CBN Half Year Economic Report for 2007
CENTRAL BANK OF NIGERIA
REPORT FOR THE FIRST HALF OF 2007
Table 1: Monetary Policy Targets (Growth in % except otherwise stated)

*Targets for half year

1.0
INTRODUCTION
Monetary targeting remained the main strategy for monetary policy implementation in the first half of
2007. The CBN adopted various policy measures aimed at containing the growth of monetary aggregates in
order to achieve monetary and price stability, including reserve money target under the Policy Support
Instrument (PSI). Open Market Operations (OMO) remained the major tool of liquidity management. Other
policy measures included increased issuance of treasury securities in the primary market to mop-up excess
liquidity; use of deposit and lending facilities to encourage inter-bank transactions as well as sales of foreign
exchange, including swaps.


Key Policy
Target

(i)
Broad Money
Growth (M2)

(ii)
Narrow Money
(M1)


(iii)
Base Money
(under PSI)
-
-
-
N800
billion*
N860
billion*
(iv)
Aggregate credit
to the domestic
economy

(v)
Credit to
Government

(vi)
Credit to the
private sector

(vii)
Inflation rate

(viii)
GDP


2.0
OPERATIONS OF THE CENTRAL BANK OF NIGERIA
2.1
Liquidity Management
Liquidity management efforts of the Central Bank of Nigeria (CBN) yielded the expected results as the
reserve money target for the first half of the year was met. Analysis of OMO transactions showed that total bids
and sales of intervention securities amounted to N411.80 billion and N1,051.00 billion, respectively, compared
with N1,207.00 billion and N895.60 billion in the corresponding period of 2006. Nigerian Treasury Bills
(NTBs) of various tenors (91-, 182- and 364-days) amounting to N765.50 billion were issued during the period.
With the introduction of the new Monetary Policy Rate (MPR) and the adoption of the CBN standing
facilities, the volatility in the inter-bank rates was contained with rates hovering within the standing facility's
interest rate corridor. The sums of N101.54 billion and N145.68 billion Cash Reserve Requirement (CRR)
invested on behalf of the banks following the reduction in required reserves from 5.0 to 3.0 per cent in December
2006 were released at maturity on March 29 and April 13, 2007, respectively.

CBN Half Year Economic Report for 2007
2.2
Payments and Clearing System
The reform in the payments system was sustained. The effectiveness of Cheque Clearing and
Settlement arrangement was further enhanced with the full implementation of the cheque standardization
policy as well as the approval of Oceanic Bank as a settlement bank, bringing the number of settlement banks to
eleven. Also, arrangements were concluded towards the reduction in the up-country cheque clearing cycle form
5 3 days, while electronic bulk payments of salaries of 7 Ministries, Departments and Agencies (MDAs) of the
Federal Government commenced. The CBN also finalised actions to commence the payment of staff and
pensioners emoluments through electronic bulk payment system. The National Payments System Vision 2020
was presented to stakeholders at a National Payments System Stakeholders' Forum in order to harvest ideas to
improve the strategy. The development would further aid the implementation of the initiatives outlined in the
Payments System Vision 2020. The new CBN Act empowers the Central Bank of Nigeria to regulate electronic
payments and settlement. As part of the effort to transform Nigeria into an international financial the Financial
System Strategy (FSS-2020) which was initiated by the CBN in 2006 was given further impetus during the
period. An international conference was held from June 18 to 20, 2007 with the objective of sensitizing
stakeholders and harvesting of ideas that would facilitate the realization of the strategy.
The aggregate volume and value of cheques cleared increased by 5.58 and 33.26 per cent, respectively.
A total of 7.12 million instruments worth N10,128.87 billion were cleared, compared with 6.74 million worth
N7,601.12 billion in the corresponding period of 2006. The development indicated the increasing use of cheque
for large value transactions in the country.
2.2.1
Retail Payments System
2.2.1.1 Cheque

CBN Half Year Economic Report for 2007


Volume
Fig. 2
Volume of Cheques Cleared (First Half 2007)

January
February
March
April
May
June


Naira Million
Fig. 3
Value of Cheques Cleared (First Half 2007)
2006 1,110,681.0 1,258,225.0 1,294,447.0 1,210,702.0 1,421,775.0 1,305,287.0
2007 1,441,810.0 1,651,724.0 1,849,271.0 1,596,257.0 1,820,297.0 1,607,595.0
January
February
March
April
May
June
In terms of the volume of the cheques cleared, the Lagos Clearing Zone maintained its lead with 54.87 per cent,
followed by Abuja, Port Harcourt and Benin with 9.98, 6.09 and 4.56 per cent, respectively.
The increase in the use of electronic payments continued during the period was attributed to the
aggressive marketing strategy of the banks and increased public awareness. Available data on various epayment channels indicated that Automated Teller Machine (ATM) was the most patronized, accounting for
over 93 per cent of the total, while mobile phone payments was the least with about 0.20 per cent.
2.2.1.1 Electronic Payments

CBN Half Year Economic Report for 2007
Table 2
Channel of Transaction
Per cent
Volume Terms
ATM
93.66

Web (Internet)
4.36

POS
1.79

Mobile
0.19
Value Terms
ATM
94.51

Web (Internet)
3.31

POS
2.17

Mobile Phone

0.02

ATM's patronage was fuelled by the dominance of cash in settling transactions within the country.
The upward trend in ATM transactions was sustained. At 4,765,467 and N41.28 billion as at end -June
2007, the volume and value of ATM transactions increased by 32.08 and 118.32 per cent, respectively, over the
figures in the corresponding period of 2006. The increased usage of ATMs could be attributed to a number of
factors, including increased number of ATMs in the country, enhanced public awareness and the ease of service
delivery.
2.2.1.1.1 ATM Transactions

CBN Half Year Economic Report for 2007

18.91
41.28

N'billion

Fig. 5
Value of ATM transactions (Jan - June) 2006-2007
2.2.1.1.1
Web Transactions
2.2.1.1.2
Point of Sale (POS) Transactions
Transactions involving the use of Internet increased significantly. In terms of volume and value, the use
of Internet for payment for goods and services increased by 119.8 and 50.9 per cent to 221,537 and N1.55
billion, respectively. The development was attributable to the growing number of merchants that accept the use
of payment cards on such sites and the issuance of international prepaid cards by some banks.
The volume and value of online POS transactions increased significantly from 19,769 and N90.19
million to 91,211 and N946.22 million, respectively. The development was attributable to the increasing
connectivity of POS terminals via General Packet Radio Service (GPRS) and the widespread use of debit
cards.

CBN Half Year Economic Report for 2007

90.19
946.22

N'billion

Fig. 7
Value of POS transactions (Jan - June) 2006-2007

CBN Half Year Economic Report for 2007


Volume
Fig. 8
Volume of Large Value Transfers (First Half 2007)

January
February
March
April
May
June
2.2.1.1.1
Dollar Denominated Card Transactions
2.2.2
Wholesale Payments System
The use of Dollar denominated Cards grew significantly during the review period. The volume and
value of transactions increased by 73.94 and 70.51 per cent to 88,891 and US$22.46 million, respectively, over
the levels in the corresponding period of 2006. The development was due to the growing public awareness of the
scheme and the ease of transactions.
The volume and value of transactions through inter-bank transfers rose by 28.79 and 96.14 per cent to
57,772 and N27,372.29 billion, respectively. The rise was buoyed by the Real Time Gross Settlement (RTGS)
system. The guidelines for the intra-day facility as well as additional modules were introduced during the period
to ensure the efficiency of the RTGS system

CBN Half Year Economic Report for 2007

Naira billion
Fig. 9
Value of Inter-bank Transfers (First Half 2007)


January
February
March
April
May
June
S/N
FAILED BANK

ASSUMED BY

Allstates Trust Bank

Ecobank Plc

Assurance Bank

Afribank Plc

Lead Bank

Afribank Plc

Trade Bank

UBA Plc

Metropolitan Bank

UBA Plc

City Express Bank

UBA Plc

Hallmark Bank

Ecobank Plc

2.3
Financial Sector Surveillance
2.3.1
Banking Supervision
The CBN intensified its supervisory and surveillance activities on the financial institutions through
regular appraisal and review of banks' periodic returns, spot checks, monitoring and special investigations,
among others. Post-consolidation on-site verification of the deposit money banks' integration processes, as
contained in their strategic business plans were also conducted. The exercise revealed that eighteen (18) banks,
excluding the six (6) banks that were not involved in mergers and acquisitions during the consolidation exercise
had attained 80 per cent compliance level as at end-June 2007.
In line with the decision of the CBN that no private sector deposits in the fourteen banks that failed to
meet the recapitalization requirement would be lost, the NDIC invited the healthy banks to assume the private
sector liabilities of ten (10) banks for which final court order for their liquidation had been obtained and to
cherry-pick their assets under the Purchase and Assumption (P&A) model of bank liquidation. Thus far, the
private sector liabilities of seven banks had been assumed by three healthy banks as indicated below:

CBN Half Year Economic Report for 2007
Of the four (4) outstanding banks that could not recapitalize, the NDIC had obtained provisional court
order to liquidate one (1), while the remaining three (3) banks are still undergoing court processes.
The implementation of the electronic Financial Analysis and Surveillance System (e-FASS) was
further boosted with the deployment of the Data Security System (DSS) in all the banks. With this development,
all the banks now render returns in absolute figures through the e-FASS. All the bureaux-de-change (BDCs)
have effectively connected to the DSS and were expected to commence the rendition of their returns through the
system, while the finance companies, primary mortgage institutions (PMIs) and the development finance
institutions (DFIs) would be similarly connected within the year.
As part of the efforts to promote safe and sound financial system, the CBN issued a number of circulars
to the banks which included:
Waiver of tax on interest earnings from agricultural lending by banks
Reporting of suspicious or unusual transactions involving terrorism to the Nigerian Financial
Intelligence Unit (NFIU); and
Submission of returns through the e-FASS
A total of 741 cases of attempted fraud and forgery, involving 5.4 billion, US$35,406.1, €150.00 and
₤60.0 were reported, up from 597 cases in the corresponding period of 2006. The 438 cases that were
successfully executed resulted in the loss of 1.4 billion, US$13,938, €150.0 and ₤60.0 to the banks, compared
with 295 cases and the loss of 1.2 billion, US$455,549.0, and ₤10,000.0 during the corresponding period in
2006. The development was attributable to the weaknesses in the internal control systems of the banks and the
delay to

N
N
N
fully integrate their systems and processes.
Income audits, verification of capital and special investigations were conducted on some banks to
check the authenticity of reports/returns to the CBN. The examination focused on the level of income and
profits reported in the audited accounts, the liquid assets, and the legitimacy of funds used for recapitalisation.
Further examination revealed that 88.0 per cent of the banks in the system met the specified minimum capital
adequacy ratio (CAR) of 10.0 per cent, compared with 96.0 per cent in the corresponding period of 2006. With
respect to the liquidity ratio (LR), 72.0 per cent of the banks met the stipulated minimum of 40.0 per cent,
compared with 92.0 per cent in the corresponding period of 2006. The defaulting banks were penalized
accordingly.
An assessment of the banking sector soundness using the CAMEL parameters revealed that as at endJune 2007, six (6) banks were rated sound, sixteen (16) satisfactory, and three (3) banks were rated marginal. No
bank was rated unsound, reflecting the positive results of the consolidation exercise. The non-performing loans
of the banks rose from N209.0 billion at end-June 2006 to N254 0 billion, reflecting a deterioration in the
quality of loan facilities. The ratio of non-performing credit to industry total credit was 7.7 per cent as at endJune, 2007 as against 9.7 per cent recorded at end-June, 2006. The ratios were below the acceptable
contingency threshold of 20.0 per cent for the industry.
Routine examinations were also conducted on some of the deposit money banks and the discount
houses. The examinations covered prudential regulations, foreign exchange operations, anti-money laundering
2.3.2
Prudential Examination
2.3.3
Banking Sector Soundnes
2.3.4 Routine Examinations

CBN Half Year Economic Report for 2007
controls and know-your-customer (KYC) directives. The examination on foreign exchange operations of the
banks revealed various infractions, including poor record keeping, incomplete documentation, non-compliance
with the foreign exchange rules and regulations, among others. The errant banks were appropriately sanctioned
for each of the offences.
An examination of the extent of compliance with the anti-money laundering controls and the KnowYour-Customer (KYC) principle in banks and other financial institutions revealed the following: nonuniformity with regard to the documentation of customers' identity; difficulty in obtaining information on
politically exposed persons; difficulty in obtaining uniform means of identification of customers; lack of
continuous training for staff; and low adoption of self regulation by the institutions, among others.
The CBN embarked on a number of measures on Anti-Money Laundering/Combating Financing
Terrorism (AM/CFT) in compliance with the Financial Action Task Force (FATF) requirements. In this regard,
the CBN organized various public enlightenment and training programmes on money laundering in
collaboration with other stakeholders. It also placed advertisements in newspapers and magazines as well as cooperated with and shared information with local and foreign law enforcement agencies in the arrest and
prosecution of persons involved in financial crimes.
Verification exercise on compliance with the provisions of the code of corporate governance for banks
issued in April 2006 was conducted. Appraisal of the banks' monthly reports as well as periodic on-site
verification by examiners to confirm the claims in their reports revealed that four (4) banks had government
equity holdings above 10 per cent, while no bank had complied with the appointment of independent directors.
On-site examinations on 1,351 Other Financial Institutions (OFIs), comprising 757 community banks
(CBs), 16 microfinance banks (MFBs), 113 finance companies (FCs), 91 primary mortgage institutions (PMIs),
368 bureaux de change (BDCs), and 6 development finance institutions (DFIs) were conducted. The major
regulatory issues that emerged from the examinations included deep erosion of shareholders' funds through poor
quality of risk assets, poor loan recovery effort and weak discharge of oversight functions by the Boards of
Directors.
Off-site review of the activities of the OFIs revealed improvement in their operations. The total assets of
the community banks, primary mortgage institutions and finance companies grew by 1.9, 5.7 and 6.0 per cent,
respectively, over the levels at end-December 2006.
The development finance institutions defaulted in the timely rendition of their statutory returns which
constituted a major impediment to effective supervisory process. In order to address the recent resurgence of
illegal finance houses that were involved in questionable activities, the CBN embarked on a verification exercise
as a prelude to publishing the names of licensed active FCs. The exercise revealed that seventy-six (76) FCs were
in operation, while thirty-seven (37) had ceased operations. The names of the seventy-six licensed active FCs
were subsequently published in the national dailies to guide members of the general public.
One hundred and ten (110) fresh applications for BDC licences were received in the first half of the
year, out of which sixteen (16) operating licences were approved and sixty-six (66) Approvals-In-Principle
granted, while twenty-eight (28) others were at various stages of processing. Inspite of the publication of the
names of eighty (80) BDCs that could not be located during the on-site examination in the first quarter of 2006,
only 23 of the BDCs were located by the CBN, with 57 outstanding as at end of June 2007.
2.3.5
Financial Crime Surveillance
2.3.6
Compliance with the Code of Corporate Governance for Banks in Nigeria
2.3.7
Examination of Other Financial Institutions

CBN Half Year Economic Report for 2007
Fig. 11
Exchange Rate Movements (Naira per US$)

Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
WDAS
BDC
Inter-Bank
2.4
Foreign Exchange Management
The official segment of the foreign exchange market under the Wholesale Dutch Auction System
(WDAS) held 47 auctions as against 44 in the corresponding period of 2006. In aggregate, the market witnessed
a surge in demand amounting to US$6.59 billion, up from US$3.78 billion in the first half of 2006. This
development was occasioned by the bid to pay for new oil blocks, importation of petroleum products and the
rise in the repatriation of dividend at the end of the first quarter. Consequently, the value of foreign exchange
sold by the CBN to the authorized dealers increased by 137.6 per cent to US$8,73 billion.
At N127.94, the exchange rate of the naira vis-à-vis the US dollar appreciated by 0.8 per cent over the
level in the corresponding period of 2006. In the bureaux de change (BDC) segment of the market, the naira also
appreciated, by 11.5 per cent, and traded at an average of N129.32 per US dollar. Consequently, the wide
parallel market premium of 11.8 per cent in the first half of 2006 crashed to a remarkable low of 1.1 per cent.

CBN Half Year Economic Report for 2007
Jun-06
11.8
Dec-06
1.71
Jun-07
1.1

Fig. 12
Bureaux de Change Premium
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07

Fig. 13
Foreign Exchange Disbursements (2007 Half Year)
WDAS Utilisation
64.01%
External Debt Service
5.82%
Drawing on L/C
2.35%
National Priority
Projects
0.00%
Other Official Payments
25.22%
Autonomous Source
2.60%
2.4.2
Foreign Exchange Flows
Foreign exchange flows into the economy increased by 1.0 per cent over the level in the corresponding
period of 2006 to US$29.49 billion. Total receipts from the oil sector (US$12.53 billion) accounted for 42.5 per
cent, while the autonomous sources (US$14.94 billion) and non-oil public sector inflows (US$2.02 billion)
accounted for 50.7 and 6.9 per cent, respectively. The huge autonomous inflows which surpassed the oil receipts
were driven by the increase in receipts from invisibles and non-oil exports. Total foreign exchange outflow
increased by 20.2 per cent to US$13.50 billion during the period. This development was attributed to the
increase in the frequency and sales at the WDAS, drawings on letters of credit, as well as other official and
autonomous payments.

CBN Half Year Economic Report for 2007
Fig. 15
Sectoral Utilization of Foreign Exchange
Agricultural
0.8%
Transport
4.5%
Invisibles
30.7%
Others
28.9%
Industrial
35.1%
Transactions through the CBN resulted in a net inflow of US$1.30 billion, compared with US$7.32
billion in the corresponding period of 2006. The inflows and outflows were US$14.55 billion and US$13.24
billion, respectively, compared with US$18.37 billion and US$11.06 billion in the corresponding period of
2006.
2.4.3
Sectoral Utilization of Foreign Exchange
Utilization of official foreign exchange was estimated at US$12,647.1 million, representing an increase
of 59.0 per cent over the level in the first half of 2006. An analysis of the foreign exchange utilization showed
that industrial and agricultural sectors accounted for 35.1 and 0.8 per cent, respectively, compared with 45.6 and
1.0 per cent in the corresponding period of 2006. The share of finished goods, transport and invisibles were 28.9,
4.5 and 30.7 per cent, respectively, compared with 30.6, 4.9 and 17.9 per cent in the corresponding period of
2006.

CBN Half Year Economic Report for 2007
Fig. 16
Sectoral Distribution of ACGSF Loans (Nmillion)
Food Crop
69.0%
Others
21.1%
Livestock
9.9%
2.5
Development Finance Operations
2.5.1
Agricultural Credit Guarantee Scheme Fund (ACGSF)
The authorized and called-up share capital of the ACGSF as at end-June 2007 was N3.0 billion, while
the paid-up capital remained N2.25 billion. Total resources available under the scheme as at end-June 2007 was
N4.790 billion. A total of 11,374 loans valued at N1.002 billion were guaranteed under the scheme, compared
with 12,188 loans, valued at N801.1 million in the corresponding period of 2006. This represented a decline of
6.6 per cent in volume and an increase of 25.1 per cent in value of loans guaranteed, compared with the levels
attained in the corresponding period of 2006. The total number of loans repaid stood at 15,993 valued at N1.252
billion. The cumulative volume and value of ACGSF loans from inception in 1978 to end-June 2007 stood at
509,066 and N15.92 billion. The number and value of applications for claims settled under the scheme rose by
124.8 and 108.5 per cent over the levels in the corresponding period of 2006 to 517 and N31.79 million,
respectively.
2.5.2
Interest Drawback Programme (IDP)
2.5.3
The Trust Fund Model (TFM)
2.5.4
Small and Medium Enterprises Equity Investment Scheme (SMEEIS)
The number and value of settled IDP claims rose by 38.8 and 152.6 per cent over the levels in the
corresponding period of 2006 to 8,214 and N44.17 million, respectively. The increase was attributed to the
incentive offered under the IDP which encouraged farmers to payback their loans more promptly.
The total number of MOU signed under the TFM remained at 16 as at end-June 2007, as no new MOU
was signed during the first half of 2007.
The cumulative sum set aside by banks under the SMEEIS as at end June, 2007 was N37.42 billion,
which represented a decrease of 2.1 and 8.2 per cent relative to the levels in the preceding half year and the

CBN Half Year Economic Report for 2007

Fig. 17
Sectoral Distribution of Investments by Banks as at June 2007
Agro-Allied
6.03%
Manufacturing
38.37%
Construction
6.14%
Solid Minerals
0.33%
ICT & Telecom.
11.74%
Educational Estab.
0.74%
Services
17.10%
Tourism
21.63%
Micro Enterprises
0.00%
corresponding period of 2006, respectively. The sum of N18.13 billion was invested by banks in 258 projects,
representing an increase of 6.4 and 21.6 per cent over the levels in the preceding half year and the corresponding
period of 2006, respectively.
A sectoral breakdown of the investments as at end-June, 2007, showed that the real sector received
N9.2 billion (50.79 per cent) for 163 projects, while the services sub-sector accounted for the balance valued at
N8.9 billion (49.21 per cent) invested in 95 projects. Further analysis revealed that the manufacturing sub sector
dominated, accounting for 46.9 and 38.3 per cent of the total number and value of projects, respectively.
Services followed with 21.3 and 17.1 per cent of the total number and value of projects, respectively. Tourism &
Leisure, and Information and Communication Technology (ICT) & Telecommunications accounted for 21.6
and 9.8 per cent of the total amount invested, respectively, while construction, agro-allied, educational
establishment and solid minerals sub sectors accounted for 6.1, 6.0, 0.7 and 0.3 per cent, respectively.
2.5.4
Microfinance
Forty (40) additional applications for microfinance bank (MFB) licenses from new investors were
received, while eleven (11) final licenses, and thirty-two (32) approvals-in- principle (AIPs) were granted. Also,
five (5) final licences and one hundred and forty (140) provisional approvals were granted to existing CBs to
convert to MFBs. Twenty-three (23) other new applications for MFB licences were at various stages of
processing. However, the implementation of the conversion plans submitted by the community banks that were
yet to meet the minimum shareholders' funds of N20 million was hampered by their failure to adhere to the
programmes and timelines contained in their conversion plans.
Efforts to build the skills and competencies of the executives of microfinance banks were given a boost
with the CBN's approval of the certification programme for directors and management staff of microfinance

CBN Half Year Economic Report for 2007
banks as well as other regulators. Following the approval, steps are being taken to finalize the Terms of
Reference for the Technical Service Providers, establish a Supervisory Board, and set up an Administrative
Secretariat.
Provisional data showed that the total assets of the CBN as at end-June 2007 increased by 23.68 per
cent to N6,492.8 billion when compared with the level in the corresponding period of 2006. This reflected the
increase of 31.14, 29.31, 23.89 and 10.56 per cent in total external reserves, rediscount and advances, fixed
assets and other securities, which more than offset the decrease of 49.33 and 22.21 per cent in Federal
Government securities and other assets.
The corresponding increase of 23.55 per cent in total liabilities relative to the first half of 2006 was
accounted for by deposits (29.0 per cent), currency in circulation (19.43 per cent), and other liabilities (14.0 per
cent). The increase of 47.36 and 21.67 per cent in other deposits and the federal and state governments' deposits
more than offset the decline in banks' deposits.
2.6
CBN Assets and Liabilities