FINANCIAL STABILITY REPORT – DECEMBER 2019

FINANCIAL
STABILITY
REPORT


DECEMBER 2019

FINANCIAL STABILITY REPORT – DECEMBER 2019

i


Contents


FINANCIAL STABILITY REPORT – DECEMBER 2019


3.1
3.1.1
FINANCIAL STABILITY REPORT – DECEMBER 2019

iii


5.1
FINANCIAL STABILITY REPORT – DECEMBER 2019

iv


5.2
5.3


FINANCIAL STABILITY REPORT – DECEMBER 2019

v


LIST OF FIGURES


FINANCIAL STABILITY REPORT – DECEMBER 2019

vi


LIST OF TABLES


FINANCIAL STABILITY REPORT – DECEMBER 2019

vii


LIST OF BOXES


FINANCIAL STABILITY REPORT – DECEMBER 2019

viii


LIST OF ACRONYMS
AMCON
Asset Management Corporation of Nigeria
AML/CFT
Anti-Money Laundering and Combating the Financing of Terrorism
BDCs
Bureaux de Change
BOI
Bank of Industry
BOA
Bank of Agriculture
BRICS
Brazil, Russia, India, China, and South Africa
BVN
Bank Verification Number
CACS
Commercial Agriculture Credit Scheme
CAR
Capital Adequacy Ratio
CBN
Central Bank of Nigeria
COB
Currency Outside Banks
CRMS
Credit Risk Management System
DAX
Deutscher Aktienindex (German stock index of 30 major German companies)
DFIs
Development Finance Institutions
DMBs
Deposit Money Banks
EBAs
Eligible Bank Assets
ECB
European Central Bank
EGX CASE 30
Egypt Stock Exchange (Cairo and Alexandria Stock Exchange) 30 Stock Index
FAO
Food and Agriculture Organisation
FATF
Financial Action Task Force
FCs
Finance Companies
FGN
Federal Government of Nigeria
FMBN
Federal Mortgage Bank of Nigeria
FRACE
Financial Regulation Advisory Council of Experts
FSIs
Financial Soundness Indicators
FSR
Financial Stability Report
FSRCC
Financial Services Regulation Co-ordinating Committee
GDP
Gross Domestic Product
GSE
Ghanaian Stock Exchange
HHI
Herfindahl-Hirschman Index
ICE
Intercontinental Exchange
IFRS
International Financial Reporting Standards
IMF
International Monetary Fund
KYC
Know Your Customer
M1
Narrow Money Supply
M2
Broad Money Supply
M3
M2 plus CBN Bills held by the money holding sectors
MENA
Middle East and North African Countries
MFBs
Microfinance Banks
MICEX
Moscow Interbank Currency Exchange
MoUs
Memoranda of Understanding
MHSs
Money Holding Sectors
MPR
Monetary Policy Rate
NBS
National Bureau of Statistics
NCR
National Collateral Registry
NDC
Net Domestic Credit
NDIC
Nigeria Deposit Insurance Corporation
NEXIM
Nigerian Export-Import Bank
NIBSS
Nigerian Inter-bank Settlement System
NMRC
Nigeria Mortgage Re-finance Company Plc
FINANCIAL STABILITY REPORT – DECEMBER 2019

ix


NPLs
Non-Performing Loans
NSE ASI
Nigerian Stock Exchange All-Share Index
NSE 20
Nairobi Stock Exchange 20-Share Index
NYMEX
New York Mercantile Exchange
OBB
Open Buy Back
OFIs
Other Financial Institutions
OPEC
Organisation of Petroleum Exporting Countries
ORB
OPEC Reference Basket
PAIF
Power and Aviation Infrastructure Fund
PENCOM
National Pension Commission of Nigeria
PFAs
Pension Fund Administrators
PFCs
Pension Fund Custodians
PMBs
Primary Mortgage Banks
PoS
Point of Sale
PSV 2020
Payments System Vision 2020
ROA
Return on Assets
ROE
Return on Equity
RTGS
Real-Time Gross Settlement System
SANEF
Shared Agent Network Expansion Facilities
S&P/TSX
Standards and Poor’s Composite Index of the Toronto Stock Exchange
SEC
Securities and Exchange Commission
SMEs
Small and Medium Enterprises
WAMZ
West African Monetary Zone
WEO
World Economic Outlook
WTI
West Texas Intermediate

FINANCIAL STABILITY REPORT – DECEMBER 2019

GOVERNOR’S STATEMENT

In 2019, the global economy grew by 2.9 per cent, indicating a slowdown from the
3.6 per cent recorded in 2018. This was attributed mainly to the trade war between
the United States (US) and China, weak investment in advanced economies as well
as financial vulnerabilities across emerging and developing economies. In response,
many central banks implemented accommodative monetary policies to bolster
output.

Inflation in advanced economies slowed down to 1.40 per cent at end-December
2019, compared with 2.00 per cent in 2018, owing to weak aggregate demand
across some key economies. Global inflation was, however, projected to rise to 1.70
per cent, following the US and China’s commitment to the first phase of a new trade
agreement.

Output in the domestic economy increased by 2.27 per cent in 2019, compared with
1.91 per cent in the preceding year. Real gross domestic product grew by 2.55 per
cent in the second half, compared with the 2.12 per cent recorded in the first half of
2019. The increased growth was attributed mainly to the enhanced flow of credit to
the private sector and interventions by the Bank as well as by the fiscal authorities.
Agriculture, services and the construction sectors were the main contributors to the
growth of the economy. Inflationary pressures increased in the second half of 2019
as headline inflation rose to 11.98 per cent at end-December 2019 from 11.22 per
cent at end-June 2019.

The Bank’s contractionary monetary policy stance was moderated through
interventions to encourage credit flow to the productive sectors of the economy. The
interventions focused on the priority sectors, such as agriculture, manufacturing, and
oil and gas, to stimulate value-chain development and conserve foreign exchange
reserves.

The banking industry remained stable and resilient in the face of external and
domestic challenges. The financial soundness indicators of the industry remained
robust as assets and capital base indicators were above regulatory thresholds,
providing confidence to businesses, investors and households.
Going forward, the Bank will continue to ensure the resilience of the economy
through the adoption of appropriate policy interventions for inclusive and sustainable
economic growth.

Godwin I. Emefiele, CON
Governor, Central Bank of Nigeria


FINANCIAL STABILITY REPORT – DECEMBER 2019

FOREWORD
Global growth remained subdued in the second half of 2019, reflecting the impact of
the trade war between the US and China, geo-political uncertainties, and reduced
investments. However, the stock markets remained resilient, reflecting confidence
and the accommodative policy stance of major central banks. Growth in the
economies of oil exporting countries rebounded with the increase in oil prices, driven
mainly by the implementation of production cuts by OPEC+.

In the foreign exchange market, the performance of the US dollar relative to other
major currencies was mixed. The British pound appreciated on the back of the Brexit
deal, the euro depreciated, owing to fears of near-term recession, and the Japanese
yen weakened, following under-performance of the external sector.

In Nigeria, the performance of the economy improved in the second half of 2019,
driven by growth in the non-oil sector and the rise in crude oil prices. To further spur
growth, the Bank sustained its interventions in critical sectors of the economy.

To ensure the safety and soundness of the banking system, the CBN continued with
the enhanced supervisory regime for Domestic Systemically Important Banks. The
Bank also ensured compliance with the requirements of the IFRS, Basel II/III and
Code of Corporate Governance, among others, to promote financial system stability.

This edition of the Financial Stability Report is in six sections. Section one reviews
global and domestic developments. Section two discusses developments in the
financial system, while section three covers regulatory and supervisory activities and
highlights key stability issues. Key developments in the payments system are
discussed in section four, while sections five and six highlight the key risks and the
outlook for the financial system.

This Report is intended to contribute to financial stability by improving the
understanding of risks in the financial environment and the Bank’s response to
developments in the system. It is, therefore, highly recommended to market
participants, investors, the academia and the general public.

Aishah N. Ahmad, CFA
Deputy Governor, Financial System Stability


FINANCIAL STABILITY REPORT – DECEMBER 2019

EXECUTIVE SUMMARY

In 2019, the global economy witnessed a slowdown in growth in all economic blocs,
except Sub-Saharan Africa. The lower growth was attributed mainly to the trade war
between the US and China, weak investment in advanced economies, as well as
financial vulnerabilities across emerging and developing economies. In response,
many central banks implemented accommodative monetary policies to spur output.
Inflation in advanced economies and Sub-Saharan Africa slowed down to 1.40 and
8.4 per cent at end-December 2019 compared with 2.00 and 8.5 per cent in 2018
respectively. The decrease was due to weak aggregate demand and muted wage
growth across some key economies. However, in emerging markets and developing
economies, inflation rose to 5.1 per cent at end-December 2019 from 4.8 per cent in
2018.

Most global stock markets rebounded in the review period, showing resilience in the
face of severe macroeconomic challenges. In the US, the performance of the market
was driven by improved investors’ confidence, favourable domestic economic
conditions, as well as expected ease in trade tensions with China. In Europe, the
stock market performance was supported by Brexit negotiations and international
diversification of portfolios. However, in Africa, developments in the major Stock
Exchange markets were mixed.


Output in the domestic economy increased in the second half of 2019 as real gross
domestic product grew by 2.55 per cent in the second half, compared with 2.12 per
cent in the first half of 2019. The performance of the economy was attributed mainly
to the enhanced flow of credit to the private sector, the Bank’s continued intervention
in the real sector and fiscal interventions. Agriculture, services and the construction
sectors were the main contributors to the growth of the economy. Inflationary
pressures increased in the second half of 2019 as inflation increased to 11.98 per
cent at end-December 2019 from 11.22 per cent at end-June 2019.

The Bank’s contractionary monetary policy stance was moderated through
interventions to encourage credit flow to the productive sectors of the economy.
Broad money supply, M3, grew by 6.22 per cent at end-December 2019 relative to
4.03 per cent at end-June 2019. Net aggregate credit to the economy grew by 27.33
per cent at end-December 2019, reflecting the increase in both net claims on the
Federal Government and credit to the private sector. Also, the monetary base grew
by 20.75 per cent, reflecting the increase in net domestic assets.

Money market rates closed lower at the interbank market, with the overnight call and
open buy back rates trading below their levels in the preceding half year. In the
capital market, the Nigerian Stock Exchange All Share Index and market
capitalisation decreased, reflecting bearish conditions in the market.

FINANCIAL STABILITY REPORT – DECEMBER 2019

In the banking sector, the composite risk ratings of banks remained stable. The
capital adequacy ratio of the industry declined marginally to 14.57 per cent, from
15.27 per cent in the first half of 2019. Asset quality improved, as the non-performing
loan ratio declined to 6.10 per cent at end-December 2019, from 9.33 per cent at
end-June 2019. Also, earnings measured by return on assets and return on equity
recorded modest improvements. The payments system witnessed significant
increase in the number of operators, further deepening access to electronic
channels.

Overall, the projected GDP growth of 2.50 per cent in 2020 was predicated on the
implementation of robust monetary and fiscal policies, improved global and domestic
economic activities, and stable crude oil prices.


FINANCIAL STABILITY REPORT – DECEMBER 2019

ECONOMIC AND FINANCIAL DEVELOPMENTS
1.1 Global Developments
1.1.1 Output
Global output growth decelerated to 2.9 per cent in 2019, from 3.6 per cent in 2018,
owing largely to the trade war between the United States of America (US) and the
People’s Republic of China (China), weak investment in advanced economies, and
financial vulnerabilities across emerging markets and developing economies. In
response, many central banks during the review period implemented accommodative
monetary policies in order to bolster output.

Output in advanced economies declined to 1.7 per cent in 2019 from 2.2 per cent in
2018. The slowdown was largely attributed to the US-China trade war and weak
investment in the euro area and the United Kingdom. In the US, output declined to
2.3 per cent in 2019, compared with 2.9 per cent in 2018 and was projected to
decline further to 2.0 per cent in 2020, despite the policy rate cuts by the US Federal
Reserve. The downward projection was driven by rising unemployment, weak
aggregate demand and spill-over effect from the US-China trade war.
In the euro area, growth decreased to 1.2 per cent in 2019, from 1.9 per cent in
2018. The decline was due to slowdown in economic activities in Germany, France
and Italy. However, growth in the euro area was expected to inch up to 1.3 per cent
in 2020, partly as a result of the accommodative monetary policy stance of the
European Central Bank (ECB). The UK economy slowed down marginally to 1.3 per
cent in 2019, from 1.4 per cent in 2018 but was projected to stabilise at 1.4 per cent
in 2020, based on the expected orderly exit from the European Union. Japan’s
economy grew by 1.0 per cent in 2019, compared with 0.3 per cent in 2018, owing to
increase in private consumption and public spending. Growth in Japan was expected
to moderate to 0.7 per cent in 2020, attributed partly to the increase in the
consumption tax rate.
The Emerging Markets and Developing Economies (EMDEs) faced severe economic
shocks in 2019 as a result of the wider global economic slowdown. Growth in
EMDEs declined to 3.7 per cent in 2019, from 4.5 per cent in 2018, but was
expected to recover in 2020 to 4.4 per cent. The increase was expected to be driven
by recovery in the emerging market economies and the ongoing structural reforms in
China.
Growth in the Middle East and Central Asia region moderated to 0.8 percent in 2019,
from 1.9 per cent in 2018, and was expected to rise to 2.9 per cent in 2020. The
upward projection was based on higher government spending in non-oil sector and
improved oil revenue generation in Saudi Arabia and other oil-exporting countries in
the region. However, the prospects for several economies in the region remained
subdued, owing to rising geopolitical tensions.
FINANCIAL STABILITY REPORT – DECEMBER 2019

In Sub-Saharan Africa, output rose marginally to 3.3 per cent in 2019, from 3.2 per
cent in 2018, and was projected to increase to 3.5 per cent in 2020. The marginal
growth was attributed to the relative improvement in Nigeria’s economy, which grew
by 2.3 per cent and is projected to grow by 2.5 per cent in 2020 on the backdrop of
expected stable oil production and favourable international oil prices. Although
output in South Africa moderated to 0.4 per cent in 2019 from 0.8 per cent in 2018,
reflecting the impact of workers’ strikes in the mining sector, deterioration in
electricity generation, and weak agricultural production, the overall economy was
expected to recover to 0.8 per cent in 2020.

Table 1:1 Global Growth
Region/Country
Year

2020*
World
3.6
2.9
3.3
Advanced Economies
2.2
1.7
1.6
United States
2.9
2.3
2.0
Euro Area
1.9
1.2
1.3
Japan
0.3
1.0
0.7
United Kingdom
1.3
1.3
1.4
Canada
1.9
1.5
1.8
Emerging Market and Developing
Economies
4.5
3.7
4.4
China
6.6
6.1
6.0
Middle East and Central Asia
1.9
0.8
2.8
Sub-Saharan Africa
3.2
3.3
3.5
Nigeria
1.9
2.3
2.5
South Africa
0.8
0.4
0.8
Source: IMF’s World Economic Outlook, January Update, 2020
*Projections
1.1.2 Inflation

Inflation (year-on-year) in advanced economies slowed down to 1.40 per cent at endDecember 2019, compared with 2.00 per cent in 2018. The decrease was due to
weak aggregate demand and muted wage growth across some key economies.
Inflation was, however, projected to rise to 1.70 per cent with the commitment of the
US and China to the first phase of a new trade agreement.

In the US, inflation slowed down to 1.80 per cent in 2019 from 2.40 per cent in 2018,
attributable to decline in the prices of services and low inflation expectations. The US
Federal Reserve was expected to cut rates further in 2020 to stimulate aggregate
demand. Consequently, inflation was expected to increase to 2.30 per cent in 2020.

In the euro area, inflation remained below the ECB’s target of 2.00 per cent as it
decreased to 1.20 per cent in 2019 from 1.80 per cent in 2018, driven by weak
aggregate demand. Inflation was, however, projected to rise to 1.40 per cent in 2020,
partly reflecting the continued accommodative monetary policy stance of the ECB.
FINANCIAL STABILITY REPORT – DECEMBER 2019

Inflation in the UK declined to 1.80 per cent in 2019 from 2.50 per cent in 2018 as
prices continued to moderate, driven largely by prices of clothing and footwear, food
and non-alcoholic beverages.

In Japan, inflation remained at 1.00 per cent in 2019. However, it was projected to
rise slightly to 1.30 per cent in 2020, owing to expected increases in food and
housing prices.

In Emerging Market and Developing Economies, inflation moved upward to 5.10 per
cent in 2019 from 4.80 per cent in 2018, reflecting a modest strengthening in
aggregate demand in some economies. Inflation was, however, projected to decline
to 4.60 per cent in 2020.

In Middle East and Central Asia, inflation declined from 9.90 per cent in 2018 to 8.2
per cent in 2019, but was projected at 9.1 per cent in 2020, owing to increases in
inflation in Saudi Arabia, Iran and Pakistan.

In Sub-Saharan Africa, inflation declined to 8.40 per cent in 2019, from 8.50 per cent
in 2018, and was projected to decline further to 8.00 per cent in 2020. However,
inflation in Nigeria was expected to increase to 11.70 per cent in 2020, from 11.30
per cent in 2019, largely driven by food inflation and increasing fiscal deficit. Inflation
in South Africa declined to 4.40 per cent in 2019, from 4.60 per cent in 2018,
primarily driven by declining costs of transport, food and non-alcoholic beverages,
and was projected at 5.2 per cent in 2020.

Table 1:2 Global Inflation
Region/Country

2020*
Advanced Economies
2.0
1.4
1.7
United States
2.4
1.8
2.3
Euro Area
1.8
1.2
1.4
Japan
1.0
1.0
1.3
United Kingdom
2.5
1.8
1.9
Emerging Markets and Developing
Economies
4.8
5.1
4.6
Middle East and Central Asia
9.9
8.2
9.1
Sub-Saharan Africa
8.5
8.4
8.0
Nigeria
12.1
11.3
11.7
South Africa
4.6
4.4
5.2
Source: IMF’s World Economic Outlook, October 2019
*Projections

1.1.3 Oil Prices
Oil prices in the second half of 2019 were influenced by geopolitical risks in the
Middle East, optimism around the new trade deal between the US and China, and
FINANCIAL STABILITY REPORT – DECEMBER 2019

production cuts by OPEC+ countries. The recovery of oil prices continued from
December 2018 with the prices of OPEC Basket, Bonny Light and UK Brent standing
at US$66.28, US$70.37 and US$69.00 per barrel respectively at end-December
2019, compared with US$56.94, US$58.16 and US$56.69 per barrel at endDecember 2018.
1.1.4 Food Prices
At end-December 2019, the Food and Agriculture Organisation (FAO) food price
index rose to 181.70, from 161.47 index points at end-June 2019. The rise was
attributed to increases in the prices of vegetable oils, sugar and dairy.
The FAO Meat Price Index rose by 9.37 per cent to 191.60 points at end-December
2019, from 175.19 index points at end-June 2019, reflecting a rise in pork prices as
pre-festive demand soared against limited supply. The FAO Dairy Price index
decreased marginally by 0.17 per cent to 198.9 points at end-December 2019, from
199.24 at end-June 2019. Weak global demand in butter and whole milk powder
contributed to the marginal decrease in the dairy price index. The FAO Cereal Price
index declined to 164.30 index points (5.15 per cent) at end-December 2019, from
173.23 index points at end-June 2019, reflecting improved supply conditions of
cereals.

The FAO Vegetable Oil Price Index rose by 31.28 per cent to 164.70 index points at
end-December 2019, from 125.46 index points at end-June 2019. The increase was
driven by improved quotations for palm oil, soy, sunflower oil and rapeseed oil.

The FAO Sugar Price Index rose to190.30 points at end-December 2019, up by 3.81
per cent, compared with 183.31 index points at end-June 2019. The recovery in the
price of sugar was driven by the rise in the price of crude oil. This led to increased
ethanol production by sugarcane suppliers in Brazil, resulting in reduced sugar
availability in the global market.

Table 1:3 World Food Price Index
December

June 2019
December

Food Price Index
161.47
172.70
181.70
Meat
162.35
175.19
191.60
Dairy
169.98
199.24
198.90
Cereals
167.79
173.23
164.30
Vegetable Oils
125.81
125.46
164.70
Sugar
179.56
183.31
190.30
Source: Food and Agriculture Organization (FAO), January 2020
1.1.5 International Stock Markets
Most stock markets rebounded in the review period, reflecting the resilience of the
global economy in the face of severe macroeconomic challenges.

FINANCIAL STABILITY REPORT – DECEMBER 2019

North American markets rebounded with the exception of the Canadian S&P/TSX
Composite which declined marginally. The US S&P 500 and the Mexican Bolsa
indices strengthened by 9.80 and 0.9 per cent, to 3,230.78 and 43,541.02 at endDecember 2019, respectively, from 2,941.76 and 43,161.17 at end-June 2019. The
US market performance was driven by improved investors’ confidence, favourable
domestic economic conditions and expected ease in trade tensions with China. In
South America, the Brazilian Bovespa Stock and Colombian COLCAP indices
recovered significantly by 14.50 and 7.50 per cent to 115,645.30 and 1,662.42, at
end-December 2019, respectively, from 100,000.97 and 1,548.98 at end-June 2019,
reflecting growing investors’ confidence. The Argentine Merval, however, declined by
0.30 per cent to 41,671.41 at end-December 2019 from 41,796.36 at end-June 2019
as a result of prevailing currency and debt crises.

In Europe, the British FTSE 100, the French CAC 40 and the German DAX 30
indices rallied by 1.60, 1.80 and 1.40 per cent respectively, despite sluggish
economic growth. The increases were driven by monetary policy accommodation,
Brexit negotiation and international diversification of portfolios.

In Asia, the Japanese Nikkei 225, the Chinese Shanghai Stock Exchange-A and the
Indian BSE Sensex indices increased by 11.20, 2.40 and 4.70 per cent respectively.
The Chinese index recovery was as a result of the signing of the first phase of the
trade agreement with the US.

In Africa, the Nigerian NSE All-Share Index, the Egypt EGX CASE 30 and Ghanaian
GSE All-Share Index decreased by 10.40, 1.00, and 5.70 per cent respectively. The
declines were due to domestic macroeconomic uncertainties and the spill-over
effects of US-China trade tensions. The Kenyan Nairobi NSE 20 and South African
JSE All-Share Index increased by 0.80 and 2.70 per cent respectively, owing to
renewed investors’ confidence.


Table 1:4 Indices of Selected Stock Markets

Country
Index
31-Dec-18
30-Jun-19
31-Dec-19
Dec 31, 2018
- Dec 31,
2019 %
Change
June 30 -
December
31, 2019 %
Change
AFRICA


Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20
Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index

FINANCIAL STABILITY REPORT – DECEMBER 2019

NORTH
AMERICA


US
S&P 500

Canada
S&P/TSX Composite

Mexico
Bolsa

SOUTH
AMERICA


Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE


UK
FTSE 100

France
CAC 40

Germany
DAX

ASIA


Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Source: Bloomberg
1.1.6 Foreign Exchange Markets
Developments in the foreign exchange markets were mixed during the review period.
In Europe, the euro depreciated against the US dollar by 1.12 per cent, compared
with the 1.14 per cent at end-June 2019. The depreciation at end-December 2019,
reflected the risk of near-term recession and return to accommodative monetary
policy. The Russian ruble, however, continued its appreciation against the dollar by
gaining 1.98 per cent at end-December 2019; a reflection of the continued recovery
in oil prices. Similarly, the British pound appreciated by 4.52 per cent on account of
the Brexit deal.

In Asia, the Japanese yen depreciated marginally against the US dollar by 0.66 per
cent as a result of weak external sector performance. The Chinese Renminbi
depreciated against the dollar by 1.29 per cent, against the backdrop of trade
tensions between the US and China and weak domestic demand. Also, the Indian
Rupee depreciated by 2.31 per cent, as growth slowed in 2019, amid concerns about
the health of the non-bank financial sector.

In North America, the Canadian dollar and the Mexican peso appreciated by 0.77
and 1.48 per cent respectively, after successive policy rate cuts by the US Federal
Reserve. These performances reflected slightly weaker outcomes when compared
with the 3.82 and 2.24 per cent appreciation respectively, at end-June 2019. In
South America, the Argentine peso depreciated against the US dollar by 29.11 per
cent, owing to weak macroeconomic conditions and rising risk of debt default. The
currency depreciated by 11.26 per cent at end-June 2019. The Brazilian real and the
Colombian peso depreciated by 4.23 and 2.28 per cent respectively, owing to weak
FINANCIAL STABILITY REPORT – DECEMBER 2019

global trade and slowdown in economic activities, in contrast to the 0.52 and 1.18
per cent appreciation, respectively recorded at end-June 2019.

In Africa, the Nigerian naira marginally depreciated against the US dollar by 0.03 per
cent, at end-December 2019, following shocks from external developments, in
contrast to a 0.03 per cent appreciation at end-June 2019.The Ghanaian cedi
depreciated against the dollar by 4.87 and 10.05 per cent, at end-December 2019
and end-June 2019, respectively. In contrast, at end-December 2019, the South
African rand, Kenyan shilling and the Egyptian pound appreciated by 0.57, 0.93 and
4.05 per cent, respectively, against the US dollar on account of increased portfolio
investments. At end-June 2019, both the South African rand and the Egyptian pound
strengthened against the US dollar by 1.92 and 7.37 per cent respectively, while the
Kenyan shilling lost value by 0.44 per cent.

Table 1:5 Trends in Selected Currencies

Currency
28-Jun-19
31-Dec-19
Jun 19 - Dec 19 (%
App/Dep)
AFRICA


Nigeria
Naira
306.90
307.00
-0.03
South Africa
Rand
14.08
14.00
0.57
Kenya
Shilling
102.30
101.36
0.93
Egypt
Pound
16.69
16.04
4.05
Ghana
Cedi
5.47
5.75
-4.87
NORTH AMERICA


Canada
Dollar
1.31
1.30
0.77
Mexico
Peso
19.22
18.94
1.48
SOUTH AMERICA


Brazil
Real
3.85
4.02
-4.23
Argentina
Peso
42.44
59.87
-29.11
Colombia
Peso
3211.86
3286.84
-2.28
EUROPE


UK
Pound
0.78
0.75
4.52
Euro Area
Euro
0.88
0.89
-1.12
Russia
Ruble
63.23
62.00
1.98
ASIA


Japan
Yen
107.93
108.65
-0.66
China
Renminbi
6.87
6.96
-1.29
India
Rupee
69.70
71.35
-2.31
Source: bloomberg


FINANCIAL STABILITY REPORT – DECEMBER 2019

1.1.7 Monetary Policy Rates
Most central banks lowered policy rates, while the others held rates constant. The
US Federal Reserve cut policy rate by 25 basis points in July, September and
October 2019. Similarly, the Reserve Bank of Australia, Bank of Korea, Bank
Indonesia and Bank Negara Malaysia lowered rates by 25 basis points each, while
the Reserve Bank of New Zealand cut its rate by 50 basis points.

In the BRICS, the Central Bank of Brazil, the Central Bank of Russian Federation,
Reserve Bank of India, Peoples’ Bank of China and the South African Reserve Bank
reduced their policy rates in the second half of 2019 in response to the weakening
global economy.

In South America, Banco de Mexico and the Central Bank of Chile reduced the
policy rates by 25 basis points each. However, Banco de la Republica de Colombia
held its policy rate constant at 4.25 per cent throughout 2019.

In Africa, the Central Bank of Egypt reduced the policy rate by 100 basis points in the
review period in response to low inflation. However, the Central Bank of Nigeria and
the Bank of Ghana held rates constant at 13.50 and 16.00 per cent respectively, in
order to rein in inflation and attract portfolio inflows.


FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 1:6 Policy Rates of Selected Countries /Regions
Country/Region
Dec.

Jan.

Feb.

Mar.

Apr.

May.

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Developed Economies
Japan


Euro Zone

UK


US


Canada


South Korea


New Zealand


Australia


ASEAN
Indonesia


Malaysia


BRICS
Brazil


Russia


India


China


South Africa


Other Emerging Economics and South America
Mexico


Chile


Colombia


Africa

Egypt


Ghana

Nigeria


Source: www.cbrates.com

FINANCIAL STABILITY REPORT – DECEMBER 2019

1.2 Domestic Developments
Output increased in the second half of 2019, compared with the level in the first half
of 2019. The growth was attributed mainly to the enhanced flow of credit to the
private sector, which increased aggregate demand in the economy. Furthermore, the
Bank’s continued intervention in the real sector and fiscal interventions by the
Federal Government supported the growth outcome.
1.2.1 Output
Real gross domestic product (GDP) grew by 2.55 per cent in the second half,
compared with the 2.12 per cent recorded in the first half of 2019.

Figure 1.1 Gross Domestic Product (Growth %)

Non-oil GDP grew by 2.26 per cent in real terms in the second half of 2019,
compared with 1.64 per cent in the first half of 2019.The percentage share of the
non-oil sector to the total GDP stood at 92.68 per cent, compared with 91.02 per
cent in the first half of 2019.
In terms of sectoral contribution, the services sector accounted for the largest share
(53.64 per cent), followed by the agricultural sector (26.09 per cent) and industry
(20.27 per cent).
Table 1:7 Sectoral Contribution to Real GDP
Sector
H1 2019
H2 2019
Agriculture
22.78
26.09
Industry
23.34
20.27
Manufacturing
9.08
8.74
Construction
4.45
3.44
Services
38.32
53.64
Trade
16.47
15.23
Crude Petroleum & Natural Gas
9.02
7.32
Quarrying and Other Minerals

H1 2017
H2 2017
H1 2018
H2 2018
H1 2019
H2 2019
PER CENT
REAL GDP
FINANCIAL STABILITY REPORT – DECEMBER 2019

Agriculture and construction sectors grew by 2.31 and 1.31 per cent in the second
half of 2019, compared with 1.79 and 0.67 per cent, respectively, in the first half of
2019, while the trade subsector declined from -0.25 in the first half of 2019 to -0.58
per cent in the second half of 2019.
Table 1:8 Changes (per cent) in Real GDP by Sector
Sector
H1 2019
H2 2019
Agriculture
1.79
2.31
Manufacturing
-0.13
1.24
Construction
0.67
1.31
Services
1.94
2.60
Trade
-0.25
-0.58
Crude Petroleum & Natural Gas
7.17
6.36
Quarrying and Other Minerals
-3.48
-5.63

1.2.1.1 Oil Sector
Oil GDP increased by 6.36 per cent in the second half of 2019, indicating a decline
of 0.91 percentage point below the growth in the first half of 2019. Consequently, the
percentage share of the oil sector in real GDP fell from 8.98 per cent in the first half
of 2019 to 7.32 per cent at end-December 2019.

Figure 1.2 Shares of Oil and Non-Oil Sectors in Real GDP (%)

1.2.2 Inflation
The All-items Composite Consumer Price Index (CPI) stood at 307.5 at endDecember 2019, compared with 289.7 in the first half of 2019 and 274.57 at endDecember 2018. The index for the second half of 2019 was higher than the level in
the first half of 2019 by 6.1 per cent. Consequently, the headline inflation (year-onyear), increased to 11.98 per cent at end-December 2019, from 11.22 per cent at
end-June 2019. The development was attributed largely to increases in both food
and non-food categories.


H1 2018
H2 2018
H1 2019
H2 2019
PEERCENT
Oil
Non-oil
FINANCIAL STABILITY REPORT – DECEMBER 2019

The 12-month-moving-average headline inflation stood at 11.40 per cent in
December 2019, compared with 11.30 and 12.10 per cent in June 2019 and the
corresponding half of 2018 respectively. Core inflation stood at 9.33 per cent at endDecember 2019, reflecting 0.49 percentage point above the level at end-June 2019,
but was 0.47 percentage point below the level in December 2018. Significant
increases were recorded in the prices of food and non-alcoholic beverages, clothing
and footwear, transport, health, and miscellaneous goods.

However, food inflation, which comprised farm produce and processed food, rose to
14.67 per cent at end-December 2019, from 13.56 per cent (year-on-year) at endJune 2019. Increases in the prices of processed foods and some farm produce
(bread & cereal, potatoes, yam &other tubers, fish, meat, and oil & fats) resulted in
the rise in the index. Imported food inflation increased to 16.04 per cent (year-onyear) at end-December 2019, from 15.75 per cent at end-June 2019. The increase in
food inflation was 0.38 percentage point above the level in the corresponding period
of 2018.

Figure 1.3 Inflationary Trends (Year-on-Year)


1.2.3 External Sector
1.2.3.1 Foreign Exchange Flows
Foreign exchange inflow through the CBN amounted to US$25.83 billion in the
second half of 2019, a decline of 16.2 per cent from the level in the preceding halfyear. The development was as a result of the fall in non-oil receipts. On the other
hand, foreign exchange outflow through the CBN rose by 10.13 per cent to
US$31.77 billion, compared with US$28.85 billion recorded in the first half of 2019.
The increase in outflow, relative to the level in the first half of 2019, reflected the rise
in third-party MDAs transfers and interbank utilization. Total foreign exchange
transactions through the CBN resulted in a net outflow of US$5.94 billion in the
second half of 2019, compared with the net inflow of US$1.97 billion in the preceding
half-year.

H2 18
H1 19
H2 19
Per cent
Headline (Y-o-Y)
Core (Y-o-Y)
Food (Y-o-Y)
FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 1:9 Foreign Exchange Flows through the CBN (US$ million)
Period
Inflow
Outflow
Net flow
H2 – 2019
25,831.30
31,769.24
(5,937.84)
H1 – 2019
30,819.73
28,846.76
1,972.97
H2 – 2018
28,734.71
33,390.29
(4,655.58)
1.2.3.2 External Reserves
Gross external reserves stood at US$38.09 billion at end-December 2019, from
US$44.75 billion at end-June 2019, reflecting a decrease of US$6.66 billion. The
external reserves position could cover 9.11 months of import of goods and services.
Total inflow during the period under review amounted to US$25.94 billion, compared
with US$30.82 billion in the first half of 2019, reflecting decreases of US$4.88 billion
or 15.83 per cent. Total outflow increased to US$32.30 billion, from US$28.85 billion
in the first half of 2019, reflecting increases of US$3.45 billion or 11.96 per cent.

The breakdown showed that the CBN, FGN and the Federation accounted for
US$31.67 billion, US$6.10 billion and US$0.325biillion,representing 83.14, 16.01
and 0.85 per cent respectively, at end-December 2019. In terms of the currency
composition, the US dollar at US$32.50 billion constituted 85.3 per cent; special
drawing rights at US$2.07 billion (5.4 per cent); Chinese Renminbi, US$3.16 billion
(8.1 per cent) and “others” accounted for the balance.

Table 1:10 Structure of the Reserves

Dec'19
US$
millions
Proportion
of
Reserves
(Dec'19)
Jun'19
US$
millions
Proportion
of
Reserves
(Jun'19)
% Change
(Jun-Dec
'19)
Federation


Federal Government

Central Bank of
Nigeria

Total


FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 1.4 Gross External Reserves Showing CBN, FGN & Federation Portions


1.2.4 Fiscal Operations1
The estimated Federal Government retained revenue of N2,677.54 billion in the
second half of 2019 was lower than the proportionate budget estimate by 36.7 per
cent. However, the retained revenue estimate rose above the level in the preceding
half by 26.9 per cent.
Analysis of the retained revenue revealed that the share from Federation Account
was N1,653.14 billion or 61.7 per cent; VAT Pool Account, N83.35 billion or 3.1 per
cent; Federal Government Independent Revenue, N286.35 billion or 10.7 per cent;
Share of Exchange Gain, N27.06 billion or 1.0 per cent; and Excess Non-oil, N4.91
billion or 0.2 per cent. Others (including FGN’s share of Signature Bonus and
revenues from Special Accounts) accounted for the balance of N622.73 billion or
23.3 per cent. The decline in retained revenue relative to the proportionate budget
estimate was attributed largely to the drop in the share from the Federation Account.
Aggregate expenditure of the Federal Government in the second half of 2019 stood
at N4,488.49 billion, which was 13.5 per cent below the proportionate budget
estimate and 8.5 per cent below the level in the preceding period. The breakdown

1 Data from January to March, 2019 were2019were obtained from OAGF, while those for April to June were CBN staff estimates.

Billions
CBN
FGN
FED
TOTAL RESERVES
FINANCIAL STABILITY REPORT – DECEMBER 2019

showed that recurrent and capital expenditures accounted for 78.1 and 16.7 per cent
respectively, while transfers accounted for the balance of 5.2 per cent. Analysis of
the recurrent expenditure showed that the non-debt obligations accounted for 65.7
per cent, while debt service payments accounted for the remaining 34.3 per cent.
Overall, the fiscal operations of the Federal Government in the second half of 2019
resulted in a notional deficit of N1,810.95 billion as against the proportionate budget
deficit of N959.24 billion and the deficit of N2,792.56 billion recorded in the first half
of the year. The deficit was financed, largely from domestic sources.
Figure 1.5 Federal Government Fiscal Operations (N billion)

Sources: OAGF & CBN

The domestic debt stock of the Federal Government at end-September 2019 stood
at N13,901.55 billion, representing 3.6 per cent increase over the N13,412.80 billion
recorded at end-June 2019. At 72.5 per cent, FGN Bonds constituted the largest
share of the total domestic debt stock, while Nigerian Treasury Bills and Promissory
Notes constituted 19.1 and 5.9 per cent respectively. Others were: FGN Sukuk (1.4
per cent); Nigerian Treasury Bonds (0.9 per cent); Green Bond (0.2 per cent); and
FGN Savings Bond (0.1 per cent).
1.1.8 Risks from Global Economic Developments
Based on the review of global economic developments and events during the
second half of 2019, the following risks were identified:
•
continued sluggish global economic recovery, geopolitical and trade tensions
could slow output growth and reduce capital inflows; and
• decline in crude oil prices could widen the current account deficit with adverse
effects on external reserves position, exchange rate stability and fiscal
balances.


2nd Half 2018
Half year 2019
2nd Half 2019
Revenue
Expenditure
Fiscal Balance
FINANCIAL STABILITY REPORT – DECEMBER 2019

DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.1 Monetary and Credit Developments2
Broad money supply (M3) grew by 6.22 per cent at end-December 2019, compared
with 4.03 per cent recorded at end-June 2019. This was below the indicative
annualised benchmark of 16.08 per cent for 2019. The growth was mainly due to an
increase of 27.3 per cent in domestic credit (net) of the banking system.
Correspondingly, the increase in total monetary liabilities was driven by 13.7 and 6.0
per cent growth in other deposits and currency outside depository corporations
respectively.

Narrow money (M1) increased by 0.13 per cent to N10,530.30 billion at endDecember 2019, from N10,397.70 billion at end-December 2018, compared with a
decrease of 0.09 per cent at end-June 2019. The increase in M1 was due to the rise
in currency outside depository corporations and other deposits by 6.03 per cent and
0.21 per cent respectively.


2 June 2019 figures are provisional.
New Reporting Format Definitions
Sector
Sub-Sector
Financial corporations
Depository Corporations
Central bank
Other depository corporations
Deposit-taking corporations except Central bank
Money Market Funds
Other Financial Corporations
Non-MMF investment funds
OFIs (except insurance corporations and pension funds)
Financial auxiliaries
Insurance corporations
Pension funds
Nonfinancial corporations
Public nonfinancial corporations
Private non-financial corporations
Foreign-controlled nonfinancial corporations
General government
Central government
State government
Local government
Other Resident Sector
Households
Non-Profit Institutions Serving Households
Nonresident
Nonresidents
Box 1 IMF Monetary Aggregate Reporting Format
FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 2.1 Trends in Monetary Aggregates

The intermediation efficiency, measured by the proportion of currency outside
depository corporations to total monetary liabilities, stood at 5.80 per cent at endDecember 2019, reflecting an increase of 0.90 percentage point above the level at
end-June 2019. The proportion of time and savings deposits to total monetary
liabilities increased by 2.4 percentage points above the level at end-June 2019.

2.1.1 Aggregate Credit to the Domestic Economy
Aggregate credit to the domestic economy (net) grew by 27.33 per cent to
N36,182.60 billion in the second half of 2019, compared with 12.75 per cent at endJune 2019. The growth was attributed to the 92.95 per cent and 13.61 per cent
increases in net claims on the Federal Government and private sector respectively.
Aggregate credit to the domestic economy (net) contributed 23.9 percentage points
to the overall growth of broad money at end-December 2019.

Figure 2.2 Credit to the Economy

2.1.1.1 Claims on the Federal Government
Net claims on the Federal Government stood at N9,482.86 billion at end-December
2019, showing an increase of 92.95 per cent over the level of N4,914.71 billion at
end-December 2018. The growth was much higher than the 55.67 per cent in the
first half of 2019. Net claims on the Federal Government contributed 14.0 percentage
points to the growth of total monetary assets.


Dec 2017
Jun 2018
Dec 2018
Jun 2019
Dec 2019
Monetary Aggregates (N'B)
M1
M3
COB
TD


Dec 17
Jun 18
Dec 18
Jun 19
Dec 19
N Billion
N Billion
Claims on Private Sector (LHS)
Domestic Claims (LHS)
Claims on Central Government (Net) (RHS)
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.1.1.2 Aggregate Claims on Other Sectors
Banking system credit to Other Sectors stood at N26,699.79 billion at end-December
2019, reflecting an increase of 9.8 percentage points over the N24,387.86 billion at
end-June 2019. The increase was driven mainly by 50 per cent growth in claims on
the public non-financial corporations and 15 per cent increase in claims on the
private sector. Claims on the private sector contributed 9.8 percentage points to the
growth in total monetary assets.

Table 2:1 Growth Rates of Monetary Aggregates
% Change (Over
preceding December)
Jun 17

Dec 17

Jun 18* Dec 18*
Jun 19**
Dec
19**
Domestic Claims

Claims
on
Central
Government3 (Net)

Claims on Private Sector

Foreign Assets (Net)

Other Items (Net)

Total
Monetary
Assets
(M3)

Other Deposits

Money Supply (M1)

Currency
Outside
Depository Corporations

Transferable Deposits

Monetary Liabilities (M2)

Securities
Other
than
Shares

Total Monetary Liabilities
(M3)

Source: CBN
*Revised; **Provisional
2.1.1.3 Net Foreign Assets of the Banking System
Net foreign assets of the banking system declined by 50.97 per cent to N5,806.32
billion at end-December 2019, from N11,841.70 billion at end-December 2018,
reflecting a reduction in foreign assets of banks. Compared with N9,946.58 billion at
end-June 2019, the rate of decline of the net foreign assets was higher at endDecember 2019. Net foreign assets contributed 18.45 percentage points to the
decline of M3 in the second half of 2019.

3 Central Government is used interchangeably with Federal Government
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.1.1.4 Consumer Credit
Consumer credit outstanding at end-December 2019 increased by 27.00 per cent to
N963.74 billion from N753.85 billion at end-June 2019. This accounted for 6.32 per
cent of banks’ outstanding claims on the private sector and was 3.27 percentage
points higher than the level at end-June 2019.

Figure 2.3 Consumer Credit

2.1.2 Classification of Private Sector Credit
The contributions of agriculture, trade, government and services sectors to total
credit increased to 4.49, 7.26, 8.96 and 37.71 per cent at end-December 2019,
respectively, compared with 4.20, 6.57, 8.75 and 36.49 per cent, respectively, at
end-June 2019. However, the contributions of the construction and industry sectors
declined to 4.21 and 37.37 per cent from 4.39 and 39.59 per cent in the preceding
half year.

Figure 2.4 Sectoral Distribution of Credit


Dec 17
Jun 18
Dec 18
Jun 19
Dec 19
Ratio (%)
N Billion
Consumer Credit
Ratio of claims on private sector (rhs)

Services
Industry
Trade/General
Commerce
Government
Agriculture
Construction
(N' Million)
June 19
Dec 19
FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 2:2 Sectoral Distribution of Private Sector Credit

Figure ITEM
Jun-19
Dec-19
Percentage
Share in Total
%
(=N='m)
(=N='m)
Jun-19
Dec-19
(1)&(2)
'(1)
'(2)
'(3)
'(4)

[a] Agriculture

[b] Industry
5,991,837.90

6,423,322.30 39.59
37.37
7.20
Mining & Quarrying

8,663.40

11,309.70 0.06
0.07
30.55
Manufacturing

Oil & Gas:

of which Downstream,
Natural Gas and Crude
Oil Refining
3,329,468.70
3,416,254.50

22.00

19.88

2.61
Power and Energy

335,537.10

373,218.30

2.22

2.17

11.23
of which IPP and Power
Generation

335,537.10
373,218.30
2.22

2.17

11.23
[c] Construction

664,870.40

723,147.80

4.39

4.21

8.77
[d] Trade/General Commerce
994,182.60

1,247,374.30

6.57

7.26

25.47
[e] Government

1,323,643.20

1,539,224.70

8.75

8.96

16.29
[f] Services

5,522,249.60

6,482,321.20

36.49

37.71

17.39
Real Estate

582,960.47

604,972.90

3.85

3.52

3.78
Finance, Insurance and
Capital Market

1,131,299.61
1,272,063.84
7.48

7.40

12.44
Education
60,377.00

58,378.68

0.40

0.34

(3.31)
Oil & Gas

1,061,733.82

1,162,529.01

7.02

6.76

9.49
of which
Upstream and Oil
& Gas Services

1,061,733.80

1,162,529.00

7.02

6.76

9.49
Power and Energy
295,457.18

298,232.96

1.95

1.74

0.94
of which Power
Transmission
and Distribution

295,457.18

298,232.96

1.95

1.74

0.94
Others

2,390,421.49

3,086,143.83

15.80

17.96

29.10
of which:
General

1,015,494.89

1,430,065.05

6.71

8.32

40.82
Information &
Communication

689,204.70
882,938.35

4.55

5.14

28.11
Transportation &
Storage

317,069.43

396,198.85

2.10

2.31

24.96
TOTAL

15,132,859.00
17,187,765.70
100.00

100.00

13.58
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.1.3 Monetary Base
The monetary base at end-December 2019 grew by 20.75 per cent to N8,669.83
billion, compared with N7,180.01 billion at end-December 2018. The upward
movement on the asset side reflected, mainly, an increase of 51.19 per cent in net
domestic assets. Correspondingly, the upward movement on the liability side
reflected, mainly, a 28.38 per cent increase in liabilities of other depository
corporations. The growth in monetary base was higher than the position at end-June
2019. The monetary base of N8,669.83 billion, at end-December 2019 represented
an increase of 20.63 per cent over the N7,187.18 billion at end-June 2019.


Figure 2.5 Monetary Base and its Components

2.1.3.1 Currency-in–Circulation and Banks’ Current Account Balances with
the CBN
The Currency-in-Circulation increased by 4.86 per cent to N2,442.99 billion at endDecember 2019, accounting for 28.18 per cent growth in Monetary Base. Similarly,
the banks’ current account balances with the CBN increased by 0.21 per cent
toN8,507.26 billion at end-December 2019.

2.1.4 Maturity Structure of Bank Deposits and Credits
Commercial banks’ outstanding credit at end-December 2019 showed that maturities
for short-term credit accounted for 51.73 per cent, compared with 47.00 per cent at
end-June 2019. Medium-term4 and long-term5 credits decreased to 17.37 and 30.90
per cent at end-December 2019, from 18.90 and 34.10 per cent respectively, at end-

4Medium term implies maturities ≥1yr and < 3yrs.
5 Long term implies maturities of 3yrs and above.
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
NFA

NDA

OIN

MB

N'Billion
FINANCIAL STABILITY REPORT – DECEMBER 2019

June 2019. Consequently, short-term maturities maintained dominance in the credit
market.

Figure 2.6 Distribution of Bank Loans and Advances by Maturity

The analysis of deposit liabilities of banks showed that short-term deposits with
tenors below one year constituted 90.32 per cent of the total (73.0 per cent had a
maturity of less than 30 days), compared with 87.69 per cent at end-June 2019.
Medium and long-term deposits constituted 4.0 and 5.7 per cent of total deposits at
end-December 2019, compared with 4.24 and 8.07 per cent at end-June 2019
respectively.

Figure 2.7 Maturity Structure of Bank Deposits


2.1.5 Market Structure of the Banking Industry
In the last half of 2019, the structure of the Nigerian banking industry remained
substantially the same, with the six largest banks accounting for 62.96 per cent of
total deposits and 62.59 per cent of total assets. The remaining twenty-one banks
had market shares ranging from 0.02 to 5.94 per cent in deposits, and 0.08 to 5.24
per cent in assets, compared with market shares ranging between 0.10 to 4.31 per
cent in deposits and 0.08 to 5.20 per cent in assets at end-June 2019 respectively.
The market share of the largest bank with respect to deposits and assets stood at
14.97 and 14.71 per cent at end-December 2019, compared with 14.94 and 13.20
per cent at end-June 2019, respectively.

Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
Jun 19
Dec-19
Per cent
Short term
Medium-term
Long-Term

Dec 16
Jun17
Dec17
Jun18
Dec18
Jun19
Dec19
Per cent
Per cent
Short term
Medium-term
Long-Term
FINANCIAL STABILITY REPORT – DECEMBER 2019

The Herfindhal Hirschman Indices6 of 833.96 in deposits and 838.56 in assets at
end-December 2019, compared with 664.08 and 608.64 at end-June 2019, reflected
an increase in the concentration ratio.

Figure 2.8 Concentration Ratios of the Banking Industry Assets and Deposits


2.1.6 Risks to the Domestic Economy
Growth recovery remained modest and is vulnerable to:
• the increasing claims on the Federal Government, which may compound the
crowding out effect on credit to the private sector, and increase pressure on
domestic interest rates.
• decline volatility in crude oil prices below the budget benchmark, which may
limit the effectiveness of the 2020 budget.
• weakening world aggregate demand, which may pass through to the domestic
economy and dampen the tempo of economic activities.
2.2 Licensing of Financial Institutions
The number of licensed Other Financial Institutions (OFIs) stood at 6,190 at endDecember 2019, compared with 5,820 at end-June 2019.The OFIs comprised seven
(7) Development Finance Institutions (DFIs), 911 Microfinance Banks (MFBs), 74
Finance Companies (FCs), 34 Primary Mortgage Banks (PMBs) and 5,164 Bureaux
de Change (BDCs) at end-December 2019.


6 HHI is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. It is defined as the sum of the squares of
the market shares of the firms within the industry.
An HHI below 0.01 (or 100) indicates a highly competitive industry.
below 0.15 (or 1,500) indicates an un-concentrated industry.
between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.
above 0.25 (above 2,500) indicates high concentration.


Jun 18
Dec 18
Jun 19
Dec 19
HHI
CR
CR(Deposits)
CR( Assets)
CR( Largest-Deposits)
CR (Largest-Assets)
HHI (Deposits) (rhs)
HHI (Assets) (rhs)
FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 2:3 Concentration Ratios of the Banking Industry Assets and Deposits

S/N
Type
Total Licensed
Institutions as at
June 30, 2019
Total Licensed
Institutions as at
December 31, 2019

Microfinance Banks

Bureaux De Change
4,798
5,164

Finance Companies

Development Finance Institutions

Primary Mortgage Banks

Total
5,820
6,190

2.2.1 Assets and Liabilities of Other Financial Institutions
The total assets of the sub-sector, excluding the BDCs, increased by 10.11 per cent
to N3,183.50 billion at end-December 2019, from N2,891.18 billion at end-June
2019. The increase was attributed largely to the injection of additional capital by the
newly licensed OFIs, mobilization of additional deposits and increase in liabilities due
to other banks by the institutions.

Net loans and advances increased by 12.79 per cent to N1,667.01 billion at endDecember 2019, from N1,477.95 billion at end-June 2019. Also, total deposits
increased by 5.33 per cent to N750.02 billion at end-December 2019, from N712.10
billion at end-June 2019, owing largely to improved deposits by PMBs and MFBs.
However, shareholders’ funds unimpaired by losses decreased by 1.51 per cent to
N475.27 billion at end-December 2019, from N482.53 billion at end-June 2019,
owing largely to increased provisioning.

2.2.2 Development Finance Institutions

The total assets of the DFIs increased by 6.96 per cent to N2,021.18 billion at endDecember 2019 from N1,889.71 billion at end-June 2019. Further analysis showed
that net loans and advances increased by 12.37 per cent to N1,092.90 billion at endDecember 2019 from N972.56 billion at end-June 2019, owing largely to increased
long-term borrowings.
Shareholders’ funds decreased by 9.04 per cent to N271.14 billion at end-December
2019, from N298.08 billion at end-June 2019. Further analysis showed that the
decrease in the shareholders’ funds was due mainly to operational losses reported
by some DFIs in the review period.
The Bank of Industry (BOI), Development Bank of Nigeria (DBN) and Federal
Mortgage Bank of Nigeria (FMBN) accounted for 51.52, 23.19 and 12.97 per cent,
respectively, of the total assets of the DFIs, while Nigerian Export-Import Bank
(NEXIM), Nigeria Mortgage Refinancing Company (NMRC), Bank of Agriculture
FINANCIAL STABILITY REPORT – DECEMBER 2019

(BOA) and The Infrastructure Bank (TIB) accounted for 5.72, 3.45, 2.87 and 0.28 per
cent, respectively. Similarly, BOI, FMBN, DBN, NEXIM, NMRC and BOA accounted
for 65.94, 15.60, 8.90, 4.32, 3.32 and 1.92 per cent of net loans and advances
respectively.

2.2.3 Primary Mortgage Banks
The number of Primary Mortgage Banks (PMBs) stood at 34 (22 State and 12
National) at end-December 2019, compared with 35 (23 State and 12 National) at
end-June 2019.The reduction was due to the merger of FBN Mortgages Limited and
Trust Bond Mortgage Bank Plc to form First Trust Mortgage Bank Plc.
The total assets of the sub-sector decreased by 3.55 per cent to N432.05 billion at
end-December 2019, from N447.93 billion at end-June 2019. The decrease was due
to reduction in cash at hand by 4.32 per cent to N0.68 billion, in non-current assets
held for sale by 7.98 per cent to N52.59 billion and in investment in quoted shares by
39.67 per cent to N9.96 billion.

The CAR for the sub-sector stood at 12.31 per cent at end-December 2019, which
was above the regulatory minimum of 10 per cent. The average liquidity ratio stood
at 97.01 per cent at end-December 2019, compared with 98.37 per cent at end-June
2019.
Table 2:4 Primary Mortgage Banks Financial Highlights

End-December

(N’ billion)
End-June 2019
(N’ billion)
% Change
Total assets
432.05
447.93
(3.55)
Loans and
advances
238.49
228.86
4.21
Placements with
banks
40.87
43.91
(6.92)
Investment in
Quoted Shares
9.96
16.51
(39.67)
Deposit liabilities
143.56
150.24
(4.45)
Other liabilities
158.96
166.25
(4.38)
Shareholders’ funds
53.17
55.67
(4.49)


2.2.4 Finance Companies
The number of FCs stood at 74 at end-December 2019, compared with 73 at endJune 2019. The total assets of the sub-sector increased by 71.58 per cent to
N233.42 billion at end-December 2019, from N136.04 billion at end-June 2019,
owing largely to increased borrowings and shareholders’ funds.
FINANCIAL STABILITY REPORT – DECEMBER 2019

Borrowings increased by 77.38 per cent to N153.40 billion at end-December 2019,
from N86.48 billion at end-June 2019. Shareholders’ funds increased by 59.97 per
cent to N37.29 billion at end-December 2019, from N23.31 billion at end-June 2019,
as a result of increases of N3.80 billion and N10.17 billion in paid-up capital and
reserves, respectively. Also, net loans and advances increased by 25.32 per cent to
N80.13 billion at end-December 2019, from N63.94 billion at end-June 2019.

Table 2:5 Financial Position of Finance Companies at end-December 2019

Selected Items
End-December

(N’ billion)
End-June 2019
(N’ billion)
Change
(N’
billion)
% Change

Total Assets

Cash in Vault

Balances
with
Banks

Loans
and
Advances

Investments

Fixed Assets

Borrowings

Shareholders’
Funds

Paid-up capital

Reserves


2.2.5 Microfinance Banks
The number of MFBs was 911(comprising 10 national, 135 state and 766 unit) at
end-December 2019, following the licensing of 4 new institutions, compared with a
total of 907 (comprising 9 national, 136 state and 762 unit) at end-June 2019.

The total assets of MFBs increased to N496.85 billion at end-December 2019, from
N417.50 billion at end-June 2019, reflecting an increase of 19.01 per cent. Net loans
and advances increased by 20.17 per cent to N255.47 billion at end-December
2019, from N212.59 billion at end-June 2019.

The shareholders’ funds increased by 7.77 per cent toN113.67 billion at endDecember 2019 from N105.47 billion at end-June 2019, owing to capital injection
and accretion to reserves. Also, total deposit liabilities increased by 14.81 per cent to
N250.17 billion at end-December 2019 from N217.90 billion at end-June 2019.
FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 2:6 Financial Positionof Microfinance Banks at end-December 2019

Selected Items
End-December

(N’ billion)
End-June 2019
(N’ billion)
Change
(N’ billion)
% Change

Total Assets

Cash in Vault

Balances
with
Banks

Placements
with
Banks

Loans
and
Advances

Short-Term
Investments

Fixed Assets

Deposits

Shareholder’s
Funds

Paid-up Capital


2.2.6 Microfinance Certification Programme
Following the certification of 360 candidates during the review period, the total
number of certified candidates stood at 6,692 at end-December 2019, compared with
6,332 at end-June 2019.
2.2.7 Bank Verification Number Enrolment for MFB Customers
Customer Bank Verification Number (BVN) enrolment data submitted by 457 MFBs
showed that 1,828,570 (20.59 per cent) out of 8,879,118 customers had enrolled as
at end-December 2019.

2.2.8 Developments in the Bureaux de Change Sub-sector
2.2.8.1 AML/CFT Examination
The Bank conducted on-site risk-based AML/CFT examination of 152 BDCs during
the review period. The examination reports revealed infractions of extant regulations
and erring institutions were appropriately sanctioned.

2.2.8.2 Bi-Annual CBN/ABCON Meeting
The Bank held the second bi-annual meeting with ABCON in December 2019.The
meeting resolved that:
• BDCs should continue using NGAAP in preparing Audited Financial
Statements, pending the completion of discussions with the Financial
Reporting Council (FRC) on the adoption of IFRS; and
FINANCIAL STABILITY REPORT – DECEMBER 2019

• ABCON should develop a Code of Business Ethics for its members.

2.2.8.3 Sensitization Workshop for BDCs
The Bank organised a sensitization workshop for BDC operators in preparation for
the Mutual Evaluation Exercise (MEE) by the Inter-Governmental Action Group
Against Money Laundering (GIABA) during the review period. The MEE was
conducted, and the key findings included: knowledge gap on the part of operators,
insufficient customer due diligence and inadequate rendition of reports.
2.3 Financial Markets
In a bid to contain inflationary pressures and consolidate the gains from improved
foreign exchange management, the Bank’s monetary policy stance remained largely
non-expansionary in the second half of 2019. In that regard, the Bank retained the
Monetary Policy Rate (MPR) at 13.50 per cent, with the asymmetric corridor of +200
and -500 basis points around the MPR for the standing lending and deposit facilities,
respectively. In the same vein, the Cash Reserve Ratio (CRR) on deposits and the
liquidity ratio were retained at 22.50 and 30.00 per cent, respectively.

2.3.1 The Money Market
Activities in the money market during the review period depicted varying liquidity
conditions in the banking system. Open Market Operations (OMO), Cash Reserve
Requirement debits and sale of foreign exchange to authorized dealers through the
wholesale and retail secondary market interventions constituted the major
withdrawals from the system.

2.3.1.1 Interest Rate Movements
On July 1, 2019, the Open-Buyback (OBB) daily average rate opened at 8.83 per
cent, compared to 17.26 per cent on January 2, 2019. The rate peaked at 44.05 and
28.17 per cent on February 2 and September 16, 2019 and thereafter declined to
4.04 and 2.38 per cent on June 28 and December 23, 2019 respectively.
Furthermore, the OBB rate ranged from 4.04 - 44.05 per cent in the first half of 2019
compared to 2.38 - 28.17 per cent in the second half of 2019.

The unsecured inter-bank call weighted daily average rate opened at 10.00 per cent
on July 1, 2019, compared to 20.00 per cent on January 9, 2019. The rate peaked at
23.94 and 25.00 per cent on February 5 and September 13, 2019 and thereafter
declined to 4.00 and 2.00 per cent on April 01, and December 09, 2019 respectively.
Furthermore, the inter-bank call rate ranged from 4.00 – 23.00 per cent in the first
half of 2019, compared to 2.00 - 25.00 percent in the second half of 2019.

The monthly average OBB and inter-bank call rates closed at 3.18 and 3.72 per cent
at end-December 2019, compared to 7.67 and 6.88 per cent recorded at end-June
FINANCIAL STABILITY REPORT – DECEMBER 2019

2019 respectively, owing to higher liquidity conditions arising from fiscal activities
and monetary operations of the Bank.
Figure 2.9 Money Market Rate Movements January – December, 2019


2.3.1.2 Nigerian Treasury Bills
During the review period, total subscriptions for 91, 182 and 364-day tenor Nigerian
Treasury Bills (NTBs) stood at N5,455.24 billion, compared with N4,153.63 billion in
the first half of 2019, indicating an increase of 31.34 per cent. Average marginal
rates ranged between 4.0000 - 11.1000 per cent for the 91-day, 5.0000 - 11.9499
per cent for the 182-day and 5.4950 - 13.3000 per cent for the 364-day tenors.
The total NTBs issued and allotted for 91, 182 and 364-day tenors stood at
N1,716.77 billion in the second half of 2019. This indicated an increase of 16.48 per
cent, compared with the N1,473.84 billion in the preceding period.
A breakdown of the total allotment showed that commercial banks (including foreign
investors) took up N1,003.05 billion or 58.43 per cent, merchant banks N33.40 billion
or 1.95 per cent, while mandate and internal-funds customers (including parastatals),
N680.31 billion or 39.63 per cent during the review period. Comparatively, in the first
half of 2019, commercial banks (including foreign investors) took up N766.37 billion
or 52.00 per cent, merchant banks N52.94 billion or 3.59 per cent, while mandate
and internal-funds customers (including parastatals) N581.08 billion or 39.43 per
cent. CBN-take up accounted for N73.45 billion or 4.98 per cent.
The NTBs outstanding at end-December 2019 showed that commercial banks
accounted for 37.71 per cent, parastatals, 53.62 per cent and merchant banks, 0.71
per cent, while the CBN accounted for 7.97 per cent.

FINANCIAL STABILITY REPORT – DECEMBER 2019

2.3.1.3 The Foreign Exchange Market
During the review period, the Bank sustained its foreign exchange intervention via
the Retail Secondary Market Intervention Sales (SMIS) window for some critical
areas, such as agriculture, airline, petroleum, raw materials and machinery.
Similarly, the Bank continued its supply of foreign exchange for invisible trade
transactions, such as personal and business travels, medical expenses and school
fees. The SMEs, oil companies and the Investors and Exporters (I & E) windows also
served to provide easy access to foreign exchange, while sales to BDC segment
were sustained. Also, the Bank continued its active participation in the Naira-Settled
OTC Futures Market.
The Bi-lateral Currency Swap Agreement between the Bank and the People’s Bank
of China was sustained through the CBN Renminbi Retail SMIS auction sales. This
arrangement has helped in improving foreign exchange management since its
inception in 2018.
2.3.1.4 Exchange Rate Movement
At the inter-bank segment of the foreign exchange market, the rate opened at
N306.90/US$ on July 1, 2019 and closed at N307.00/US$ on December 31, 2019.
The rate at the I & E window opened at N360.57/US$ on July 1, 2019 and closed at
N364.51/US$ on December 31, 2019, representing a depreciation of 1.09 per cent at
the I & E segment. At the BDC segment, Naira depreciated by 0.56 per cent as it
opened and closed at N360.00/US$ and N362.00/US$ respectively.
2.3.1.5 Foreign Exchange Transactions
The total foreign exchange sales by the Bank in the second half of 2019 amounted to
US$13,765.44 million. A breakdown of the total showed that interbank spot sales
amounted to US$2,032.38 million, invisibles US$551.20 million, I & E, US$5,491.89
million and SMEs US$832.00 million. Inter-bank forwards sales amounted to
US$4,857.96 million. The sum of US$5,098.53 million forward contracts matured,
while US$3,806.29 million was outstanding at end-December 2019.
In the first half of 2019, the total CBN foreign exchange sales at the inter-bank
segment amounted to US$8,370.04 million, of which spot sales amounted to
US$2,142.68 million and invisibles US$550.70 million. The sum of US$810.00 million
was sold to support SMEs, US$212.15 million at the I & E window and US$4,654.55
million as Inter-bank forward sales.
During the review period, the notional amount of OTC FX Futures contracts executed
stood at US$7,039.48 million. The sum of US$6,696.43 million matured, with the
cumulative amount outstanding of US$10,667.75 million at end-December 2019.
Comparatively, the notional amount of the OTC FX Futures contracts executed stood
at US$8,035.40 million. The sum of US$3,483.05 million matured, with the sum of
US$9,324.71 million outstanding at end-June 2019.
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.3.2 The Capital Market
2.3.2.1 The Bond Market
Total bonds outstanding at end-December 2019 amounted to N10,407.70 billion,
comprising FGN bonds (N9,389.72 billion or 90.22%), FGN Sukuk (N200.00 billion or
1.92%) and sub-national bonds (N278.66 billion or 2.68%). Others were sub-national
sukuk (N2.65 billion or 0.03%), FGN Green bonds (N25.69 billion or 0.25%), FGN
savings bonds (N12.67 billion or 0.12%), and corporate bonds (N474.81 billion or
4.56%). Total bonds outstanding at end-December 2019 were 5.53 per cent higher
than the N9,862.76 billion recorded at end-June 2019 (Table 2.1).

Table 2:7 Outstanding Bonds (N’Billion)
Bond Issuer
June, 2019
December,2019
% Change
Proportion of
Total (June,
2019)
Proportion of
Total
(December,
2019)
FGN Bonds

Sub-National
Bonds

Corporate Bonds

*FGN Savings

Sukuk - FGN

Sukuk - SubNational

Green - FGN

Green -
Corporate

Total (N)
9,862.76
10,407.70

Source: FMDQ OTC/ *CBN
2.3.2.2 Federal Government of Nigeria Bonds
New issues and re-openings of FGN bonds valued N890.00 billion were auctioned
during the review period, indicating an increase of 27.14 per cent over the N700.00
billion auctioned in the first half of 2019. Public subscriptions and sales increased to
N1,353.78 billion and N1,035.36 billion in the second half of 2019, compared with
N1,160.45 billion and N615.39 billion in the first half of 2019 respectively.
The yield curve shifted downwards when compared with the position in the preceding
period, reflecting lower yields in the market. Similarly, yields were significantly lower
at both ends of the curve vis-à-vis previous periods (Figure 2.9).
FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 2.10 Yield Curve for Nigeria

Source: FMDQ-OTC Plc
2.3.2.2.1 Federal Government of Nigeria Savings Bonds
During the review period, FGN Savings Bonds (FGNSB) worth N3.01 billion were
issued and allotted, compared with N2.75 billion recorded in the preceding period,
indicating an increase of N266.73 million or 9.71 per cent. The increase was
attributed to government’s efforts at encouraging retail savings in the Country. The
new issues were for the 2- and 3-year tenors, with coupon rates ranging 9.0910 -
11.2440 per cent and 10.0910 - 12.2440 per cent respectively. The coupon rates in
the preceding period ranged from 11.2760 – 12.1250 per cent and 12.2760 -
13.1250 per cent for the 2- and 3-year tenors respectively. Consequently, the total
value of FGNSB outstanding at end-December 2019 were N12.67 billion, compared
with N10.43 billion at end-June 2019 (Table 2.1).
2.3.2.2.2 Green Bonds
There was no new issuance of Green Bonds during the review period. However, a
total of N25.69 billion FGN Green Bonds were outstanding at end-December 2019.
The 5- and 7-Year instruments were issued at a coupon rate of 13.4800 per cent in
December, 2017 and 14.5000 per cent in June 2019. The bond was issued to
finance sustainable development projects with positive impact on the environment
and the economy (Table 2.1).


Yield %
Time to Maturity
28/06/2019
31/12/2018
31/12/2019
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.3.2.2.3 FGN Sukuk
The FGN sukuk outstanding remained at N200.00 billion at end-December 2019 as
there was no new issue in the period under review. (Table 2.1).
2.3.2.2.4 Sub-National Bonds
During the review period, sub-national bonds worth N132.14 billion were
outstanding. Three states’ bonds worth N8.11 billion matured, while eleven states
redeemed N163.84 billion. There was no new issuance.
2.3.2.3 Corporate Bonds
Corporate bonds worth N474.81billion were outstanding at end-December 2019,
compared with N389.92 billion at end-June 2019. During the review period,
corporate bonds worth N5.33billion were redeemed, while the sum of N45.00 billion
was issued.
2.3.2.4 The Equities Market
The Nigeria Stock Exchange All Share Index (NSE- ASI) closed at 26,842.07 at endDecember 2019, representing a decrease of 10.42 per cent from the 29,966.87 at
end-June 2019. Market capitalization (MC) also closed lower at N12,958.38 billion,
representing a decrease of 1.87 per cent from the N13,205.54 billion at the end of
the preceding period.

Foreign portfolio investment (FPI) inflows in the second half of 2019 totalled N204.16
billion, while divestments (outflows) stood at N265.60 billion, reflecting a net FPI
outflow of N61.44 billion. In comparison, inflows in the first half of 2019 amounted to
N221.61 billion, while divestments stood at N250.18 billion, reflecting a net FPI
outflow of N28.58 billion (Table 2.3).

Overall, FPI flows accounted for 55.89 per cent of total equity transactions in the
period, compared to 43.47 per cent recorded in the preceding period. Domestic
transactions accounted for the balance of 44.11 per cent, compared with 56.53 per
cent in the preceding period (Table 2.3).
Table 2:8 Domestic and Foreign Portfolio Participation in Equities Trading


Period
Total
Foreign
%
Foreign
Domestic
%
Domestic
Foreign
Inflow
Foreign
Outflow
NSE ASI
Market
Capitalization
H2 2019
840.53

469.76

55.89

370.77

44.11

204.16

265.60

26,842.07

12,958.38

H1 2019
1,087.53

472.79

43.47

614.76

56.53

221.61

250.18

29,966.87

13,205.54

H2 2018
807.14

419.39

51.96

387.75

48.04

195.80

223.59

31,430.50

11,720.72

H1 2018
1,597.25

799.71

50.07

797.54

49.93

380.65

419.06

38,278.55

13,866.42

FINANCIAL STABILITY REPORT – DECEMBER 2019

2.3.3 Risks to Stability in the Financial Markets
✓ The financial markets remained vulnerable to risks from FPI outflows and oil
price shocks;
✓ Preference for government securities by banks threatening lending to the real
sector; and
✓ Decline in yields as a result of demand pressure from capital flow reversals.

2.4 Real Sector Interventions
The Bank continued with its intervention programmes to boost productivity in the real
sector of the economy.
2.4.1 Agricultural Policy Support
2.4.1.1 Agricultural Credit Guarantee Scheme
In the second half of 2019, a total of 16,922 loans from 93 Participating Financial
Institutions (PFIs), valued ₦2.38 billion, were guaranteed under the scheme,
compared with 11,981 loans, valued ₦1.68 billion, in the first half of 2019. This
indicated increases of 41.2 and 41.6 per cent in the number and value of loans
guaranteed respectively.
At end-December 2019, 15,212 loans, valued ₦2.10 billion, were repaid, compared
with 8,676 loans, valued at ₦1.32 billion repaid in the first half of 2019. The
performance reflected increases of 75.3 and 59.0 per cent in the number and value
of loans repaid respectively.
2.4.1.2 Commercial Agriculture Credit Scheme
The sum of ₦14.85 billion was disbursed to 9 PFIs for 12 projects in the second half
of 2019, compared with ₦4.84 billion disbursed to 5 PFIs for 6 projects in the first
half of 2019. A total of ₦13.04 billion from 19 banks for 135 projects was repaid in
the review period, compared with ₦23.91 billion from 13 banks for 139 projects in the
first half of 2019.
2.4.1.3 Anchor Borrowers’ Programme
In the review period, the sum of ₦54.32 billion was disbursed through 6 PFIs to
348,719 smallholder farmers located in 35 states for the production of rice, tomato,
cassava, cotton, maize, sorghum, soya bean and sesame. This represented
increases of 103.6 and 46.5 per cent, compared with the ₦26.67 billion disbursed to
237,967 farmers, respectively, in the first half of 2019. Furthermore, a total of
404,842 hectares of land were cultivated, compared with 259,086 hectares in the
FINANCIAL STABILITY REPORT – DECEMBER 2019

preceding period. Repayments amounted to ₦17.24 billion, compared with ₦2.89
billion in the first half of 2019.
2.4.1.4 Accelerated Agriculture Development Scheme
The Accelerated Agriculture Development Scheme (AADS) has both public and
private windows. The public window funds the provision of critical infrastructure for
smallholder farmers in designated locations, while the private window provides credit
facilities at a single-digit interest rate.
During the review period, disbursements under the scheme increased by ₦4.61
billion to ₦5.98 billion through 2 PFIs for 4 projects, compared with ₦1.37 billion
disbursed for 1 project in the first half of 2019. The projects covered poultry,
cassava, fish, maize and livestock farming.
2.4.1.5 Paddy Aggregation Scheme
The Bank approved the implementation of the second phase of the Paddy
Aggregation Scheme (PAS II) to rice millers to enable them to purchase home-grown
paddy at single digit interest rate of 5 per cent. The approved tenor for PAS II is 24
months with a bullet repayment expected at the end of the tenor.
The sum of ₦3.50 billion was released for 3 projects in the review period, compared
with ₦27.70 billion released for 12 projects in the first half of 2019.
The sum of ₦2.08 billion was repaid by 1 PFI in respect of 2 projects, leaving an
outstanding balance of ₦50.62 billion at end-December 2019.
2.4.1.6 Maize Aggregation Scheme
The Maize Aggregation Scheme is a working capital facility introduced to improve
access by feed millers, poultry farmers, silo and warehouse operators, and
confectionery companies to affordable credit for the purchase of home-grown maize.
In the second half of 2019, the sum of ₦4.3 billion was released to 2 PFIs in respect
of 3 projects under the Scheme.
2.4.1.7 National Food Security Programme
In continuation of efforts to support Government’s Strategic Grains Reserves and
promote large-scale investments in agriculture, the sum of ₦14.50 billion was
disbursed through 3 PFIs for 3 projects in the review period, compared with ₦8.90
billion disbursed through 2 PFIs for 2 projects in the first half of 2019. Repayments in
the review period amounted to ₦5.55 billion, compared with ₦2.60 billion in the first
half of 2019.
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.4.2 Small and Medium Enterprises& Industrial Policy Support
2.4.2.1 Micro, Small and Medium Enterprises Development Fund
In the second half of 2019, the sum of ₦2.00 billion was disbursed through 1 PFI for
1 state government-sponsored project, compared with ₦625.55 million for 1,103
projects in the first half of 2019. Repayments during the period stood at ₦2.11 billion,
compared with ₦3.63 billion in the preceding period.
2.4.2.2 Agribusiness/ Small and Medium Enterprises Investment Scheme
The sum of ₦10.83 billion was disbursed through 10 PFIs for 3,337 projects,
compared with ₦1.29 billion for 595 projects in the first half year of 2019. The
improvement in disbursements was due to increased awareness of the scheme
following the establishment of NIRSAL Microfinance Bank. Repayment in the review
period was ₦2.87 million, compared with ₦0.98 million in the preceding period.
2.4.3 Real Sector Policy Support
2.4.3.1 Real Sector Support Facility
Under the Programme, ₦6.70 billion was released through one PFI for one project,
compared with ₦40.00 billion for one project in the first half of 2019. Also, ₦218.36
million was repaid in the review period, compared with ₦2.90 billion in the preceding
period.
2.4.3.2 RSSF Using Differentiated Cash Reserve Ratio
In the second half of 2019, the sum of ₦82.50 billion was disbursed for 46 projects,
compared with ₦75.55 billion for 18 projects in the first half of 2019. There was no
repayment in the review period as all the loans were under moratorium.
2.4.3.3 Textile Sector Intervention Facility
The sum of ₦19.67 billion was disbursed to 10 projects through the Bank of Industry,
the managing agent, during the period under review. The increased momentum of
activities followed the signing of MOUs among uniformed parastatals, textiles
companies, cotton producers and ginners, under the Textile Revival Policy of the
Bank. Repayments in the review period stood at ₦3.11 billion, compared with
₦884.38 million in the preceding period.
2.4.3.4 CBN-BOI Industrial Facility
The facility was provided by the Bank to the BOI to enhance financing of the
industrial sector through investments in value-added projects. Cumulative financing
remained unchanged at ₦100.00 billion for 60 projects. There was no repayment as
all facilities were still under moratorium.
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.4.3.5 Federal Government of Nigeria Special Presidential Fertilizer Initiative
The Special Presidential Fertilizer Initiative was established to increase fertilizer
production by domestic blending plants aimed at improving availability and
affordability for Nigerian farmers. The sum of ₦1.75 billion was repaid while the
number of functional blending plants increased to 22 from 18.
2.4.3.6 Small and Medium Enterprises Credit Guarantee Scheme
There was no activity under the Scheme in the second half of 2019. Thus,
cumulative guarantees issued remained unchanged at ₦4.25 billion for 88 projects.
2.4.3.7 Creative Industry Financing Initiative
The Creative Industry Financing Initiative (CIFI) was introduced in collaboration with
the Bankers’ Committee in the first half of 2019 to improve access to long-term, lowinterest funds by entrepreneurs and investors in the creative industry and information
technology (IT) sub-sectors.
The initiative commenced with the disbursement of the sum of ₦410.62 million
through two PFIs for 12 projects in the second half of 2019. Analysis of the
disbursement by project type indicated that two movie production obtained ₦135.00
million; two cinema, ₦183.62 million; seven fashion-related, ₦42.00 million; and one
IT, ₦50.00 million.
2.5 Export Policy Support
2.5.1 Non-oil Export Stimulation Facility
Disbursement of ₦1.50 billion for one project was made in the second half of 2019
compared with ₦8.00 billion disbursed to two projects in the first half of 2019. The
sum of ₦2.47 billion was repaid, compared with ₦1.00 billion in the preceding period.
2.5.2 Export Development Facility
During the review period, the sum of ₦9.38 billion was disbursed through NEXIM for
28 projects across agriculture, industry and services sectors. The Facility is aimed at
deepening access to credit for export-oriented investments and enhancing foreign
exchange earnings for the economy.
2.6 Energy Policy Support
2.6.1 Power and Airline Intervention Fund
In the second half of 2019, ₦3.76 billion was released through the BOI for two power
projects, while no disbursement was made in the preceding period. One of the
disbursements was for a fresh captive project to increase capacity utilisation in a
manufacturing firm while the other was an additional funding to complete an on-grid
FINANCIAL STABILITY REPORT – DECEMBER 2019

project. The sum of ₦26.90 billion was repaid in respect of 68 projects, compared
with ₦12.72 billion in the first half of 2019.
2.6.2 Nigerian Electricity Market Stabilisation Facility
A total amount of ₦6.1 billion was disbursed through BOI to the Nigerian Electricity
Supply Industry Stabilisation Strategy Limited at end-December 2019 to refinance
eligible market participants. The sum of ₦10.25 billion was repaid in the review
period, compared with ₦9.36 billion in the first half of 2019.
2.6.3 Nigeria Bulk Electricity Trading Payment Assurance Facility
In the second half of 2019, ₦62.68 billion was disbursed to the Nigeria Bulk
Electricity Trading Plc. through BOI to ensure payment of at least 80 per cent of the
invoice amount due to power generating companies and guarantee sustainable
supply of power to the national grid. This amount was lower than the ₦248.40 billion
disbursed for the same purpose in the first half of 2019. All the facilities were still
under moratorium.
2.7 Institutional Support and Financial Inclusion
2.7.1 National Collateral Registry
During the review period, 20 financial institutions registered on the National
Collateral Registry portal. Analysis of the registered financial institutions by category
of licence, showed one commercial bank, 12 microfinance banks, one finance
company and six non-bank financial institutions. This compared favourably with 15
financial institutions that registered on the portal in the first half of 2019.
A total of 26,782 financing statements valued ₦125.23 billion, US$29.13 million and
€0.07 million were registered in favour of 44,890 borrowers, compared with 10,580
financing statements valued ₦65.75 billion and US$12.28 million in favour of 19,228
borrowers in the preceding period. In addition, a total of 32,519 searches were
conducted on the portal by financial institutions and public users.
2.7.2 Shared Agent Network Expansion Facility
This is a long-term financing facility to enable licensed Super Agents and Mobile
Money Operators to expand capacity and increase access points across the
Country, with the goal of accelerating and deepening financial inclusion. Although
there was no disbursement during the review period, utilization of previous
disbursements led to the roll-out of an additional 148,652 agents in the period,
bringing the cumulative number of agents across the country to 236,940. This
showed an attainment of 229 agents per 100,000 adults at end-December 2019
compared with 128 agents per 100,000 adults at end-June 2019.
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.7.3 Financial Inclusion
During the review period, the number of agents on-boarded through SANEF initiative
increased to 236,940 at end-December 2019, from 130,794 at end-June 2019. This
showed that the Country attained 229 agents per 100,000 Adults at end-December
2019 against the end-June 2019 figure of 128 per 100,000 adults.

Figure 2.11 Bank Verification Number Statistics (2019)


2.8 Financial Literacy
The Bank carried out the following activities in the second half of 2019 towards
enhancing consumer education and financial literacy.
2.8.1 World Savings Day 2019
The Bank, in collaboration with other financial sector regulators and supervisors, the
Bankers’ Committee and relevant stakeholders commemorated the 2019 World
Savings Day (WSD) with the theme: “Savings Give Life a Lift”. The Bank marked the
WSD mentoring students in selected public secondary schools across the six (6)
Geo-Political zones of Nigeria (Oyo, Sokoto, Bayelsa, Enugu, Niger, Gombe).
Relevant information was conveyed to over 76,296 students from 611 schools
across the country.

2.8.2 Pilot Test of Financial Education Curriculum
The Bank, in conjunction with the National Education Research Development
Council, conducted a pilot test on its Financial Education Curriculum in Katsina
State. This was done to assess students’ understanding of the subject and ensure
standardisation of teaching methodology by the financial literacy teachers prior to the
National roll-out of the Financial Education Curriculum.


JUNE 2019
DECEMBER 2019

Total registered BVN
Total Active BVN
FINANCIAL STABILITY REPORT – DECEMBER 2019

2.8.3 National Peer Group Educator Programme
In continuation of the National Peer Group Educator Programme being implemented
in collaboration with the German Development Corporation(GIZ), EFInA, Federal
Ministry of Youth & Sports and National Youth Service Corps (NYSC), the Bank
conducted a Train-the-Trainers exercise for 113 Volunteer Corps Members (VCM) in
Edo, Gombe and Jigawa States.
2.8.4 CBN Fair
The CBN Fair was held in Osogbo, Ilorin, Jos, Lafia, Kano and Dutse during the
review period in order to improve financial literacy amongst Nigerians. A total of 526
people attended the Fair in Jos, while 1,537, 488, 615, 660 and 2,391 attended in
Lafia, Dutse, Ilorin, Kano and Osogbo, respectively.

2.8.5 Financial Education Programme for Faith – Based Organisations
Under the pilot Targeted Financial Education programme for faith-based
organizations, the Bank engaged Methodist Church, Abuja Diocese and Nasrullahi-l-
Fathi Society of Nigeria (NASFAT) to train participants on financial literacy. The
purpose of the training was to coach the participants to become master trainers that
would in turn disseminate the knowledge acquired to other members and the public.


FINANCIAL STABILITY REPORT – DECEMBER 2019

REGULATORY AND SUPERVISORY ACTIVITIES
3.1 Financial Soundness Indicators
3.1.1 Asset-Based Indicators
3.1.1.1 Non-Performing Loans to Gross Loans
The quality of bank assets improved in the second half of 2019, as the ratio of nonperforming loans (NPLs) to gross loans declined to 6.10 per cent at end-December
2019, from 9.33 per cent at end-June 2019. The improvement was largely due to
efficient credit risk management by banks and regulatory actions by the Bank.

Figure 3.1 Banking Industry NPLs to Gross Loans at end-December 2019


3.1.1.2 Core Liquid Assets to Total Assets and Short-term Liabilities
The ratio of core liquid assets to total assets increased marginally by 0.51
percentage point to 22.99 per cent at end-December 2019, from 22.48 per cent
recorded in the first half of 2019. Furthermore, the ratio of core liquid assets to shortterm liabilities improved by 0.21 percentage point to 35.32 per cent in the review
period, compared with 35.11 per cent at end-June 2019. The marginal improvements
were attributed to banks’ increased investment in risk-free government securities.
11.67
9.33
6.1

End Dec.2018
End Jun. 2019
End Dec.2019
NPL Ratio
NPL Ratio
FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 3.2 Banking Industry Liquidity Indicators

3.1.2 Capital-Based Indicators
The ratio of regulatory capital to risk weighted assets decreased by 0.70 percentage
point to 14.57 per cent at end-December 2019, compared with 15.27 per cent at endJune 2019. Also, the ratio of Tier 1 capital to risk weighted assets decreased by 0.79
percentage point to 12.76 per cent at end-December 2019, from 13.55 per cent at
end-June 2019. The decreases reflected impairments from the IFRS 9 Transitional
Adjustments.
Figure 3.3 Banking Industry Capital Adequacy Indicators


The ratio of non-performing loans net of provision to capital for the industry declined
further to negative 11.10 per cent at end-December 2019, from negative 3.90 per
cent at end-June 2019. This was due to the loan loss provisioning under IFRS 9.

End Jun. 2018
End Dec. 2018
End Jun. 2019
P
e
r
c
e
n
t
a
g
e
s
Liquid assets (core) to total assets*
Liquid assets (core) to short-term liabilities*

End Dec. 2018
End Jun. 2019
End Dec. 2019
Percentages
Regulatory capital to risk-weighted assets*
Regulatory Tier 1 capital to risk-weighted assets*
FINANCIAL STABILITY REPORT – DECEMBER 2019

However, the Return on Assets (ROA) improved slightly by 0.05 percentage point to
2.53 per cent at end-December 2019, from 2.48 per cent recorded at end-June 2019.
3.1.3 Income and Expense Based Indicators
The ratio of interest margin to gross income decreased to 61.66 per cent during the
review period, from 63.25 per cent at end-June 2019. However, the ratio of noninterest expenses to gross income increased to 64.00 per cent at end-December
2019, from 62.65 per cent recorded in the preceding half. The ratio of personnel
expenses to non-interest expenses increased to 34.61 per cent at end-December
2019, from 32.76 per cent at end-June 2019.
Table 3:1 Selected Financial Soundness Indicators of the Nigerian Banking
Industry


*FSIs are computed based on IMF guidelines.
**The indicators for the period end-June 2018 are revised

3.2 The Banking Industry Stress Tests
3.2.1 Solvency Stress Test
3.2.1.1 Baseline Position
The baseline CAR and NPL ratios in the period under review were 14.54 and 6.03
per cent respectively, while ROA and ROE stood at 0.28 and 3.70 per cent
respectively, at end-December 2019.
End Jun
End Dec
End Jun
End Dec
End Jun
End Dec
Nonperforming loans to total gross loans *

Liquid assets (core) to total assets*

Liquid assets (core) to short-term liabilities*

Regulatory capital to risk-weighted assets*

Regulatory Tier 1 capital to risk-weighted
assets*

Nonperforming loans net of provisions to
capital *

Return on assets*

Interest margin to gross income*

Noninterest expenses to gross income*

Personnel expenses to noninterest expenses

3. Income and Expense Based Indicators
1. Assets Based Indicators
Indicators

2018**

2. Capital Based Indicators
FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 3:2 Banking Industry Baseline Selected Key Indicators

CAR
LR
NPLs
ROA
ROE
Dec 2019 (%)

Jun 2019 (%)

Percentage Points
Change


Figure 3.4 Banking Industry CAR (per cent)


3.2.1.2 Credit Risk
The stress test revealed that the banking industry could withstand a shock of “up to
100 per cent increase” in the industry NPLs, as the CAR remained above 10 per
cent. However, the industry was vulnerable to shocks “above 100 per cent increase”
in NPLs as the industry CAR would fall below 10 per cent.

Table 3:3 Credit Default Shocks


Jun ' 16
Dec ' 16
Jun ' 17
Dec '17
Jun ' 18
Dec '18
Jun' 19
Dec' 19
Per cent
Banking Industry CAR
Single Factor
Shocks
December 2019
June 2019
Baseline CAR
14.54
15.27
10% NPLs increase 14.11
14.82
15% NPLs increase 13.89
14.60
20% NPLs increase 13.68
14.37
30% NPLs increase 13.24
13.92
50% NPLs increase 12.35
13.01
100% NPLs
increase
10.05
9.96
FINANCIAL STABILITY REPORT – DECEMBER 2019

Similarly, the credit concentration stress test showed resilience of the banking
industry as CAR remained above the 10 per cent regulatory threshold under
scenarios 1, 2 and 3 in Table 3.4.

Table 3:4 Credit Concentration Risk

Figure 3.5 Credit Concentration Risk


3.2.1.3 Sectoral Credit Concentration Risk
A breakdown of banking industry total credit by sector at end-December 2019
showed that the oil and gas sector accounted for 22.60 per cent; manufacturing,
19.34 per cent; government, 15.14 per cent; general, 5.30 per cent; general
commerce, 10.40 per cent; finance and insurance, 2.80 per cent; and others, 24.42
per cent.

7 Performing Loans

Baseline
Scenario 1: Five largest
corporate credit facilities
shifted from Sub-standard to
Doubtful (10%)
Scenario 2: Five largest
corporate credit facilities
shifted from Doubtful to Lost
(50%)
Scenario 3: Five largest
corporate credit facilities
shifted from Doubtful to Lost
(100%)

Dec 2019
Jun 2019
Baseline CAR
14.54
15.27
Single Factor Credit Concentration Shocks
Scenario 1
Five largest corporate credit facilities shifted from pass-through7to
sub-standard (10%)
13.99
14.71
Scenario 2
Five largest corporate credit facilities shifted from sub-standard to
doubtful (50%)
13.15
13.87
Scenario 3
Five largest corporate credit facilities shifted from doubtful to lost
(100%)
11.71
12.44
FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 3.6 Sectoral Concentration of Credit


The results of the stress test showed that the banking industry withstood up to 50 per
cent shock to oil and gas exposures as the post-shock CAR stood at 10.64 per cent.

Table 3:5 Stress Test on Oil and Gas Exposures

Industry CAR (%)
Baseline CAR
14.54
30% Default on total exposure to Oil and Gas
13.84
50% Default on total exposure to Oil and Gas
10.64

3.2.1.4 Interest Rate Risk

The stress test on the net position of interest-sensitive instruments showed that the
industry maintained a stable solvency position to interest rate shock of “up to 1000
basis points downward shift in yield curve” as the post-shock CAR declined from
14.54 to 12.66 per cent. However, the interest rate shocks had significant adverse
impact on the ROA and ROE.

Oil and Gas
Manufacturing
Government
General
Gen Comm
Finance and Insurance
Others
FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 3.7 Impact of Interest Rate Shocks on CAR


Figure 3.8 Impact of Interest Rate Shocks on ROA and ROE


14.54
13.60
12.66
Baseline CAR
500 bps downward shift in yield
curve
1000 bps downward shift in yield
curve

Baseline
500 bps downward shift in yield curve
1000 bps downward shift in yield
curve
ROA
ROE
FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 3:6 Impact of Selected Shocks on CAR, ROA and ROE

Banking
Industry
(%)
Baseline ROA
0.28
Baseline ROE
3.70
Impact of Downward Shift in Yield Curve Shocks on CAR

500 bps downward shift in yield curve
13.60
1000 bps downward shift in yield curve
12.66
Impact of Downward Shift in Yield Curve Shocks on ROA

500 bps downward shift in yield curve
-0.27
1000 bps downward shift in yield curve
-0.82
Impact of Downward Shift in Yield Curve Shocks on ROE

500 bps downward shift in yield curve
-3.67
1000 bps downward shift in yield curve
-11.04

3.2.2 Liquidity Stress Test8
The stress test revealed that after a one-day run scenario, the liquidity ratio for the
industry declined to 31.14 per cent from the 45.55 per cent baseline position.
Similarly, under the 5-day and 30-day scenarios, the liquidity ratio declined to 12.30
and 7.55 per cent, indicating N2.58 trillion and N3.12 trillion liquidity shortfalls
respectively.


8 Liquidity stress tests were conducted at end-Dec 2019 using the Implied Cash Flow Analysis (ICFA) and Maturity
Mismatch/Rollover Risk approaches to assess the resilience of individual banks and the banking industry to liquidity and
funding shocks.
FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 3.9 Industry Liquidity Ratios at Periods 1-5 and cumulative 30-day
Shocks


Table 3:7 Liquidity Stress Test Results (Post-Shock)
Scenario
Banks with
Liquidity Ratios (LR) < 30%
Dec 2019
June 2019
(25 DMBs)
Dec 2019
(26 DMBs)
LR (%)
Shortfall to 30% LR
threshold
(N’ billion)
Test 1.1: Implied Cash Flow Test
Test 1.1: Implied Cash
Flow Test
Day 1

31.14
Nil
Day 2

26.80
564.75
Day 3

22.33
1,264.77
Day 4

17.63
1,920.62
Day 5

12.30
2,584.95
Implied Cash Flow
Test (30 Days)

7.55
3,121.38

3.2.3 Assets and Liabilities Maturity Mismatch

The industry baseline assets and liabilities maturity profile at end-December 2019
revealed that the shorter end of the market (≤90 day bucket) were adequately
funded. Further analysis showed that in the ≤30 day bucket, six banks were not
adequately funded, while in the 31-90 day bucket, eight banks had funding gaps.
However, the cumulative industry assets and liabilities profile showed an excess of
N4.25 trillion assets over liabilities.


Pre-Shock
After Day 1
After Day 2
After Day 3
After Day 4
After Day 5
After cum 30 days
Jun-18
Dec-18
Jun-19
Dec-19
FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 3:8 Maturity Profile of Assets and Liabilities at end-Dec 2019
Bucket
Liabilities
Assets
Mismatch
Cumulative
Mismatch
N Billion
≤30days

31-90 days

91-180 days

181-365 days

1-3 years

>3 years

Total
27,387.17
31,636.06
(4,248.89)


Table 3:9 Test Results for System-wide Maturity Mismatch

Test 2A
Descriptive Maturity
Mismatch.
(No consideration of
rollover)
Test 2B
Static Rollover risk
Analysis.
(No possibility to close
liquidity gaps in other
buckets)
Test 2C
Dynamic Rollover risk test.
(Free assets used to close
liquidity gaps in other
buckets)

N ‘billion
No of
banks
with
mismatch
N ’billion
No of
banks
with
mismatch
N ’billion
No of banks
with
mismatch

≤30 days
9,795.79

5,949.86

(1,171.36)

31-90 days
3,495.46

(623.74)

(403.73)

91-180days
2,354.47

(1,099.77)

(242.11)

181-365days
152.93

(3,329.18)

(1,005.43)

1-3 Years
922.31

(2,659.37)

(1,212.86)

Above 3
years
(1,563.95)

(4,801.58)

(4,098.45)

Total
15,157.00
(6,563.78)
(8,133.93)

Table 3.9 revealed that under Test 2A (Descriptive Maturity Mismatch) the banking
industry was adequately funded, while under Test 2B (Static Rollover Risk Analysis)
and 2C (Dynamic Rollover Risk Analysis) the industry had mismatches of N6.56
FINANCIAL STABILITY REPORT – DECEMBER 2019

trillion and N8.13 trillion respectively. These represented increases of N0.4 trillion
and N0.9 trillion under the Test 2B and Test 2C respectively, relative to end-June
2019.
3.2.4 Contagion Risk Analysis

Contagion risk analysis showed a 16.00 per cent decrease in exposure and
interconnectedness through interbank placements and takings at end-December
2019, compared with the end-June 2019 position. Two banks were central in the
network as they were exposed to five counterparties.
Six banks accounted for N463 billion or 90.00 per cent of total placements and N466
billion or 91.00 per cent of total takings, of which N409 billion or 88.00 per cent was
provided by the top four placers of funds.
Figure 3.10 Network Analysis based on Interbank Exposures


FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 3.11 Tiered Structure of Unsecured Placements and Takings


3.2.4.1 Unsecured Placements
The results of simulated conditional counterparty default shock from unsecured
interbank loans indicated that all banks maintained CAR above 10 per cent.

Table 3:10 Result of Net Interbank Unsecured Exposures on Capital Adequacy
Ratio

Lending Banks
Bank 5
Bank 10
Bank 24
Bank 14
Industry
Pre-Test CAR(%)

Post-Test CAR(%)

Placements (N’
Billion)


Node colour representation
Blue
= Lenders,
Deep Blue= Net Placement
Red
= Borrowers
Purple= Net Takings
FINANCIAL STABILITY REPORT – DECEMBER 2019

Box 2: Liquidity Stress Test Assumptions
Implied Cash Flow Analysis
The Implied Cash Flow Analysis (ICFA) assessed the ability of the banking system to
withstand unanticipated substantial withdrawals of deposits, short-term wholesale and longterm funding over 5 days and cumulative 30 days, with specific assumptions on fire sale of
assets. The test assumed gradual average outflows of 3.8, 5.0 and 1.5 per cent of total
deposits, short-term funding and long-term funding respectively, over a 5-day period and a
cumulative average outflow of 22.0, 11.0 and 1.5 per cent of total deposits, short-term
funding and long-term funding respectively, on a 30-day balance. It also assumed that the
assets in Table 3.10 would remain unencumbered after a fire sale.

The Maturity Mismatch/Rollover Risk
This approach assessed funding maturity mismatch and rollover risk for assets and
liabilities in the 1-30 and 31-90 day buckets, with assumptions of availability of funding from
the CBN and intra-group as described below:

i. Test 2a: Descriptive Maturity Mismatch assumed that the baseline mismatch remained,
but 5 per cent of total deposits would be made available from the CBN and the intra-group;

ii. Test 2b: Static Rollover Risk assumed that 80.0 and 72.0 per cent of the funding in the
1-30 and 31-90 day buckets would be rolled over, with no possibility to close the funding
gap from other buckets. However, 5 per cent of the total deposits would still be available
from the CBN and the intra-group; and

iii. Test 2c: Dynamic Rollover Risk made the same assumption as in 2b above, but with
the option of closing the liquidity gap from other buckets.

Table 3. 1: Percentage of Assets Unencumbered after Fire Sales
Item
No
Assets
%
Unencumbered
1.
Cash and cash equivalents

2.
Current account with CBN

3.
Government bonds, treasury bills and other assets
with 0% risk-weighting
66.5
4.
Certificates of deposit held
66.5
5.
Other short-term investments

6.
Collateralized placements and money at call

7.
CRR

FINANCIAL STABILITY REPORT – DECEMBER 2019

3.3 Supervision of Banks
3.3.1 Bank Examination
The Joint CBN/NDIC Risk Assets Examination of banks was conducted to determine
the quality of bank assets and the adequacy of loan-loss provisioning. The
examination of 15 banks and the three financial holding companies as at June 30,
2019 was conducted between July and August 2019, being the first tranche for the
year. Similarly, the risk-based examination of 11 banks for the period ended
September 30, 2019 was conducted between October and November 2019. The
examination revealed that the banking industry remained resilient to emerging risks
and vulnerabilities.
The risk-based examination of the specialised financial institutions, three credit
bureaux and AMCON, was also conducted during the period under review.
Furthermore, the Bank, in collaboration with the host supervisors, conducted the
routine examination of the foreign subsidiaries of some Nigerian banks.
The Bank conducted AML/CFT risk-based examination to ensure that previous
recommendations were implemented and penalties imposed based on the
Administrative Sanction Regulations 2018.
3.3.2 Enhanced Supervision of Domestic Systemically Important Banks

The Domestic Systemically Important Banks (D-SIBs), in line with extant regulations,
were subjected to an enhanced supervisory regime.

At end-December 2019, the D-SIBs accounted for 62.47 per cent (N25.19 trillion) of
the industry total assets of N40.33 trillion. Similarly, they accounted for 65.92 per
cent (N15.87 trillion) of total industry deposits of N24.07 trillion and 64.26 per cent
(N11.29 trillion) of the aggregate industry credits of N17.57 trillion.
The D-SIBs were largely compliant with capital adequacy and liquidity ratio
requirements during the period under review. These stood at 17.93 and 40.37 per
cent respectively, compared with 19.98 per cent and 49 per cent at end June 2019.
In terms of asset quality, the non-performing loans ratio of D-SIBs improved to 5.19
per cent at end-December 2019 from 6.12 at end-June 2019, which was better than
industry non-performing loans ratio of 6.03 per cent.
3.3.3 Recovery and Resolution Planning
As part of the enhanced supervision of D-SIBs, an onsite validation of their Recovery
and Resolution Plans (RRP) was conducted in the second half of 2019.

The key findings from the exercise included:
1. lack of evidence of robust discussion around the development of the RRP at
board level;
FINANCIAL STABILITY REPORT – DECEMBER 2019

2. absence of robust assessment of the criticality of identified functions/services for
the financial system; and
3. failure to properly integrate the RRP into the enterprise risk management
framework of some banks.
Appropriate recommendations were made to the affected banks for remediation.

3.3.4 Foreign Exchange Examination

The routine onsite review of the foreign exchange operations of 27 Authorized
Dealers (ADs), consisting of 23 commercial banks and four merchant banks, was
conducted during the year. This was to assess compliance with extant foreign
exchange rules and regulations and review the utilization of foreign exchange
acquired for eligible transactions.
3.3.5 Risk-Based Cyber-Security Assessment
Banks were required to conduct self-assessment in line with the Cybersecurity
Framework and Guidelines to assess their level of compliance. The reports on the
maiden self-assessment revealed vulnerabilities and risks emanating from direct
connections and exposures to third-party service providers, phishing, insider threats
and shortage of cybersecurity man-power.
Meanwhile, the Bank established an e-portal for reporting cyber incidents and
threats, with a view to promoting information sharing and preventing cyber-attacks.
Furthermore, the Bank sustained cybersecurity collaboration with banks and
Payment Service Providers (PSPs) through workshops and periodic meetings with
their Chief Information Security Officers (CISOs).
The report of the cybersecurity spot-check conducted by the Bank during the period
revealed that banks had:
(i)
strong Board of Directors and Senior Management commitment to managing
cyber risks;
(ii)
qualified CISOs with responsibility for managing cyber risks; and
(iii)
enhanced their cybersecurity awareness programmes and incident response
plans, among others.
3.3.6 Developments in Non-Interest Banking
TAJ Bank Limited commenced operations as a Non-Interest Bank (NIB) with regional
authorization with two (2) branches in Abuja and Kano. Also, SunTrust Bank Limited
was granted approval to operate an NIB window.
FINANCIAL STABILITY REPORT – DECEMBER 2019

3.3.6.1 Islamic Financial Services Board Standard Implementation
The Islamic Financial Services Board (IFSB) Standards 4, 15 and 16 on Disclosure
Requirements, Capital Adequacy Computation and Supervisory Review Process,
respectively, were adopted for the non-interest banking segment, effective January
1, 2020. The standards for Non-Interest Financial Institutions (NIFIs) are the
equivalent of the Basel II & III standards for conventional banks.
3.3.7 Asset Management Corporation of Nigeria
The carrying value of AMCON’s liabilities stood at N5.71 trillion at end-December
2019, with AMCON Notes of N4.028 trillion and Loan (Debenture) of N500 billion
accounting for 80 per cent of the liabilities. The carrying value of assets, net of
impairment, increased to N950.16 billion at end-December 2019, from N827.59
billion at end-June 2019.
The Corporation made cash recoveries of N28.55 billion in 2019 from asset sales
and repayment of facilities. The total recoveries from inception to end-December
2019 amounted to N1.032 trillion, consisting of: cash N395.95 billion; asset forfeiture
N271.77 billion; shares forfeiture N134.98 billion; and clawback/repurchases
N229.08 billion on defective eligible bank assets. Contributions to the Banking Sector
Resolution Cost Fund by the CBN and the participating banks for the year 2019
amounted to N240.11 billion.
During the review period, the National Assembly carried out a second amendment to
the AMCON Act 2010 to ascribe additional functions to AMCON, strengthen its
powers to execute its mandate in obtaining value from assets acquired and increase
the size of its Board. The AMCON Amendment Act 2019 was signed into law by the
President on July 29, 2019.
3.3.8 Cross Border Supervision of Nigerian Banks
3.3.8.1 Foreign Subsidiaries of Nigerian Banks
The number of offshore subsidiaries of Nigerian banks at end-December 2019 was
60, compared with 58 at end-June 2019, following the establishment of subsidiaries
in Guinea and Kenya during the review period.
The number of representative offices reduced to five in the second quarter of 2019,
compared to six at end-June 2019. The number of affiliates and international
branches remained at one and two respectively, thus bringing the total number of
offshore entities to 68.
3.3.8.2 Onsite Examination of Offshore Subsidiaries of Banks
The examination of four subsidiaries was conducted in collaboration with the host
supervisors in Guinea, Sierra Leone, New York and the United Kingdom in 2019.The
examination revealed that two subsidiaries had composite risk rating of ‘High’, while
FINANCIAL STABILITY REPORT – DECEMBER 2019

two had “Moderate” risk rating. The subsidiaries were directed to take appropriate
remedial actions to address the concerns.
The Framework on Cross Border Supervision was reviewed to incorporate the
provisions of the Revised Basel Core Principles for Effective Banking Supervision
and complement other regulations governing the operations of banks in Nigeria.
Also, Guidelines for the Assessment of Country Risk were developed.
3.3.8.3 Developments in College of Supervisors
The Bank hosted the College of Supervisors for FBN and UBA groups to discuss
issues relating to the improvement of risk management practices within the groups.
The Bank also participated in the 5th Ecobank Transnational Incorporated (ETI)
College of Supervisors meeting in Cote d’Ivoire, First Rand Limited College of
Supervisors meeting in Pretoria, South Africa and Stanbic IBTC College of
Supervisors meeting in Pretoria, South Africa. During the meetings, the Bank signed
a Memorandum of Understanding (MoU) with the home regulators.
Guidelines for the establishment and operations of College of Supervisors were
developed for Nigeria in line with the principles and recommendations for effective
supervisory colleges issued by the Basel Committee on Banking Supervision
(BCBS).
3.3.8.4 Supervisory Collaborations
3.3.8.4.1 Community of African Banking Supervisors
During the review period, the Bank’s mandate in the Community of African Banking
Supervisors (CABS) Working Group (WG) on Crisis Management and Banking
Resolution was expanded to include Fintech. Consequently, the Bank developed a
three-year work plan for the WG on assessing the developments in Fintech, building
capacity on crisis resolution preparedness and supervision.

In collaboration with the Association of African Central Banks (AACB) Secretariat,
the Bank administered questionnaires to all forty-one member countries of the
AACB. The aim was to assess the adequacy of legal frameworks of member
countries and compliance with the requirements of Financial Stability Board Key
Attributes for Effective Resolution Regimes.
3.3.8.4.2 Technical Assistance
The Bank hosted two teams of examiners from the Bank of Uganda on AML and
market risk study tours in line with the Bank’s initiative to enhance the capacity of
bank supervisors in Africa. In addition, it serves as a forum to provide technical
assistance to other supervisors.
3.3.8.4.3 College of Supervisors of the West African Monetary Zone
The Bank attended the 32nd, 33rd, 34th and 35th meetings of the College of
Supervisors of the West African Monetary Zone (CSWAMZ) to review developments
FINANCIAL STABILITY REPORT – DECEMBER 2019

in the banking systems across the Zone. The College also discussed issues on the
implementation of the IFRS, Basel Accord, Integrated Regulatory Solution (IRS) and
other relevant matters concerning financial system stability in the sub-region.
3.3.8.4.4 Financial Stability Board Regional Consultative Group for SubSaharan Africa
The Bank attended the meeting of the Financial Stability Board Regional
Consultative Group for Sub-Saharan Africa in Cape Town, South Africa to discuss
issues on financial vulnerabilities, FSB work plan, Cyber Risk and Financial
Conglomerate Supervision.
3.3.8.4.5 Capacity building in collaboration with AFRITAC West II
The Bank, in conjunction with the International Monetary Fund and AFRITAC West
II, organised two workshops on Basel Core Principles Self-Assessment Methodology
and Cross Border Supervision during the review period. Participants at the workshop
were drawn from the West African Monetary Institute (WAMI) and member states of
the WAMZ.
3.3.9 Credit Risk Management System
The Bank continued the offsite Credit Risk Management System (CRMS)
compliance status checks in line with the requirements of the “Regulatory Guidelines
for the Operation of the Redesigned Credit Risk Management System for
Commercial, Merchant and Non-Interest Banks”. The Bank also continued the
phased deployment of the redesigned CRMS to OFIs. During the review period, the
NDIC and AMCON were granted access to manage records of banks-in-liquidation
and transferred eligible bank assets respectively.
At end- December 2019, the total number of credit facilities reported/created on the
database stood at 10,694,298, reflecting a 61.41per cent increase over the end-June
2019 position of 6,625,415. The number comprised 10,083,010 individual and
611,288 corporates borrowers. The total number of facilities with outstanding
balances on the database stood at 2,534,836 at end-December 2019, compared with
1,866,468 at end-June 2019, representing a 58.42per cent increase. This number
was made up of 2,448,230 individuals and 86,606 corporates.


FINANCIAL STABILITY REPORT – DECEMBER 2019

Table 3:11 Borrowers from the Banking Sector**
Description


June 2019
December

Absolute
Change:
Increase/
(decrease)
% Change
* Total No. of Credit/facilities
reported on the CRMS:

Individuals

Corporates

* Total No. of Outstanding Credit
facilities on the CRMS:

Individuals

Corporates

* The figures include borrower(s) with multiple loans and/or credit lines.
** Commercial, Merchant and Non-Interest Banks only
3.3.10 CREDIT BUREAUX
The number of Credit Bureaux remained unchanged at end-December 2019. The
CBN, in conjunction with the International Finance Corporation and other industry
stakeholders, commenced the process of reviewing the Credit Reporting Act 2017, to
incorporate, among others, a section on the responsibilities of credit information
providers.

Table 3:12 Credit Records of Private Credit Bureaux at end-December, 2019
S/N

Credit Bureau 1
Credit Bureau 2
Credit Bureau 3

Number
of
credit
records
34,335,089
29,013,592
28,990,813

Number
of
subscribers
1,340

1,096

Value
of
Credit
Facilities
N22.356 trillion
N28.589 trillion
N19.622 trillion

Number of borrowers
17,850,915
62,125,898
16,432,102


Table 3:13 Credit Records of Private Credit Bureaux at end-June 2019
S/N

CRC Credit
Bureau
Credit Registry
First Central
Credit Bureau

Number of credit records
34,005,061
27,010,552
27,400 ,810

Number of subscribers
1,310

1,042

Value of Credit Facilities
N20.2400 trillion
N24.554 trillion
N17.112 trillion

Number of borrowers
16,850,300
51,300,844
15,926,300

FINANCIAL STABILITY REPORT – DECEMBER 2019

3.3.11 Other Developments in the Financial System
3.3.11.1
Automation of AML/CFT Processes
Towards the automation of AML/CFT reporting, banks were directed to render
returns on foreign currency transactions, politically exposed persons and three-tiered
KYC via the AML/CFT Data Rendition, Analysis and Processing Software (ADRAPS)
solution with effect from January 2, 2020.
3.3.11.2
Mutual Evaluation Exercise by the Inter-Governmental Action
Group Against Money Laundering in West Africa
In compliance with the Financial Action Task Force (FATF) requirements, the
Intergovernmental Action Group against Money Laundering in West Africa (GIABA)
conducted the second round of Mutual Evaluation Exercise (MEE) for Nigeria in the
second half of the year. The evaluation assessed the technical compliance and the
effectiveness of the AML/CFT regimes of the Bank and the financial institutions
under its purview, using accepted international standards, particularly the FATF 40
Recommendations.
3.3.11.3
AML/CFT Cross Border Examination
The AML/CFT cross-border examination of the subsidiaries of Nigerian banks in
Kenya, Mozambique, Rwanda, Mali and Ghana was conducted to assess
compliance with the Bank’s AML/CFT Regulations, 2013, vis-a-vis the host countries’
AML/CFT laws and regulations.
3.3.11.4
Update On IFRS 9 Implementation
The Bank continued with the monitoring of the implementation of IFRS 9 Standard
on Financial Instruments during the review period. The joint CBN/NDIC IFRS 9
Implementation Project Team continued to pilot the process to ensure seamless and
minimal disruption to financial system stability. In addition, the second IFRS 9-related
Risk Asset Examination and Assessment (RAEA) was conducted for all banks.
3.3.11.5
Update on IFRS 16
The Bank continued to monitor financial institutions compliance with the
requirements of IFRS 16 (Leases) which became effective from January 1, 2019.
3.3.11.5.1
Update On Basel II/III Implementation
The following draft guidelines on Basel III standards were exposed to the industry
and other stakeholders:
• Liquidity Coverage Ratio;
• Liquidity Monitoring Tools;
• Liquidity Risk Management and Internal Liquidity Adequacy Assessment
Process (ILAAP);
• Leverage Ratio (LeR) Requirements;
FINANCIAL STABILITY REPORT – DECEMBER 2019

• Large Exposures;
• Regulatory Capital; and
• Revised Guidelines on Supervisory Review Process of Internal Capital
Adequacy Assessment Process (ICAAP).
3.3.11.6
Corporate Governance Scorecard
During the review period, 20 banks were assessed using the Corporate Governance
Scorecard to ascertain their level of compliance with the CBN Code of Corporate
Governance for Banks and Discount Houses. The exercise was to ensure that sound
corporate governance practices are entrenched in the banking industry.
Recommendations from the scorecard assessments were communicated to the
respective institutions towards improving their levels of compliance.
3.3.12 Complaints Management and Resolution

The Bank received 1,604 complaints from consumers of financial services in the
period under review, reflecting an increase of 76 complaints, compared with 1,528
received in the first half of 2019. The complaints received were in respect of alleged
excess/unauthorized charges, fraud, guarantees, account management, ATM
dispense errors, fund transfers, among others.
Figure 3.12 Number of Complaints Received (Jan -Dec 2019)


A total of 1,236 complaints were resolved / closed during the second half of 2019,
compared with 1,548 resolved / closed cases in the first half of 2019. Consequently,
the total refunds by banks to customers at end-December 2019 stood at
N1,424,854,363, compared with N7,229,172,501 at end-June 2019.

JAN
FEB
MAR
APRIL
MAY
JUNE
JULY
AUG
SEPT
OCT
NOV
DEC

FINANCIAL STABILITY REPORT – DECEMBER 2019

Figure 3.13 Distribution of Complaints Received (in Percentages) in 2019


3.3.12.1
Consumer Protection Compliance Examination
The Bank conducted compliance examination on some banks in line with the
provisions of the Guide to Charges by Banks and Other Financial Institutions in
Nigeria, 2017.The exercise covered the following areas:
1.
Charges for Issuance of Hardware Token;
2.
Commission/Charges on Deposits into Domiciliary Accounts;
3.
Payment of Interest on Savings Accounts;
4.
Foreign Currency Card Maintenance fee;
5.
Interest on CBN Intervention Loans; and
6.
Implementation of the new Consumer Complaints Management System.

The examination showed compliance levels of 90.91 percent for charges for
issuance of hardware token, 100.0 per cent for commission/charges on deposits into
domiciliary accounts, 72.73 per cent for payment of interest on savings accounts,
90.91 per cent for foreign currency card maintenance fee and 100.0 per cent for
Interest on CBN intervention loans.
A review of the implementation of recommendations from previous examinations
revealed a compliance level of 81.82 per cent, while resolution of outstanding
complaints was 23.87 per cent.
3.3.12.2
The Consumer Protection Regulation 2019
The Bank issued the Consumer Protection Regulations for financial institutions
regulated by the CBN in December 2019.The Regulations provide minimum


FINANCIAL STABILITY REPORT – DECEMBER 2019

standards on fair treatment of consumers, disclosure and transparency, responsible
business conduct, complaints handling and redress, and sanctions regime.

THE PAYMENTS SYSTEM
4.1 Developments in the Payments System
4.1.1 Bank Verification Number Operations and Watch-list
Bank Verification Number remains a credible unique identifier that assists financial
institutions, credit bureaux and law enforcement agencies in reducing frauds and
other financial crimes in the financial system. At end–December 2019, the number of
BVNs stood at 40,442,267, reflecting an increase of 5.68 per cent over the
38,268,639 recorded at end-June, 2019. The number of accounts linked with BVN
was 53,351,720 out of 79,312,615 active customer accounts, while 2,189 customers’
BVNs were watch-listed at end-December, 2019.

[[
4.1.2 Examination of Payments Service Providers
The Bank sustained its oversight of licensed Payments Service Providers (PSPs)
and assessed their compliance with relevant regulations during the review period.
The on-site examination of 22 PSPs revealed some infractions of extant guidelines
and erring institutions were appropriately sanctioned.
4.1.3 Licensing of Payments Service Providers
During the review period, 14 Payments Service Providers (PSPs) were licensed,
comprising one mobile money operator, seven payment solution service providers,
two switching companies and four super agents, bringing the number of PSPs to 110
at end-December 2019.

Table 4:1 Licensed Payments ServiceProviders
Licence Type
Number
Jun 2019
Dec 2019
Card Schemes

Mobile Money Operators

Payment Solution Service Providers

Payment Terminal Service Providers

Switching Companies

Third-Party Processors

Super Agents

Non-Bank Acquirers

Accredited Cheque Printers

Total

4.1.4 Nigeria Cheque Standards and Cheque Printers Accreditation Scheme
During the review period, the following activities were conducted:
• Accreditation of cheque personalizers based on the revised Nigeria Cheque
Standards;
FINANCIAL STABILITY REPORT – DECEMBER 2019

• Sensitisation of stakeholders;
• Development of draft QR code standards; and
• Issuance of the cheque standards sanctions grid.

The old and new cheques would be in use concurrently till end-August 2020.
Thereafter, only cheques that conform with the new standards would be allowed in
the clearing system.

4.1.5 Cash-less Nigeria
During the review period, the Bank re-introduced processing charges on cash
deposits in six States and the FCT. In addition, the cash-less policy on deposits and
withdrawals above the specified thresholds was to be extended to other states on
March 31, 2020.

4.1.6 Payments System Vision 2020
The review of the Payments System Vision 2020 (PSV2020) document to
incorporate QR codes, contactless payments, request to pay, cybersecurity, open
banking, big data, distributed ledger technology, amongst others, commenced in the
second half of 2019. In addition, the Bank, through the Payments Scheme Boards,
Special Interest Working Groups and Initiative Working Groups, issued the following
Circulars:

a. Regulation for the Operation of Indirect Participants in the Payments System.
b. Circular on “Pre-Authorisation of Cards in Nigeria” to enable dual messaging
format for POS and sales completion of cards transactions.
c. Regulation on “Electronic Payments and Collections of Public and Private
Sectors in Nigeria” to guide the end-to-end electronic payment of salaries,
pensions and other remittances, suppliers and revenue collections in Nigeria.
d. Regulation on “Liberalisation of Cash Out Pricing” to remove ceilings on
mobile money pricing in Nigeria.
e. Circular on “Operation of Mobile Money Wallets by Deposit Money Banks”
exempting banks from seeking the licence to operate mobile money wallets.
4.2 Payments System Statistics and Trends
4.2.1 Large Value Payments
The volume of inter-bank fund transfers through the CBN Real Time Gross
Settlement (RTGS) system decreased by 29,508, or 5.36 per cent to 520,735 at endDecember 2019 from 550,243 at end-June 2019 owing to the increased usage of
other payment channels. However, the value of transactions increased by N6,613.62
billion or 2.92 per cent to N232,889.46 billion at end-December 2019, from
N226,275.85 billion at end-June 2019.
FINANCIAL STABILITY REPORT – DECEMBER 2019

4.2.2 Retail Payments
4.2.2.1 Cheque Clearing
The volume of cheques cleared decreased to 3,858,700 at end-December 2019,
from 3,953,848at end-June 2019, indicating a decline of 2.41 per cent, while the
value cleared decreased by 2.65 per cent to N2,210.75 billion at end-December
2019, from N2,270.92 billion at end-June 2019.
4.2.2.2 Electronic Transactions
The volume of electronic transactions rose by 377,666,775 or 28.78 per cent to
1,689,770,459 at end-December 2019, from 1,312,103,684 at end-June 2019,
reflecting increased usage of electronic channels. Also, the value increased by
N11,249.88 billion or 14.45 per cent to N89,129.05 billion at end-December 2019,
from N77,879.17 billion at end-June 2019.

4.2.2.2.1 Mobile Money Transactions
The volume and value of mobile money transactions increased by 160.08 per cent
and 58.48 per cent or 272.49 million and N3,115.22 billion respectively, over the
levels of 104.77 million and N1,965.74 billion recorded at end-June 2019. The
increases were attributed to the positive impact of agent expansion network,
entrance of new players and improved confidence in the efficiency of the system.


Table 4:2 Electronic Transactions
Payment
Channel
Number of Terminals
Number of Transactions
% Change
(Volume)
Value N’ Billion
%
Change
(Value)
Jun
Dec
Jun-2019
Dec-2019
Jun-2019
Dec-2019

ATMs

POS

Mobile
Money

Internet
(Web)

NIP


e-Bills Pay


REMITA


NAPS


Total


4.3 Risks to the Payments System
Generally, the Nigerian payments system remained resilient. However, the underlisted risks existed:

• Threat of cyber-attacks on the payments system infrastructure, especially with
the increase in technological innovations and digitization of financial services.
FINANCIAL STABILITY REPORT – DECEMBER 2019

• Fraud risk arising from SIM swaps, dormant SIM and use of stolen SIM cards
for USSD-mobile payments.
• Risks arising from unauthorised access and/or disclosure of
information.
• Threat of social engineering attacks against users of digital financial services,
entailing the psychological manipulation of people into performing actions or
divulging information.


FINANCIAL STABILITY REPORT – DECEMBER 2019

Key Risks to the Financial System
5.1 Credit Risk
Risk Rating (Medium Risk, Stable)

Total NPLs fell to N1,064.1 billion at end-December 2019, from N1,444.57 billion at
end-June 2019, while the NPL ratio declined from 9.33 per cent to 6.10per cent. The
reduction in NPL ratio reflected improvement in economic conditions, which led to
increased repayment by obligors, and enhanced debt recovery strategies.

The Loan-to-Deposit ratio of 65.00 per cent was prescribed for banks to boost
private sector lending. This initiative positively impacted the total banking credit to
other sectors which increased to N26,699.79 billion at end-December 2019 from
N24,387.86 billion at end-June 2019.

Figure 5.1 Non-Performing Loans Ratio


5.2 Liquidity Risk
Risk Rating (Medium Risk, Stable)

The average liquidity ratio of the banking industry declined to 45.55 per cent at endDecember 2019, from 51.67 per cent at end-June 2019. This ratio, however,
remained above the regulatory threshold of 30 per cent. The high liquidity position in
the industry reflected banks' continued preference for holding liquid assets.
During the review period, the Bank restricted purchases of OMO bills to foreign
investors and banks on their accounts only, thus excluding local corporates and
individuals from participation, both at the primary and secondary OMO markets.
Owing to the restrictions, investors shifted attention to the NTB primary market
leading to increased demand for NTBs which crashed interest rates to single digits.


Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
FINANCIAL STABILITY REPORT – DECEMBER 2019

5.3 Market Risk
Risk Rating (Medium Risk, Trending Down)

The weighted averages rates in the interbank market declined significantly during the
review period as OBB and interbank call rates fell to 3.18 and 3.64 per cent at endDecember 2019, from 7.67 and 6.88 per cent at end-June 2019 respectively,
reflecting liquidity surfeit in the system. Similarly, commercial banks’ average interest
rate on time deposits maturing in 6 and 12 months fell to 7.48 and 9.03 percent from
10.84 and 10.57 per cent at end-December 2019. Also, the average prime lending
rate fell to 30.72 from 31.04 per cent during the review period.

In the foreign exchange segment, rates remained stable, reflecting the Bank’s effort
at ensuring adequate liquidity in the market, as interbank and BDC rates opened at
N306.95 /US$ and N360.00 /US$ on July 1, 2019 respectively and closed at N
/307.00/US$ and N362.00/ US$ on the last trading day of 2019.
The equities market remained bearish as investors' perception and preference for
fixed income securities translated to a loss of 9.10 per cent, with the NSE ASI
closing at 26,842.07 points at end-December 2019, compared with 29,666.87 points
at end-June 2019. In the second half of the year, exchange-traded derivatives were
introduced on the Nigerian bourse to broaden the options available and to support
efficient implementation of risk management and investment strategies across
diverse asset classes and financial instruments. Guidelines for derivatives and
clearing rules were issued by the SEC and NSE in the review period.
5.4
Operational Risk
Risk Rating (High risk, trending up)

During the review period, reported cases of fraud and forgeries in DMBs increased to
33,415 at end-December 2019, from 29,215 at end-June 2019. Similarly, the total
amount involved increased to N195.33 billion from N8.35 billion at end-June 2019,
while actual losses increased to N3.02 billion at end-December 2019, from N2.38
billion in the preceding half of the year. The frauds were carried out through
suppression of cheques, conversion of customers’ deposits, unauthorised fund
transfers and fraudulent ATM withdrawals. Cyber-attacks through social engineering,
business email compromise, e-skimming, identity theft, SIM swap, unauthorised
card-not-present and unauthorized push payment scams continued to record
increase on service providers’ platforms.

To check the growing trend of cyber-crime, banks and payment service providers
were directed to fully comply with the requirements of the CBN Cyber-Security
Framework and Guidelines, and Framework for the Use of Unstructured
FINANCIAL STABILITY REPORT – DECEMBER 2019

Supplementary Service Data (USSD) for Financial Services in Nigeria. Customers
were also continually sensitized on safe banking practices while banks were
enjoined to implement strong authentication controls, train staff on basic security
awareness and carry out comprehensive infrastructure risk assessments.

Additionally, industry-wide collaboration was sustained between the Nigerian
Communications Commission (NCC) and other key stakeholders to enable effective
protection of the Country’s information and communication infrastructure and
networks.
5.5
Macroeconomic Risk
Risk Rating (Medium Risk, Stable)

During the period under review, the Federal Government launched the Strategic
Revenue Growth Initiative (SRGI) to replace the ERGP upon its expiration in 2020.
The SRGI is targeted at rapidly boosting government revenue across the oil and
non-oil sectors and consolidating the gains of the previous framework. In addition,
the extension of the compliance date on the OPEC production cap, minimal pipeline
disruptions and recovery in crude oil prices reduced the overall risk to the 2019
budget.


FINANCIAL STABILITY REPORT – DECEMBER 2019

OUTLOOK
Global growth in 2020 was projected to increase to 3.30 per cent from 2.90 per cent
in 2019. While growth in advanced economies was projected to decline to 1.60 per
cent in 2020 from 1.70 per cent in 2019, growth in emerging markets and developing
economies, and Sub-Saharan Africa was projected to increase to 4.4 and 3.50 per
cent from 3.70 and3.30 per cent in 2019 respectively.

Inflation in advanced economies was projected to increase to 1.70 per cent in 2020,
from 1.40 per cent in 2019. Inflation in emerging markets and developing economies,
and Sub-Saharan Africa was estimated to increase to 4.60 and 8.00 per cent in 2020
from 5.10 and 8.40 per cent in 2019, respectively. Overall, it was envisaged that
growth of the global economy would be shaped by increased optimism, including
broad-based accommodative monetary policy, US-China trade negotiations and
diminished fears of a no-deal Brexit.

The outlook for Nigeria remained positive, albeit with the threat inflationary
pressures and low oil prices. Growth in Nigeria was projected to increase to 2.50 per
cent in 2020 from 2.30 per cent in 2019, while inflation was projected to increase to
11.70 per cent in 2020 from 11.30 per cent at end-December 2019.
In 2019, the banking industry recorded a significant reduction in the total nonperforming loans ratio, which should be sustained in 2020 through the introduction of
various policy measures. Furthermore, the implementation of increased Loans-toDeposit ratio requirement is expected to improve the intermediation role of banks to
priority sectors while the Bank would sustain its development finance interventions
aimed at stimulating finance to the real sector.
The general positive outlook for the domestic economy is premised on expansion of
the non-oil sector, stability in foreign exchange market and a resilient financial
system. The Bank would reinforce this outcome in 2020 by sustaining its
collaboration with the fiscal authorities and other financial services regulators.


FINANCIAL STABILITY REPORT – DECEMBER 2019

ACKNOWLEDGEMENTS
List of Major Contributors

H. Mahmud (PhD.)
Financial Policy and Regulation Department

I. S. Tukur
Ditto

J. M. Gana
Ditto

V. O. Ururuka (PhD.)
Ditto

H. J. Audu
Ditto

J. A. Mohammed
Ditto

Y. Babade
Ditto

U. Babale
Ditto

V. K. Johnson
Ditto

O. I. Adebowale
Development Finance Department

U. B. Ndako
Monetary Policy Department

O. O. Mbutor
Research Department

A. Shebe
Banking Supervision Department

Salihu
Statistics Department

E. O. Shonibare (Mrs)
Risk Management Department

M. Ashiru
Financial Markets Department

V. A. Martins
Other Financial Institutions Supervision
Department

M. M. Farouk
Reserve Management Department

A. M. M. Mwelfwang
Consumer Protection Department

H. Abdullahi
Banking Services Department

A. A. Isa-Olatinwo
Payments System Management Department

The Report is produced and supervised by the Financial Policy and Regulation
Department

KEVIN N. AMUGO
Director, Financial Policy and Regulation Department