSV 2020 recorded additional achievements in the first half
of 2011, as the CBN took the following measures:
Commissioned an independent audit of 16 mobile payment schemes which were
on a pilot run, pursuant to the issuance of final operating licences;
Sensitised stakeholders on the Approved Direct Debit rules to facilitate the use of
electronic consumer bill payments;
Issued guidelines on the initiatives listed below to improve public confidence in
the payments system:
o
Electronic payment of taxes,
o
Electronic payment of salaries and pensions by organizations with more
than 50 employees, and
o
Electronic payment of government suppliers;
Commenced the upgrade of the Real-Time Gross Settlement (RTGS) System to
meet the requirements of FSS 2020;
Directed banks to implement the 10-digit Nigeria Uniform Bank Account
Number (NUBAN) with a transition period of one year ending June 1, 2012. The
NUBAN is expected to reduce the:
o
Volume of unprocessed transactions due to wrong account numbers,
o
Number of postings to wrong accounts by receiving banks, and
o
Incidence of delayed presentation of Automated Clearing House (ACH)
items.
The CBN adopted the following initiatives to enhance the Nigerian Payments System:
Fixed a daily cumulative limit of N150,000 for individual customers and
N1,000,000 for corporate customers on cash withdrawals effective June 1, 2012.
However, withdrawals above these limits would attract charges. The pilot run
6.1
The Payments System Vision 2020 (PSV 2020)
6.2
Developments in the Payments System

CBN FINANCIAL STABILITY REPORT JUNE 2011
would commence in Lagos State, the Federal Capital Territory (FCT), Kano,
Port-Harcourt, and Aba from January 2, 2012. The above measure was
introduced to reduce the high dominance of cash in payments transactions and
the concomitant high and unsustainable currency issue and management
expenses, thereby promoting the use of more cost-effective non-cash payment
modes:
Over-the-counter encashment of third party cheques above N150,000 would be
disallowed, with effect from June 1, 2012 when value for such cheques shall only
be received through clearing;
Cash-in-transit (CIT) lodgement services rendered to merchant customers by
banks shall cease from June 1, 2012. However, customers could engage the
services of CBN-licensed CIT companies to facilitate cash movements to and
from their banks at mutually agreed terms and conditions;
Prohibited exclusive acquirer contracts for card schemes to enhance
interoperability, with effect from June 2011;
Massive deployment of Point of Sale (POS) terminals under the shared service
project with a view to reducing the cost of operations; and
Approved, in principle, a strategic alliance with the Nigerian Postal Service
(NIPOST) to integrate the Post into the payments system by offering branchless
banking to reach the remote parts of the country.
These initiatives were expected to promote confidence in the system, enhance efficiency,
improve customer convenience and facilitate financial inclusion.
The volume and value of inter-bank transactions through CBN's RTGS System (CBN
Inter-bank Funds Transfer System - CIFTS) increased to 223,959 and N53,146.82
billion, respectively, in the first half of 2011, from 190,138 and N49,640 billion in the
second half of 2010, reflecting growth rates of 17.79 and 7.06 per cent, respectively
(Figure 23).

6.2.1
The Real-Time Gross Settlement (RTGS) System

CBN FINANCIAL STABILITY REPORT JUNE 2011

50,000

100,000

150,000
200,000

250,000
Dec
-2010
June
- 2011
Value (N
Volume
Figure 22: CBN's RTGS Transactions, July 2010 - June 2011
6.2.2
Cheque Clearing
In the first half of 2011, the volume and value of cheques cleared declined by 12.30 and
4.74 per cent to 16,188,775 and N9,919.05 billion, respectively, from 18,458,480 and
N10,412.12 billion recorded in the second half of 2010 (Figure 23). The decline was
attributed to increased use of other modes of payment, such as RTGS, NIBSS Inter-bank
Funds Transfer (NEFT), Automated Teller Machines (ATMs), mobile banking, and
internet payments, among others.

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000
Dec
- 2010
June
- 2011
Value

(N
Volume

Figure 23: Volume and Value of Cheques Cleared, July 2010 - June 2011
The volume and value of electronic card (e-card) transactions increased to 167,962,665
and N764.14 billion during the first half of 2011, from 106,739,822 and N610.22
billion, respectively, during the second half of 2010, reflecting increases of 57.36 and
25.22 per cent, respectively (Figure 24). The growth was attributed to enhanced public
confidence in card payments, following the enhanced security features in the cards and
adoption of stringent measures to combat fraud and deepen the use of electronic
payments.

6.2.3 Electronic Card Payments
CBN FINANCIAL STABILITY REPORT JUNE 2011
Figure 24: Electronic Card Transactions, July 2010 - July 2011
Available data on various e-payment channels for the period under review indicated that
ATMs remained the most patronized, accounting for 98.09 per cent of the number of
transactions, followed by the Web (Internet) 0.72 per cent, and Mobile 0.71 per cent. The
Point-of-Sale (POS) terminal was the least patronised, accounting for 0.48 per cent of
total e-payment transactions (Figure 25).
Figure 25: Volume of Electronic Card Transactions, January - June 2011
Similarly, in value terms, ATMs accounted for 91.37 per cent, the Web (Internet) 6.04 per
cent, POS 1.67 per cent, while Mobile payments accounted for 0.92 per cent (Figure 26).

CBN FINANCIAL STABILITY REPORT JUNE 2011
Figure 26: Value of Electronic Card Transactions, January - June 2011
6.2.4
Automated Teller Machine (ATM) Transactions
6.2.5
Mobile Banking
6.3
Payments System Challenges
The number of ATMs deployed stood at 9,443 at end-June 2011. The increase in the use
of ATMs continued during the first half of 2011, with the volume and value of
transactions amounting to 164,755,055 and N698.19 billion, respectively. These figures
reflected increases of 60.57 and 27.74 per cent over the volume and value of
102,608,918 and N546.55 billion, respectively, recorded in the second half of 2010.
The volume and value of payments through the mobile banking channel increased by
60.96 and 60.09 per cent to 1,195,459 and N7.06 billion, respectively, in the period
under review, from 742,694 and N4.41 billion in the second half of 2010.
Despite the progress recorded so far, the following challenges persisted, among others:
High transaction costs,
High dependence on cash transactions,
High level of illiteracy,
Low level of nternet access,
Inadequate inter-connectivity and inter-operability,
Low level of public awareness of the existence of some non-cash payment
products, resulting in under-utilisation of e-payments solutions,
High concentration of e-payment facilities in urban centres,
Poor state of infrastructure,
High incidence of electronic fraud,
Large informal sector where cash is the only acceptable means of payment and
lack of transparency and audit trail associated with cash transactions, and
High level of money laundering risks and vulnerabilities.
It is expected that the full implementation of the PSV 2020 project and other on-going
reforms would significantly address these challenges.

i

CBN FINANCIAL STABILITY REPORT JUNE 2011
7.0
PRESERVING THE INTEGRITY OF THE
FINANCIAL SYSTEM
7.1
The Asset Management Corporation of Nigeria (AMCON)
7.2
The Implementation of International Financial Reporting Standards
(IFRS)
7.3
Update on Credit Information Bureaux
7.3.1
CBN's Credit Risk Management System (CRMS)
The Corporation continued to play significant roles in stabilizing the financial system
through the acquisition of EBAs. At end-June 2011, three tranches of bonds amounting
to N1,811 billion had been issued in exchange for EBAs valued at N2,827 billion. These
resulted in:
Improved NPL/TL ratio
Improved liquidity to the banking industry
Improved banks' capital
Increased lending by banks
Enhanced earning opportunities to the banks through the bond income; and
Improved confidence in the banking industry
During the period under review, a number of actions were taken by the CBN towards the
implementation of the IFRS. These included:
Issuance of a circular on the conversion of end-2010 financial statements to the
IFRS-based figures;
Setting up of six workgroups on Gap/Impact Analysis, Information Technology,
Internal Reporting, Mobilisation, Sensitisation & Administration, Capacity
Building, and Legal & Legislative Review; and
Review of the IFRS implementation plan.
Although appreciable progress has been made to prepare the sector for the IFRS
adoption, additional work is required to meet the target reporting date of January 2012.
The CBN, through its CRMS, recorded a remarkable improvement in the management
of basic credit information on customers, thereby enhancing credit administration and
the quality of risk assets.
The number of registered borrowers in the CRMS database grew by 2.20 per cent, from

CBN FINANCIAL STABILITY REPORT JUNE 2011
73,189 in December 2010 to 74,786 at end-June 2011. Similarly, the number of
borrowers with outstanding credit facilities of N1 million and above grew by 1.8 per
cent, from 26,367 in December 2010 to 26,854 in June 2011, while the number of
outstanding credit facilities rose by 4.4 per cent, from 32,557 to 33,975 in the same
period. However, the value of total outstanding credits declined by 0.25 per cent, from
N5,240 billion at end-December 2010 to N5,227 billion at end-June 2011(Figure 27).
Figure 27: Selected CRMS Statistics, 2010 2011
The growth in the number of registered borrowers and credit facilities was largely driven
by two factors:
Improved appreciation among banks and their customers on the critical role of
the CRMS; and
Increased co-operation among stakeholders.
The decrease in total outstanding credit is attributed to the sale of non-performing loans
to AMCON.
The number of private credit bureaux remained at three during the period under review,
and their activities continued to complement CBN's Credit Bureau (CRMS). Their
activities were buoyed by increased demand for borrower/customer credit information
and status enquiries by financial and non-financial entities.
The range of products and services provided by the PCBs were:
Customer identity verification,
Credit reports,
Self-enquiry,
Bulk portfolio review,

7.3.2
Private Credit Bureaux (PCBs)

CBN FINANCIAL STABILITY REPORT JUNE 2011

Credit scoring and rating, and
Referencing and credit risk assessment.
The challenges faced by the PCBs included:
Low public awareness on the importance of their operations;
Lack of an acceptable unique identifier;
Inadequate skilled manpower; and
Long turnaround time for the resolution of disputes.
The Financial System Strategy 2020 (FSS 2020) was initiated to make Nigeria's
financial services industry serve as a catalyst for the growth and development of Nigeria
into an international financial centre and the transformation of Nigeria into one of the
world's 20 largest economies by 2020.
The activities of the FSS 2020 included the following:
Legislative Engagement: The FSS 2020 Secretariat intensified its legislative
engagement for the consideration of the following bills by the National
Assembly the Nigeria International Financial Centre Bill, the Financial
Ombudsman Bill, the Electronic Transactions Bill and the Alternative Dispute
Resolution Commission Bill. These bills seek to enhance the legal framework
for the sustenance of financial stability in Nigeria.
Risk-Based Supervision (RBS): The Secretariat facilitated the formation of a
Project Management Group for the implementation of RBS in the financial
system.
International Financial Reporting Standards (IFRS): The FSS 2020 Secretariat
established the Regulators' Forum for the harmonization and standardization of
institutional roadmaps on the implementation of IFRS in Nigeria.
The Secretariat will continue to provide a platform for the successful implementation of
the FSS 2020.
7.4
The Financial System Strategy 2020 (FSS 2020)

CBN FINANCIAL STABILITY REPORT JUNE 2011
8.0
CONCLUSION
The promotion of a sound and stable financial system remained a core mandate of the
CBN. This mandate is critical to the achievement of government's broad macroeconomic
objectives of maintaining price stability, a favourable balance of payments, low
unemployment, and sustainable economic growth and development.
In order to ensure the effectiveness and efficiency of the financial system, the CBN
continued to embark on a systematic review of relevant regulations, guidelines and
supervisory methodologies towards addressing the challenges of data integrity,
regulatory enforcement, corporate governance, and risk management. The Bank also
pursued the amendment or enactment of related enabling legislation to strengthen the
regulatory and supervisory framework for the financial system.
The state of the intervened banks and their prolonged recapitalisation process gave rise
to a number of vulnerabilities and weaknesses which posed threats to the stability of the
financial system. Despite these challenges, the quality of banking industry risk assets
improved modestly, owing mainly to the activities of AMCON, the implementation of a
risk-based supervision framework, improved risk management practices in the DMBs,
and the provision of real sector intervention funds by the Bank. Activities in the capital
market were also influenced positively by improved liquidity and the successful conduct
of the 2011 general elections.
As part of the efforts to enhance transparency in financial reporting, the CBN issued a
Guidance Document on IFRS during the review period, requiring banks to submit
quarterly progress reports of their IFRS implementation efforts towards the adoption of
the Standards by 2012.
In promoting financial stability, supervisory activities in the second half of 2011 will
focus on the implementation of the revised banking model and the framework for the
regulation of the credit bureaux; re-capitalization of the intervened banks; good
corporate governance and risk management practices; and strengthening the Financial
Stability Committee (FSC) with the FSRCC for the identification of systemic distress
early warning signals.

CBN FINANCIAL STABILITY REPORT JUNE 2011
In view of the commitment of the Federal Government to the on-going economic and
financial reforms, the economy is expected to record modest growth in the second half of
2011. Inflationary pressure is also expected to be contained, in view of the tight monetary
policy stance of the Bank, while the exchange rate would be expected to remain
relatively stable.
Overall, the current initiatives aimed at increased productivity in the real sector and
reforms in the other sectors are expected to impact positively on the economy.

CBN FINANCIAL STABILITY REPORT JUNE 2011
a)
Technical Terms
Concentration Ratio (CR)
Credit Risk
Credit risk
Herfindahl-Hirschman Index (HHI)
Liquidity Risk
Liquidity risk
Market Capitalization
Market Risk
Market risk
Money Supply
Operational Risk
Operational risk
This is the percentage market share attributable to a given number of firms in an industry,
e.g., CR6 means the market share of the largest six firms.
is an investor's risk of loss arising from a borrower who does not make
payments as promised. Another name for credit risk is 'default risk'.
This is a measure of market concentration. It is calculated by squaring the market share
of each firm competing in the market and then summing up the resulting numbers.
is the risk that a given security or asset cannot be traded quickly enough in
the market to prevent a loss (or make the desired profit).
This is the total market value of a company's issued shares. Market capitalization is
calculated by multiplying number of a company's shares outstanding by the current
market price of the shares.
is the risk that the value of an investment portfolio, or a trading portfolio,
will decrease as a result of changes in either rates or prices or a combination of rates and
prices.
The total money in circulation in an economy of a given country at a given time.
is the risk arising from the execution of a company's business
functions. It is a very broad concept which focuses on risks arising from the people,
systems and processes through which a company operates.
GLOSSARY

CBN FINANCIAL STABILITY REPORT JUNE 2011
Reputational Risk
Reputational risk
b)
Organizations in Nigeria's Financial Sector
The Asset Management Corporation of Nigeria (AMCON)
The Central Bank of Nigeria
The Debt Management Office (DMO)
The National Insurance Commission (NAICOM)
The National Pension Commission (PENCOM)
The Nigeria Deposit Insurance Corporation (NDIC)
The Nigerian Stock Exchange (NSE) and the Abuja Securities and Commodities
Exchange (ASCE)
is any risk to an organization's reputation that is likely to destroy
shareholder value.
AMCON was established through the AMCON Act of 2010, with responsibility for the
acquisition, management and disposal of the non-performing assets of Nigerian banks.
The CBN regulates deposit money banks (DMBs) and other financial institutions
(OFIs), namely, primary mortgage institutions (PMIs), bureaux-de-change (BDCs),
microfinance banks (MFBs), finance companies (FCs), discount houses (DHs), and
development finance institutions (DFIs).
The DMO is responsible for the management of public debt in Nigeria.
NAICOM is responsible for the regulation and supervision of the insurance sub-sector.
PENCOM is the regulatory agency charged with the oversight responsibility for pension
fund custodians and pension fund administrators in Nigeria, under the Pension Reform
Act of 2004.
The primary responsibility of the NDIC is the insurance of depositors' funds in DMBs
and other insured financial institutions. In addition to complementing the supervisory
efforts of the CBN, the Corporation liquidates failed financial institutions.
These are the two exchanges in the Nigerian capital market. The NSE has authority over
the securities' trading rules and regulations, while the ASCE superintends commodities
trading.

CBN FINANCIAL STABILITY REPORT JUNE 2011
The Securities and Exchange Commission (SEC)
The Securities and Exchange Commission is the regulator of the Nigerian capital
market.

CBN FINANCIAL STABILITY REPORT JUNE 2011
Appendix 1: Result of the Banking Industry Stress Test at end-June 2011
Minimum Regulatory CAR :10%

All banks
(24)

Large
banks
(6)

Mediumsized
banks(8)

Small
banks
(10)
Pre-shock CAR
4.62

11.93

4.05

-17.32

Shock 1ai (10%NPLs increase)

3.95

11.45

3.32

-18.61

Shock 1aiii (20% NPLs
increase)

3.28

10.97

2.58

-19.92

Shock 1av (50% NPLs increase)

1.19

9.50

0.29

-24.06

Shock 1avii (200% NPLs
increase)

-10.78

1.37

-12.99

-49.88

Shock 1bi (shift 20%)

4.03

11.49

3.28

-18.11
Shock 1biii (shift 100%)

2.08

10.10

0.95

-21.33

2ai -

Single biggest corporate
obligor credit facilities shifted
from Pass -through to Sub -
standard (10%)

4.17

11.48

3.60

-17.77

CBN FINANCIAL STABILITY REPORT JUNE 2011
2aiii- Single biggest corporate obligor
credit facilities shifted from Doubtful
to Lost (100%)


2bii-

Five biggest corporate obligor
credit facilities shifted from Sub -
standard to Doubtful (50%)

-3.02

4.70

-3.68

-25.86


Shock 3aii (Oil & Gas) 50%


Shock 3bii (Public Utilities 20%
default)

4.62

11.93

4.05

-17.33
Shock 3biv (Public Utilities 100%
default)

4.61

11.93

4.05

-17.36
Shock 3ci (General sector 20%
default)

4.38

11.74

3.86

-17.88

CBN FINANCIAL STABILITY REPORT JUNE 2011
Shock 3ciii (General sector 100%
default)


Shock 3di (100% Gen com becomes
NPLs)

4.11

11.62

3.35

-18.21
Shock 3diii (100% Gen com becomes
NPLs)

2.00

11.93

0.45

-21.92
Shock 3ei (Fin services 20%)

Shock 3eiii (Fin services 100%)

Shock 3fi (10% default in exposure to
Real Estate)


Shock 3fiii (30% default in exposure
to Real Estate)

3.17

10.94

2.82

-21.18
Shock 3fv (100% default in exposure
to Real Estate)

3.17

10.94

2.82

-21.18
Shock 3gi (10% default in exposure
to Aviation)

4.56

11.84

4.04

-17.39

CBN FINANCIAL STABILITY REPORT JUNE 2011
Shock 3giii (50% default in exposure
to Aviation)

4.31

11.49

4.01

-17.69


Shock 3hii (50% default in exposure
to Information and Communication)
2.55

10.35

1.37

-19.88


Shock 3kii (20% default in exposure
to Power and Energy)


Shock 3kiii (50% default i n exposure
to Power and Energy)

4.04

11.45

3.16

-17.53


Shock 3lii (20% default in exposure


CBN FINANCIAL STABILITY REPORT JUNE 2011
Shock 3lii (20% default in ex
posure
to Capital Market)


Shock 3liv (100% default in exposure
to Capital Market)

3.46

11.15

3.36

-21.21
Shock 3mi (20% default in exposure
to Government)

4.33

11.67

3.85

-17.97
Shock 3miii (100% default in
exposure to Government)

Shocks/Impact on CAR


Shock 4aii (20% depreciation against
the Naira)


Shock 4bi (10% appreciation against
the Naira)

3.31

10.15

3.24

-18.13
Shock 4biii (50% appreciation against
the Naira)
-1.92

3.06

-0.01

-21.36

CBN FINANCIAL STABILITY REPORT JUNE 2011

Interest Rate


Shock 5ai (200bps upward parallel
shift in yield curve)

4.61

12.04

3.90

-17.45
Shock 5aiii (500bps upward parallel
shift in yield curve)

4.59

12.21

3.66

-17.65
Shock 5bi (200bps downward parallel
shift in yield curve)

4.63
11.81

4.21
-17.18
Shock 5biii (500bps downward
parallel shift in yield curve)

Initial ROA

6.17

6.01

6.04

6.96
Impact of Parallel Shift in Yield Curve
Shocks on ROA


ROA after:


Shock 5ai (200bps upward parallel shift
in yield curve)

6.16

6.09

5.92

6.86
Shock 5aii (400bps upward parallel shift
in yield curve)
6.16

6.17

5.88

5.93

CBN FINANCIAL STABILITY REPORT JUNE 2011
Shock 5aiii (500bps upward parallel shift
in yield curve)


Shock 5aiv (1000bps upward parallel
shift in yield curve)

6.13

6.41

5.43

6.47
Shock 5bi (200bps downward parallel
shift in yield curve)

6.18

5.93

6.16

7.06
Shock 5bii (400bps downward parallel
shift in yield curve)

6.19

5.85

6.28

7.15
Shock 5biii (500bps downward parallel
shift in yield curve)

6.20

5.81

6.34

7.20
Shock 5biv (1000bps downward parallel
shift in yield curve)

6.22

5.61

6.64

7.45
Shock 5biv (1000bps downward parallel
shift in yield curve)
379.83

575.90

430.85

186.96

CBN FINANCIAL STABILITY REPORT JUNE 2011


Initial LR

47.9%

52.9%

43%

54.4%

Shock 6ai (Gen run 10 %)

29.83%

34.98%

14.43%

42.85%
Shock 6aiv (Gen run 25%)

13.86%

19.15%

-3.36%

30.37%
Shock 6bi (Run on ST Dep 20%)
31.26%
35.86%

16.39%

44.86%
Shock 6biii (Run on ST Dep 50%)
19.03%
22.44%

3.50%
37.33%
Shock 6ci (Run on LT Dep 20%)
28.34%
34.08%

34.08%
40.68%
Shock 6ciii (Run on LT Dep 50%)
7.99%
15.56%

15.56%
21.65%
Shock 6di (10% Run on LT and 20% on ST
Dep)

26.03%

30.95%

10.34%

40.37%
Shock 6diii (20% Run on LT and 50% on
ST Dep)

2.84%

6.32%

-14.32%

24.40%
Shock 6eii (50% Run on largest Deposit)
35.10%
40.17%
21.98%

44.88%

CBN FINANCIAL STABILITY REPORT JUNE 2011
Shock 6fi (5% Run on 5 largest Deposits)

37.09%

42.09%

22.86%

48.28%
Shock 6fiii (15% Run on largest Deposits)

36.15%

41.26%

22.12%

46.90%
Shock 6gi (5% Run on 10 largest
Deposits)

31.93%

37.53%

16.12%

44.05%
Shock 6gii (10% Run on 10 largest
Deposits)

25.20%
31.63%

7.56%

38.12%
Shock 6giii (15% Run on 10 largest
Deposits)

17.00%
24.50%

-2.95%
30.78%
Shock 6hi (5% Run on 20 largest
Deposits)

30.95%
36.82%

14.87%
42.79%
Shock 6hii (10% Run on 20 largest
Deposits)

22.80%
29.92%

4.46%
34.93%
Shock 6hiii (15% Run on 20 largest
Deposits)

12.46%
21.32%

-8.84%

24.58%


Impact of FX Trading Shocks on ROA


Initial ROA

6.17

6.01

6.04

6.96

FX Trading Income Volatility


Shock 7ai (10% decline in FX trading
Income)

6.15

5.99

6.02

6.92
Shock 7aii (20% decline in FX trading
Income)
6.12

5.96

5.99

6.89

CBN FINANCIAL STABILITY REPORT JUNE 2011
Shock 7aii (20% decline in FX trading
Income)

6.12

5.96

5.99

6.89
Shock 7aiii (50% decline in FX trading
Income)

6.04

5.88

5.93

6.78
Shock 7aiv (100% decline in FX trading
Income)

5.91

5.75

5.82

6.61


Impact of FX Trading Shocks on ROE


Initial ROE


FX Trading Income Volatility


Shock 7ai (10% decline in FX trading
Income)


Shock 7aii (20% decline in FX trading
Income)


Shock 7aiii (50% decline in FX trading
Income)

368.98

603.90

384.54

170.32
Shock 7aiv (100% decline in FX trading
Income)

361.01

590.67

377.42

165.93