FINANCIAL STABILITY REPORT – JUNE 2017
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FINANCIAL STABILITY
REPORT


June 2017


FINANCIAL STABILITY REPORT – JUNE 2017

Contents

FINANCIAL STABILITY REPORT – JUNE 2017
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FINANCIAL STABILITY REPORT – JUNE 2017
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List of Tables


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List of Figures

Figure 2.15: Distribution of Financial Institutions Registered on the National Collateral Registry at

Figure 3.4: Baseline (Pre-shock) CARs (%) .......................................... Error! Bookmark not defined.

List of Boxes


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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
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
CR5
Concentration Ratio (of the five largest 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
EDC
Entrepreneurship Development Centre
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
MENA
Middle East and North African Countries
MFBs
Microfinance Banks
MICEX
Moscow Interbank Currency Exchange
MoUs
Memoranda of Understanding
MPR
Monetary Policy Rate
NBS
National Bureau of Statistics
NDC
Net Domestic Credit
NDIC
Nigeria Deposit Insurance Corporation
NIBSS
Nigerian Inter-bank Settlement System
NMRC
Nigeria Mortgage Re-finance Company Plc
FINANCIAL STABILITY REPORT – JUNE 2017
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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
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 – JUNE 2017
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GOVERNOR’S STATEMENT
This issue of the Financial Stability Report highlights developments in the financial system in the first
half of 2017. In the review period, there was general optimism for recovery in global growth as
evidenced by increased global trade and manufacturing as well as rise in the prices of key
commodities. Fairly stable financial markets also helped to engender confidence in the recovery. With
global GDP inching up, policy makers are beginning to unwind the various unconventional policy
initiatives earlier adopted. However, concerns still remain about the potential impact of US monetary
policy normalization, which is anticipated to strengthen the dollar, with implications for countries,
especially emerging nations with dollar denominated credit and trade obligations.

On the domestic front, the impact of various policies aimed at engendering growth has resulted in our
exit from the recession, which subsisted until the second quarter of 2017. Though fragile, the recovery
provides the needed confidence that the right measures were adopted, and highlighted the need for
focussed implementation of the Federal Government Economic Recovery and Growth Plan. Whereas
the low growth environment may persist for a while, it is expected that the economy is on the path to
full recovery, and as forecasted, will return to normal growth space bar in 2018.This is premised on
the expected stability in oil prices, responsive monetary policy and expansionary fiscal policy in the
near term.

The subsisting tight monetary policy stance has resulted in moderating the inflationary growth
downward. However, with inflation still at double-digit level, the Bank will continue to apply
monetary and other complementary policy tools to contain inflationary pressure, maintain exchange
rate stability and encourage banks to lend to the real sector of the economy. The Bank will continue to
play its developmental role by providing key interventions to bridge the financing gap in some
segments of the real sector.

Reflecting the recession in the first half of 2017, there was noticeable deterioration in banks’ loan
portfolios, especially exposures to the oil and gas sector and foreign currency denominated credit. To
maintain financial system stability, efforts have been intensified to proactively engage operators to
effectively manage the associated risks. Also, a framework for the establishment of private asset
restructuring companies to acquire non-performing loans from banks and other financial institutions
will be released in due course.

In continuation of efforts to achieve a safe, stable and sound payments system, the Bank will
implement measures to further encourage the adoption of electronic mode of payments, strengthen
payment security, and enhance consumer education.

Finally, let me assure you that the CBN will not relent in its efforts to sustain the stability of the
financial system as well as strengthen collaboration with the fiscal authorities in order to achieve
sustained job creation and broad-based recovery of the Nigerian economy.

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


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FOREWORD
In the first half of 2017, the forecasts for greater recovery in global output growth was
buoyed by enhanced growth expectations among emerging markets and developing
economies, especially in the face of recovering commodity prices. While growth forecasts
were revised downward for the UK and US for 2017, the outcomes from the emerging
markets and developing economies are expected to moderate the global output. With the
unwinding of the various unconventional measures adopted by central banks to address the
concerns of low growth, policy rates are generally picking up among the advanced
economies.

In Nigeria, the economy returned to a path of positive growth. Though fragile, the current
recovery from the recession is expected to be strengthened by the implementation of the
National Economic Recovery and Growth Plan. With the improving macroeconomic
condition, it is expected that inflationary pressure will ease and the economy will return to a
regime of single-digit inflation. Sustaining stability in the foreign exchange market will
further enhance the productive capacity of local manufacturers and businesses as they have
greater access to imported raw materials and foreign direct investments.

Regulatory attention is currently focused on ensuring an improvement in the quality of banks’
assets as well as ensuring that the banks contribute effectively to the real sector. The
disruptions experienced in the economy with declining oil prices and Government revenue
resulted in an increase in the non-performing loans in the banking industry. The CBN will
continue to monitor developments and initiate measures to limit contagion and ensure that
financial institutions remain safe and sound. The CBN will continue to ensure that
appropriate structures and policies for the combating of money laundering and the financing
of terrorism are put in place in financial institutions.

This edition of the Financial Stability Report, which covers the period January to June 2017,
is divided into five sections. Section One reviews the global and domestic economic and
financial 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 highlighted in Section Four and Section Five
provides the outlook for financial stability.

We welcome your feedback on the Report.


O. J. Nnanna, Ph. D.
Deputy Governor, Financial System Stability


FINANCIAL STABILITY REPORT – JUNE 2017
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EXECUTIVE SUMMARY
Global output growth was projected at 3.5 per cent in 2017, compared with 3.2 per cent
recorded in 2016. The key drivers of the increase in growth included the strengthening of
financial markets and expected recovery in manufacturing and trade. Inflationary pressures
were sustained across the globe due to rise in the prices of raw materials and a recovering
commodities market. Global consumer price inflation rose due to increases in energy and
consumer prices in advanced economies. Stock markets recorded mixed performance across
countries, while major currencies showed mixed trends against the US dollar. Most of the
central banks surveyed in the report kept their monetary policy rates fairly stable during the
first half of 2017.

On the domestic front, the economy gradually recovered from the recession that had persisted
since the second quarter of 2016, as gross domestic product grew by 0.55 per cent in the
second quarter of 2017. The improvement was attributed to the rebound of activities in the
services and agricultural sectors, as well as increased patronage of locally manufactured
goods. Furthermore, inflationary pressures started easing during the first half of 2017 as the
headline inflation (year-on-year) declined to 16.10 per cent in June 2017 from 18.55 per cent
at end-December 2016.

External reserves increased by US$3.35 billion in the first half of 2017 to US$30.34 billion,
while the naira maintained a fairly stable exchange rate in the foreign exchange market.

The tight monetary policy stance maintained in the review period resulted in a contraction of
most of the major monetary aggregates. Relative to the level at end-December 2016, broad
money supply, M2, fell by 7.33 per cent at end-June 2017. Net aggregate credit to the
economy rose marginally to N26,921.03 billion at end-June 2017, reflecting the increase in
net claims on the Federal Government, which grew by 5.91 per cent.

The banking system’s credit to the private sector fell marginally by1.47 per cent to
N15,907.47 billion from the position at end-December 2016. The oil and gas sector remained
the sector with the highest share of credit at 29.29 per cent. The contribution of
manufacturing, construction, and power and energy sub-sectors to total credit increased.
Reserve money declined by 6.76 per cent in the review period, though it was higher than the
second quarter indicative benchmark by 0.6 per cent. The decline in reserve money reflected
the decline observed in net domestic assets and net foreign assets.

Interest rates varied in line with liquidity conditions. The average short-term money market
rates traded mostly above the MPR of 14.00 per cent. Most of the key rates in the first half of
2017 were higher than their levels in the second half of 2016.

Short-term maturities maintained dominance in the credit market, though their share of total
credit declined. Similarly, banks’ short-term deposits (below one year) constituted a very
significant portion of the total. The low concentration ratios observed in the banking industry
showed a trend towards more competition across the banks.
FINANCIAL STABILITY REPORT – JUNE 2017
xii


In the OFI segment of the banking industry, 167 institutions were licensed in the first half of
2017. This was to further enhance financial inclusion among the populace. Key financial
indicators for OFIs showed an increase in total assets, net loans and advances, deposits and
shareholders’ funds.

The Bank maintained its contractionary monetary policy stance in the first half of 2017 as it
retained its monetary policy rate at 14.00 per cent. Money market rates closed high at the
inter-bank market with the overnight call and open buy back (OBB) rates trading
significantly above the upper bound of the MPR corridor for most of the first half of 2017.

In the capital market, the Nigerian Stock Exchange All Share Index (NSEASI) and market
capitalization both increased due to improved confidence in the market and gradual economic
recovery. Total bonds outstanding increased in the first half of 2017 by 2.96 per cent. The
Bank continued to play a developmental role by providing key interventions to bridge the
financing gap in some segments of the real sector.

In the banking industry, the asset quality of commercial banks deteriorated in the first half of
2017 as the ratio of non-performing loans to gross loans increased, compared with the level at
end-December 2016. This led to a slight capital deterioration and a decline in earnings
indicators. To test the resilience of the industry, a stress test was conducted on the banks. The
test showed that the capital adequacy ratio of the banks deteriorated when the most severe
shocks were applied. It also showed that liquidity shortfalls will only occur when the most
severe shocks of a cumulative 30-day run were applied.

Supervisory activities of the Bank in the review period included the examination of banks and
OFIs in conjunction with the NDIC, ongoing implementation of enhanced supervisory
standards for the domestic systemically important banks (D-SIBs) and preparation for the
implementation of IFRS 9 starting January 2018. The Bank, under the auspices of the
FSRCC, commenced consolidated examinations of the three financial holding companies in
the review period.

The Bank continued to collaborate with both domestic and international institutions to
strengthen the AML/CFT regulatory framework.

The Banking Sector Resolution Cost Trust Fund (BSRCTF) realized a total collection of
N190.89 billion in the review period. The fund is to be applied to the redemption of the
outstanding bonds of the Asset Management Corporation of Nigeria, (AMCON).

To ensure that consumers of financial services are treated fairly by the banks, the CBN
conducted compliance checks on banks’ compliance with the various consumer protection
regulations, especially the Guide to Bank Charges. The report of the examination showed
reasonably high compliance levels. Non-compliant banks were directed to implement specific
FINANCIAL STABILITY REPORT – JUNE 2017
xiii

remedial actions, including making refunds where applicable. The Bank continued its
consumer education engagements to enhance financial literacy among the populace.

Following the approval of the roadmap for the Nigerian Sustainable Finance Principles
(NSFP) by the Financial Services Regulation Coordinating Committee (FSRCC) in 2016,
each member agency established a steering committee to coordinate the development of
sector-specific sustainability principles and guidelines.

The FSRCC conducted an investigation of the activities of ‘Mavrodi Mondial Moneybox’
(MMM) and other Ponzi schemes and recommended the immediate shutdown of the websites
of the illegal fund managers.

The moderate recovery of the domestic output growth, sustained decline in inflation rate,
stability in the exchange rate and the gradual accretion to external reserves are expected to
improve economic performance. In the medium to long-term, the implementation of the
National Economic Recovery and Growth Plan and the Executive Orders are further expected
to spur economic activities.


FINANCIAL STABILITY REPORT – JUNE 2017

1.0
MACROECONOMIC DEVELOPMENTS AND FINANCIAL SYSTEM
STABILITY
1.1
Global Economic and Financial Developments
1.1.1 Output
The cyclical recovery in global output experienced for most part of 2016 improved during the
first half of 2017. Global output was projected to grow by 3.5 per cent in 2017, which was 0.3
per cent slightly higher than the estimated 3.2 per cent for 2016.The expected positive outturn
for 2017 reflects the effects of the revisions in the national economies of Iran and India, both
evidenced by the much higher growth in Iran and the stronger economic activities in India,
the globally strengthened financial markets as well as sustained strength in world
manufacturing and trade.

Output growth in both the advanced and emerging and developing economies was projected
to increase to 2.0 per cent in 2017 from 1.7 per cent in 2016 due to increased global trade and
industrial production (WEO Update, July 2017). In the United States, output growth for 2017
was projected at 2.1 per cent, which was 0.5 per cent higher than the 1.6 per cent estimated
for 2016. The projected output growth for 2017 was hinged on the impact of fiscal stimulus
on growth in the short to medium-term. Output growth in the United Kingdom was projected
at 1.7 per cent for 2017, which was 0.1 per cent lower than the 1.8 per cent in estimated for
2016, reflecting a weaker-than-expected economic activity in early 2017.

In Japan, output growth rose from 1.0 per cent in 2016 to 1.3 per cent in 2017, and In the
Euro Area, output growth was projected to rise from an estimated 1.7 per cent in 2016 to 1.9
per cent for 2017. The output growth in both Japan and Euro Area reflected solid momentum
occasioned by positive surprises in economic activities in these economies in late 2016 and
early 2017.

Output growth in emerging markets and developing economies was projected at 4.6 per cent
in 2017, which was higher than the 4.1 per cent in 2016, largely due to the significant
improvements in commodity prices. In China, output was expected to grow by 6.7 per cent
in 2017, the same as was in 2016.

In the Middle East and North Africa (MENA) region, output growth which was estimated at
3.8 per cent for 2016 was projected to decline to 2.6 per cent in 2017 due to the slowdown in
economic activities in several oil exporting countries.

In Sub-Saharan Africa (SSA), output growth was projected to increase to 2.6 per cent in 2017
compared with 1.4 per cent in 2016, reflecting a modest growth for South Africa, which
experienced a bumper crop harvest and increased mining activities. Output growth in Nigeria
improved from the estimated negative 1.5 per cent for 2016 to a projected 0.5 per cent for
2017. The improvements were associated with stable oil price, proactive monetary policy and
expansionary fiscal policy during the review period.

FINANCIAL STABILITY REPORT – JUNE 2017

Table 1.1: Global Output Growth
Region/Country
Year-on-Year (%)

2017*
World

Advanced Economies

United States

Euro Area

Japan

United Kingdom

Canada

Emerging Market and Developing
Economies

China

MENA

Sub-Saharan Africa

Nigeria

Source: IMF’s World Economic Outlook, July 2017
* Projections

1.1.2 Inflation Developments
Generally, the momentum in global inflationary pressures experienced in 2016 were
sustained during the first half of 2017, with global producer prices rising because of increases
in the cost of raw materials and the impact of a recovering real estate sector in China, whose
economy was emerging from a deflation. Similarly, global consumer prices rose due to
increases in energy and consumer price indices in several advanced economies, with the
average annual inflation rate rising from an estimated 0.8 per cent in 2016 to 2.0 per cent in
2017 (Table 1.2).

In the United States, inflation rose from 1.3 per cent in 2016 to about 2.7 per cent in the first
half of 2017, which was higher than what was targeted by the Federal Reserve Bank.
Inflation in the Euro Area, Japan, United Kingdom, Emerging Markets and Developing
Economies and the MENA Region were projected to increase from 0.2, -0.1, 0.6, 4.4 and 5.4
per cent in 2016 to 1.7, 1.0, 2.5, 4.7 and 8.1 per cent in 2017, respectively, (Table 1.2).
Although inflation in Sub-Sahara Africa was projected to have moderated from annual
average of 11.4 per cent in 2016 to 10.7 per cent in the first half of 2017, the inflationary
pressures experienced in Nigeria for most of 2016 were sustained during the first half of
2017, as the inflation rate rose from 15.7 per cent at end 2016 to 17.4 per cent during the end
of the first half of 2017.


FINANCIAL STABILITY REPORT – JUNE 2017

Table 1.2: Global Inflation
Region/Country

2017*
Advanced Economies

United States

Euro Area

Japan

United Kingdom

Emerging Markets and Developing Economies

MENA

Sub-Saharan Africa

Nigeria

Source: WEO Update July 2017


1.1.3 Global Commodity Prices
1.1.3.1 Oil Prices

The downward movement in crude oil prices experienced for most of 2016 continued during
the first half of 2017, reflecting the prevailing excess supply and high inventories.
Subsequently, the OPEC Reference Basket (ORB) decreased by 14.39 per cent to US$45.63
per barrel at end-June 2017 from US$53.30 per barrel at end-December 2016. The ICE Brent
also decreased by 15.97 per cent to US$47.13 per barrel at end-June 2017 from US$54.66 per
barrel at end-December 2016. Similarly, West Texas Intermediate (WTI) closed at US$45.10
per barrel at end-June 2017, representing a decrease of 17.63 per cent from US$54.75 per
barrel at end-December 2016 (Table 1.3).

Table 1.3: Oil Prices (US$ per barrel)

End-Dec.

End-Dec

End-Dec.

End-Dec.

End-June

OPEC Reference Basket (ORB)

Brent

West Texas Intermediate (WTI)

Source: Bloomberg


1.1.3.2 Food Prices
Global oil supply rose to 96.59 mbd at end-June 2017, compared with 96.92 mbd at endDecember 2016, while demand was projected to increase to 96.4 mbd in 2017, due to
expected increase in demand in India, following improvements in the manufacturing and road
construction activities as well as rise in demand for transportation and industrial sectors in
China.

The Food and Agriculture Organization (FAO) Food Price Index averaged 175.2 points at
end-June 2017, compared with 163.4 points in December 2016. The increase was largely
driven by the rise in prices of dairy and meat.

FINANCIAL STABILITY REPORT – JUNE 2017

The FAO Dairy Price Index averaged 209 points at end-June 2017 compared with 137.9
points at end-December 2016. Prices of all dairy products in the index rose, although it was
more pronounced in the prices of butter, cheese and skimmed milk due to declines in
consumer demand.

The FAO Meat Price Index rose by 10.96 per cent to 175.2 points in June 2017 from the
157.9 points recorded in December 2016. The increase was driven largely by declines in
supply from Oceania, as well as strong global demand. However, the demand for poultry
products decreased due to concerns over the spread of avian influenza in Africa, Asia and
Europe.

The FAO Cereal Price Index averaged 154.3 points in June 2017, reflecting a decrease of 1.7
per cent from 156.9 points in December 2016. The decrease in the index was due largely to a
downward trend in the price of maize, resulting from bountiful harvests in South America.

FAO Sugar Price Index averaged 197.3 points in June 2017, lower by 78.7 points from the
276.0 points in December 2016. The Index decreased to its lowest value in 16 months and
reflected significant export, especially from Brazil. The fall in sugar prices also reflected
lower demand from China, following the imposition of higher import tariffs.

Table 1.4: World Food Price Index

December

June 2015
June 2016
December

June 2017
Food Price Index

Meat

Dairy

Cereals

Vegetable Oils

Sugar

Source: FAO July 2017
* Projections

1.1.4
International Stock Markets
The international stock markets recorded mixed performance during the first half of 2017. In
North America, the Mexican Bolsa and United States S&P 500 indices increased by 9.2 and
8.2 per cent, respectively between end-December 2016 and end-June 2017, while the
Canadian S&P/TSX decreased by 0.7 per cent during the same period. In South America, the
Argentine Merval, Brazilian Bovespa and Colombian IGBC General indices increased by
29.5, 4.4 and 8.2 per cent, respectively. The increases were due to strong domestic demand
and rebound in investments.

In Europe, the FTSE 100, DAX and CAC 40 indices increased by 2.4, 7.4 and 5.3 per cent
respectively, while the MICEX index decreased by 15.8 per cent at end-June 2017. The
decrease in the MICEX was due to the slowdown in Russia.

FINANCIAL STABILITY REPORT – JUNE 2017

In Asia, Japan’s Nikkei 225, China’s Shanghai Stock Exchange-A and India’s BSE Sensex
indices increased by 4.8, 2.9 and 16.1 per cent, respectively.

In Africa, the Nigerian NSE, South African JSE All-Share and Egyptian EGX CASE 30
indices increased by 15.6, 1.8 and 92.5 per cent, respectively. The increase in Egyptian EGX
CASE 30 index was due to the implementation of new reforms, including the introduction of
a floating exchange rate. The Ghanaian GSE ASI and Kenyan Nairobi NSE 20 indices
decreased by 1.5 and 10.7 per cent, respectively. Most of these markets responded to
developments in global economic activities and the anticipated normalization of the US
monetary policy (Table 1.5).

Table 1.5: Indices of Selected International Stock Markets: December 2016 and June 2017

Country/R
egion
Index
June 30,

December
31, 2016
June 30,

Y-on-Y
%
Change
Dec
31,
2016-June
30, 2017 %
Change
(YTD)
AFRICA
Nigeria
NSE All-Share Index

South
Africa
JSE All-Share Index

Kenya
Nairobi
NSE

Share Index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index


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

Russia
MICEX


ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Source: Bloomberg

1.1.5
Foreign Exchange Markets
During the first half of 2017, most of the currencies under review experienced mixed
behaviour against the U.S. dollar.
FINANCIAL STABILITY REPORT – JUNE 2017

Foreign exchange rates movements in North America indicated that the Canadian dollar and
Mexican peso appreciated against the U.S. dollar by 3.08 and 14.40 per cent, respectively. In
South America, the Brazilian real, Argentine peso and Colombian peso depreciated against
the U.S. dollar by 1.51, 4.51 and 1.35 per cent, respectively.

In Europe, the British pound, euro and the Russian ruble appreciated against the U.S. dollar
by 5.19, 7.95 and 4.41 per cent, respectively. In Asia, the Japanese yen, Chinese yuan and
Indian rupee also appreciated against the U.S. dollar by 4.07, 2.51 and 5.17 per cent,
respectively.

In Africa, the South African rand and Egyptian pound appreciated against the U.S. dollar by
5.13 and 0.06 per cent, respectively, while the Nigerian naira, Kenyan shilling, and Ghanaian
cedi depreciated against the U.S. dollar by 0.29, 1.20 and 3.85 per cent, respectively,
compared with end-December 2016 (Table 1.6).

Table 1.6: Exchange Rates of Selected Countries (Value in currency units to US$)

Currency
End-Jun. ’16
End-Dec. ’16
End-Jun. ’17
YTD
App/Dep
(%)
Y-o-Y
App/Dep
(%)
AFRICA
Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi


NORTH AMERICA
Canada
Dollar

Mexico
Peso


SOUTH AMERICA
Brazil
Real

Argentina
Peso

Colombia
Peso


EUROPE


UK
Pound

Euro Area
Euro

Russia
Ruble


ASIA
Japan
Yen

China
Yuan

India
Rupee


Source: Bloomberg
Y-o-Y: Year on Year
YTD: Year to Date

FINANCIAL STABILITY REPORT – JUNE 2017

1.1.6
International Monetary Policy Rates
Monetary policy rates in most central banks were fairly stable during the first half of 2017.
Amongst the developed economies, only the US Federal Reserve increased its rate between
January and June 2017 from the range of 0.50-0.75 to 1.00-1.25 per cent. The Bank of Japan,
European Central Bank, Bank of England, Bank of Canada, Bank of Korea, Reserve Bank of
New Zealand and Reserve Bank of Australia maintained rates at 0-0.1, 0.00, 0.25, 0.50, 1.25,
1.75 and 1.5 per cent respectively, during the same period. In the ASEAN Region, policy
rates in both Bank Indonesia and Bank Negara Malaysia remained at 4.75 and 3.00 per cent.

Among the BRICS countries, the Reserve Bank of India, Peoples Bank of China, and South
African Reserve Bank kept rates unchanged at 6.25, 4.35 and 7.00 per cent, respectively,
while the Central Bank of Brazil reduced its rate from 11.25 per cent in April to 10.25 per
cent in May and Bank of Russia from 9.25 to 9.00 per cent in June 2017.

In the emerging economies of Mexico and Colombia, monetary policy rates were reduced
from 6.25 to 5.75 per cent, in June, while the Central Bank of Chile reduced its rate from 2.75
to 2.50 per cent in May 2017.
In Africa, the Central Bank of Nigeria maintained its rate at 14.00 per cent throughout the
first half of 2017. Central Bank of Egypt increased its rate from 15.75 to 17.52 per cent in
May, while Bank of Ghana reduced its rate from 23.50 to 22.50 per cent in May 2017 (Table
1.7).

Table 1.7: Policy Rates of Selected Countries

Jul-

Aug-

Sept-

Oct-

Nov-

Dec-

Jan-

Feb-

Mar-

Apr-

May-

June-

Developed Economies
Japan

Europe

UK

US

Canada

South Korea

New
Zealand
2.25


Australia

ASEAN
Indonesia

Malaysia

BRICS


Brazil

Russia

India

FINANCIAL STABILITY REPORT – JUNE 2017

China

South Africa

Other Emerging Economies & South America
Mexico

Chile

Colombia


6.5
6.25
5.75
Africa
Egypt

Ghana

Nigeria

Source: Bloomberg

1.2
Domestic Developments
1.2.1
Output
Provisional data from the National Bureau of Statistics (NBS) indicated that the Gross
Domestic Product (GDP), at 2010 constant basic prices, grew by 0.55 per cent in the second
quarter of 2017, as against the decline of 0.91 per cent in the first quarter of 2017. However,
GDP for the first half of the year moderated to negative 0.18 per cent compared with the
negative 2.03 per cent in the second half of 2016 (Figure 1.1).The improvement witnessed in
the first half of 2017 could be attributed to the rebound of activities in the manufacturing
sector following CBN’s interventions in the foreign exchange market and increased
patronage of locally manufactured goods. It is expected that the full implementation of the
Economic Recovery and Growth Plan (ERGP) which commenced in the first half of 2017,
will further engender growth.

Table 1.8: Percentage share in total Gross Domestic Product by Sectors (%)

Sector
H1 2016
H2 2016
H1 2017
Agriculture
21.49
27.11
22.21
Manufacturing
9.46
9.11
9.57
Construction
4.21
3.26
4.22
Trade
17.86
16.57
17.47
Services
37.49
36.38
37.71
Industry
18.95
16.68
18.39
Crude Petroleum & Natural Gas
9.40
7.41
8.71
Solid Minerals
0.10
0.16
0.11
Source: NBS

The non-oil GDP rose to 0.58 per cent in the first half of 2017, compared with the decline of
0.16 per cent in the second half of 2016. The contribution of the non-oil sector GDP stood at
91.29 per cent compared with 92.59 and 90.60 per cent recorded in the preceding half year
and the corresponding period of 2016, respectively. With respect to sectoral contribution in
real terms, the services sector accounted for the largest share (37.71%), followed by the
FINANCIAL STABILITY REPORT – JUNE 2017

agricultural sector (22.21%), industry (18.39%), trade (17.47%) and manufacturing (9.57%)
(Table 1.8).

Provisional data further showed that manufacturing sub-sector grew by 1.00 per cent in the
first half of 2017, recording a positive change over the second half of 2016. The increased
demand for locally produced goods encouraged manufacturers to increase production, thus
increasing its contribution to the GDP in the first half of 2017. Similarly, the services subsector recorded a positive change of 0.41 per cent in the first half of 2017, relative to its value
in the second half of 2016.

Figure 1.1: Real GDP Growth rate (%)
-3
-2
-1

H2 2014
H1 2015
H2 2015
H1 2016
H2 2016
H1 2017
Per cent
REAL GDP


During the first half of 2017, the daily average crude oil production rose to 1.62 mbd, which
was 4.52 per cent above the 1.55 mbd in the second half of 2016 but below the OPEC
production quota of 2.2 mbd. This was due to the relative stability in the oil producing
regions of the country. Consequently, the contribution of the oil sector to the real GDP
increased by 1.31 percentage points to 8.71 per cent from 7.41 per cent in the second half of
2016.

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

H1 2016
H2 2016
H1 2017
Per cent
Oil
Non-oil


FINANCIAL STABILITY REPORT – JUNE 2017

Table 1.9: Changes (per cent) in Real GDP by Sector

Sector
H1 2016
H2 2016
H1 2017
Agriculture
3.84
4.29
3.19
Manufacturing
-5.22
-3.46
1.00
Construction
-5.83
-6.07
0.14
Services
-1.04
-1.34
0.41
Trade
0.99
-1.41
-2.36
Industry
-6.93
-11.87
-3.16
Crude Petroleum & Natural Gas
-8.15
-20.65
-7.47
Solid Minerals
-36.91
5.32
8.61

1.2.2
Inflation
National Bureau of Statistics (NBS) data showed that the all-items composite Consumer Price
Index (CPI) stood at234.2 at end-June 2017 (November 2009 = 100), compared with 213.6
and 201.7 at end-December 2016 and end-June 2016, respectively. The index for the first half
of 2017 was higher than the levels in the second half of 2016 and the corresponding half of
2016 by 9.6 and 16.1 per cent, respectively. The headline inflation (year-on-year), at 16.10
per cent in June 2017, fell from 18.55 per cent at end-December 2016 and 16.41 per cent at
end-June 2016, representing the fifth consecutive decline since January 2017.

The twelve-month moving average inflation rate in June 2017stood at 17.58 per cent,
compared with 15.7 and 11.4 per cent in December and June 2016, respectively. In June
2017, the core inflation(which excludes agricultural produce because of volatility in their
prices), fell by 5.6 and 3.7 percentage points to 12.5 per cent below its respective levels of
18.1 and 16.2 per cent in December and June 2016 (Figure 1.3). According to the NBS, the
highest increases were recorded in prices of solid fuels, clothing materials/accessories, liquid
fuels, books and stationery, airfare, footwear and motorcycles.

However, food inflation which comprises farm produce and processed food, rose to 19.91 per
cent (year-on-year) in June 2017, compared with 17.39 and 15.3 per cent in December and
June 2016, respectively. The rise when compared to that of the preceding half-year was
attributed to the continued pressure on food prices. The relative contribution of imported food
components to food inflation was 3.66 per cent at end-June 2017 compared to 5.25 per cent at
end-December 2016.

The imported food inflation at end-June 2017 fell by 6.87 and 5.82 percentage points to 14.19
per cent from its respective levels at end-December and end-June 2016. Rice accounted for
the highest contribution of 14.80 per cent to imported food inflation, followed by frozen fish
with 3.01 per cent. The decline in the imported food inflation was attributed to substitution
effect of some of the imported products.


FINANCIAL STABILITY REPORT – JUNE 2017

Figure 1.3: Inflationary Trend (Year-on-Year)

H1 16
H2 16
H1 17
Per cent
Headline (Y-o-Y)
Core (Y-o-Y)
Food (Y-o-Y)

1.2.3
External Sector
1.2.3.1 Foreign Exchange Flows
Provisional data indicated that cumulative foreign exchange inflow into the economy
amounted to US$33.77 billion in the first half of 2017, indicating an increase of 0.6 and 16.4
per cent above the levels in the second half of 2016 and the corresponding period of 2016,
respectively. The increase was largely due to the 29.2 per cent rise in inflow through the
CBN, compared with the level in the second half of 2016. Receipts through the CBN and
autonomous sources accounted for 47.2 per cent and 52.8 per cent of total inflow into the
economy, respectively.

Total foreign exchange outflow from the economy in the first half of 2017 was US$13.75
billion, indicating 0.5 per cent increase above the level in the second half of 2016.The rise in
outflow was mainly attributed to increased interbank sales. Consequently, a net foreign
exchange inflow of US$20.01 billion was recorded into the economy during the review
period, compared with a net inflow of US$19.9 billion and US$17.12 billion in the second
half of 2016 and the corresponding period of 2016, respectively.

Table 1.10: Foreign Exchange Flows (US$ million)

Period
Inflow
Outflow
Net Flow
H1 2017
33,770.63
13,752.07
20,018.56
H2 2016
33,578.14
13,676.86
19,901.28
H1 2016
29,006.89
11,889.43
17,117.46

The total autonomous inflow fell by16.0 per cent to US$17.83 billion, compared to the level
in the second half of 2016 due to decline in invisibles purchases by 17.4per cent, of which
56.6 per cent was accounted for by domiciliary account balances.

Foreign exchange inflows through the CBN amounted to US$15.93 billion in the first half of
2017, an increase of 29.2 and 87.6 per cent above the levels in the preceding and the
corresponding periods of 2016, respectively. This improvement was due to the growth in
FINANCIAL STABILITY REPORT – JUNE 2017

non-oil related receipts which rose by 72.11 per cent to US$11.65 billion. Oil related receipts
was US$4.28 billion, representing a decrease of 23.11 per cent relative to the level in the
second half of 2016.

Foreign exchange outflow through the CBN rose by 2.7 per cent to US$12.76billion, above
the level in the second half of 2016. Interbank utilization accounted for US$9.84 billion, of
which interbank forwards, interbank sales and others represented 45.0, 40.8and 14.2 per cent,
respectively.

Total foreign exchange transactions through the CBN resulted in a net inflow of US$3.18
billion in the first half of 2017, compared with the net outflow of US$0.88 billion and
US$2.26 billion in December and June 2016.

Table 1.11: Foreign Exchange Flows through the CBN (US$ million)
Period
Inflow
Outflow
Net flow
H1 - 2017
15,933.32
12,755.58
3,177.74
H2 - 2016
12,337.20
12,425.19
-87.99
H1 - 2016
8,493.57
10,751.70
-2,258.12

1.2.4
Fiscal Operations
The Federally-collected revenue (gross) for the first half of 2017 was estimated at N3,020.00
billion. This was below the half year budget estimate of N5,368.55 billion and the preceding
half-year of N3,220.58 billion by 43.75 and 6.23 per cent, respectively. The decline in
revenue (gross) relative to the preceding half-year was attributed to the shortfall in receipts
from non-oil revenue. At N1,613.02 billion or 53.41 per cent of total revenue, oil receipts
(gross) in the first half of 2017, was higher than the receipts in the preceding half by 5.21 per
cent. The rise in oil revenue relative to the preceding half was attributed, mainly, to the
increase in receipts from crude oil and gas exports. The non-oil receipts (gross), at N1,406.97
billion or 46.59 per cent of total revenue was below the level in the preceding half by 18.67
per cent. The decline in non-oil revenue relative to the preceding half was due to the
reduction in receipts from corporate tax, education tax and customs & excise duties during
the review period.


46.59
53.41
Non-oil Revenue
Oil Revenue
Figure 1.4: Federally Collected Revenue (Gross)
FINANCIAL STABILITY REPORT – JUNE 2017

The estimated Federal Government retained revenue for the first half of 2017, at N1,226.37
billion, was lower than the half-year budget estimate and the receipts in the preceding half in
2016 by 54.54 and 34.73 per cent, respectively. The breakdown of the retained revenue
showed that the Federal Government’s share of the Federation Account was N765.17 billion
(62.39%); VAT Pool Account, N67.01 billion (5.46%); Federal Government Independent
Revenue, N146.55 billion (11.95%); Excess Crude Account, N76.35 billion (6.23%);
Exchange Gain, N145.98 billion (11.90%) while NNPC Refund (including additional NNPC
share) accounted for the balance of N25.32 billion (2.06%). The decrease in retained revenue
relative to the preceding half was mainly attributed to the decline in non-oil receipts.

The Federal Government expenditure was N1,842.11 billion at end-June 2017, representing a
decline of 35.61 per cent,and52.47 per cent relative to the 2017 half-year budget of
N3,875.96 billion and the preceding period’s receipt of N2,860.83 billion, respectively. The
decreased spending was attributed to decline in revenue during the review period.

The expenditure profile of the Federal Government for the first half of 2017 comprised:
recurrent expenditure (88.16%), capital expenditure (2.88%) and statutory transfers (8.95%).
A breakdown of the recurrent expenditure indicated that the non-debt obligations accounted
for 69.07 per cent of the total recurrent expenditure, while debt service payments accounted
for 30.93 per cent in the review period.

The fiscal operations of the Federal Government for the first half of 2017 resulted in an
overall deficit of N615.74 billion compared to the budgeted deficit of N1,178.39 billion and
N981.81billion in the preceding period. The deficit was financed largely from domestic
borrowing.

Figure 1.5: Federal Government Fiscal Operations (N billion)

Source: Office of the Accountant General of the Federation (OAGF) & Federal Ministry of Finance
The Debt Management Office data indicated that consolidated domestic debt stock of the
Federal Government at end-June 2017 was N11,860.77 billion. This represented an increase
of 7.28 per cent over the N11,058.20 billion at end-December 2016. The breakdown
-1,500
-1,000
-500


First Half 2016
Second Half 2016
First Half 2017
N Billion
Revenue
Expenditure
Deficit
FINANCIAL STABILITY REPORT – JUNE 2017

indicated that FGN Bonds contributed 66.90 per cent, Treasury Bills contributed 31.22 per
cent while FGN Special Bonds and Nigeria Treasury Bonds accounted for 1.88 per cent. The
newly introduced FGN Savings Bonds accounted for 0.04 per cent of the FGN Bonds.

1.2.5
External Reserves
External reserves increased to US$30.34 billion at end-June 2017, from US$26.99 billion at
end-December 2016, an accretion of US$3.35 billion (12.41%). The breakdown of the
reserves showed that 8.64, 23.32 and 68.04 per cent belonged to the Federation, Federal
Government and CBN, respectively. The currency composition indicated that 85.49, 6.87,
6.36, 0.71, 0.52 and 0.05 per cent was held in US dollars, IMF SDRs, Chinese renminbi,
pound sterling, euro and other currencies.

Total inflow to reserves was US$15.93 billion in the first half of 2017 compared with
US$11.37 billion in the second half of 2016, representing an increase of 40.11 per cent. Total
outflow in the review period was US$12.76 billion compared with US$11.38 billion recorded
in the second half of 2016, representing an increase of US$1.38 billion (12.13%).
Consequently, the external reserves recorded a net inflow of US$3.18 billion during the
review period.
The sum of US$172.64 million was recorded as gain on currency translation. This was
mainly due to the decline in the value of the US dollar against major currencies (Figure 1.6).
The currency translation gain, coupled with the net inflow of US$3.18 billion accounted for
the increase in the level of the external reserves during the review period.
Figure 1.6: US Dollar Index Spot Rate

Source: Bloomberg


Per cent
FINANCIAL STABILITY REPORT – JUNE 2017

2.0
DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.1
Monetary and Credit Developments1
The low crude oil prices in the international market as well as the slow recovery of the
economy persisted during the first half of 2017. Consequently, monetary policy remained
tight, and thus all the major monetary aggregates contracted in the review period. Relative to
the level at end-December 2016, broad money supply, M2, fell by 7.33 per cent at end-June
2017, compared with the growth of 16.77 and 10.23 per cent at end-December 2016 and the
corresponding period of 2016, respectively. The fall in M2 at end-June 2017 was, due
largely, to the 7.45 and 10.51 per cent decline in net foreign assets and other assets (net) of
the banking system, respectively. The decreases more than offset the effect of the 1.02 per
cent rise in domestic credit (net) of the banking system.
The decline in total monetary liabilities, M2, was driven by the significant decrease in narrow
money (M1). Provisional data indicated that M1 fell by10.70 per cent to N9,883.82 billion at
end-June 2017, compared to the growth of 29.12 and 11.05 per cent at end-December and
end-June 2016, respectively. The development was due to the 18.86 and 9.09 per cent decline
in currency outside banks (COB) and demand deposits (DD) components, respectively.
Figure 2.1: Trend in Monetary Aggregates

There was a slight improvement in the intermediation efficiency of the banking industry at
end-June 2017. The ratio of intermediation efficiency measured by the proportion of COB to
total monetary liabilities, stood at 6.8 per cent, representing a decrease of 0.97 percentage
point below the level at end-December2016 but an increase of 0.57 percentage point above
the corresponding period of 2016.

Aggregate savings at end-June 2017 increased with the ratio of quasi-money to total
monetary assets at 54.4 per cent from 52.7 per cent at end-December 2016. The outcome was
driven largely by the rise in savings and time deposits of commercial and merchant banks, of
which its proportion of M2 rose by 1.72 percentage points above the level at end-December
2016.


1June 2017 figures are provisional.


Jun 2015
Dec 2015
Jun 2016
Dec 2016
Jun 2017
Monetary Aggregates (N'B)
M1
M2
COB
FINANCIAL STABILITY REPORT – JUNE 2017

2.1.1
Aggregate Credit to the Economy
Net aggregate credit to the domestic economy rose marginally by 1.02 per cent from
N26,649.02 billion at end-December 2016 to N26,921.03 billion at end-June 2017. The
development reflected increase in net claims on the Federal Government. In terms of
contribution to movement in M2, the net domestic credit of the banking system contributed
1.16 percentage points compared with 25.15 percentage points at end-December 2016.

Figure 2.2: Credit to the Economy


2.1.1.1 Claims on the Federal Government
Net claims on the Federal Government increased to N4,942.46 billion at end-June 2017,
compared with N4,666.87 billion at end-December 2016, representing an increase of 5.91 per
cent. The development reflected increase in the holding of government securities, especially
Treasury Bills by commercial banks which grew by 8.8 per cent.

2.1.1.2 Aggregate Claims on the Private Sector
The banking system’s credit to the private sector fell by 0.02 per cent to N21,978.56 billion,
at end-June 2017 compared with the growth of 17.42 and 14.59 per cent recorded at endDecember 2016 and the corresponding period of 2016, respectively. The development was
due mainly to the 0.93 per cent decrease in claims on the core private sector2, which more
than offset the impact of 19.28 per cent growth in claims on state and local governments. In
terms of contribution to the movement of total monetary assets, claims on the private sector
contributed negative 0.02 percentage point compared with 16.28 percentage points at endDecember 2016. Similarly, the contribution of credit to the core private sector to the
movement in M2 fell from 14.26 percentage points at end-December 2016 to negative 0.83
percentage point at end-June 2017.


2Excludes the state and local governments.


Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
N Billion
N Billion
Claims on Private Sector LHS)
Net Domestic Credit (LHS)
Claims on Federal Government (Net) (RHS)
FINANCIAL STABILITY REPORT – JUNE 2017

Table 2.1: Growth Rate of Monetary Aggregates
% Change (Over preceding
December)
Dec
14*
Jun 15*
Dec 15 *
Jun 16*
Dec 16*
Jun 17**
Domestic Credit (Net)

Claims on Federal Government
(Net)

Claims on Private Sector

Foreign Assets (Net)

Other Assets (Net)

Total Monetary Assets (M2)

Quasi-Money

Money Supply (M1)

Currency Outside Banks

Demand Deposits

Total Monetary Liabilities (M2)

*Revised
**Provisional (June 2017 Monetary Survey)
2.1.1.3 Foreign Assets (net) of the Banking System
The net foreign assets of the banking system fell by 7.45 per cent to N8,468.08 billion at endJune 2017, as against 61.85 and 25.69 per cent growth at end-December 2016 and the
corresponding period of 2016, respectively. The development reflected decline in foreign
assets of the CBN which fell by 4.68 per cent relative to its level at end-December 2016.
2.1.1.4 Consumer Credit
Consumer credit reduced by 3.4 per cent to N736.19 billion at end-June 2017, compared with
N762.07 billion at end-December 2016, due to prevailing economic uncertainties which made
banks more risk averse to consumer lending. Consumer credit constituted 3.54 per cent of the
total credit to the core private sector, and was 0.09 percentage point lower than the proportion
in the second half of 2016 (Figure 2.3).

Figure 2.3: Consumer Credit


Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
Ratio (%)
N Billion
Consumer Credit
Ratio of claims on core private sector (rhs)
FINANCIAL STABILITY REPORT – JUNE 2017

2.1.2
Sectoral Classification of Private Sector Credit
The banks’ credit to the various sectors trended downward during the review period. Credit to
the private sector fell by 1.47 per cent to N15,907.47 billion from N16,293.48 billion at endDecember 2016. The oil and gas sector accounted for the highest share of total credit at 29.29
per cent at end-June 2017 similar to 30.02 per cent in the second half of 2016. The
contribution of manufacturing, construction, and power and energy sub-sectors to total credit
rose to 13.97, 3.98 and 4.83 per cent from 13.59, 3.89 and 4.46 per cent in the preceding half
year, respectively. However, agriculture, forestry and fishery sub-sector, declined to 3.18 per
cent from 3.25 per cent in the preceding half year (Figure 2.4 and Table 2.2).

Figure 2.4: Sectoral Distribution of Credit


Table 2.2: Sectoral Distribution of Credit

Sector
December 2016
June 2017
N' Billion
Share of Total (%)
N 'Billion
Share of Total (%)
Oil and gas
4,890.91
30.02
4,660.00 29.29
Manufacturing
2,214.98
13.59
2,222.32 13.97
Governments
1,376.89
8.45
1,378.01 8.66
General
1,324.10
8.13
1,298.29 8.16
General commerce
1,038.92
6.38
1,021.00 6.42
Information and communication
859.16
5.27
797.69 5.01
Real estate activities
820.32
5.03
821.32 5.16
Finance and insurance
737.65
4.53
728.94 4.58
Power and energy

Construction
633.62
3.89
633.29 3.98


N' Billion
Dec-16
Jun-17
FINANCIAL STABILITY REPORT – JUNE 2017

Agriculture, forestry and fishing
529.06
3.25
506.12 3.18
Transportation and storage
452.19
2.78
403.66 2.54
Capital market
212.28
1.30
195.40 1.23
Public utilities
111.96
0.69
110.60 0.70
Professional, scientific and technical activities
151.23
0.93
167.70 1.05
Education
88.40
0.54
76.20 0.48
Human health and social work activities
42.16
0.26
40.14 0.25
Administrative and support service activities
30.61
0.19
35.64 0.22
Mining and quarrying
21.28
0.13
11.70 0.07
Water supply sewerage, waste management and
remediation activities
17.03
0.10
17.19 0.11
Arts, entertainment and recreation
14.44
0.09
13.76 0.09
Activities of extraterritorial organization and bodies
0.01
0.00
0.21 0.001
Total
16,293.48
100.00
15,907.45 100.00

2.1.3
Reserve Money
Reserve money declined by 6.76 per cent to N5,489.64 billion at end-June 2017 from
N5,888.20 at end-December 2016. This was higher than the second quarter indicative
benchmark of N5,458.23 by 0.6 per cent. The downward movement in reserve money
reflected the 5.55 and 2.90 per cent decline in net domestic assets and net foreign assets,
respectively.

Figure 2.5: Reserve Money and its Components (Assets)

Jun - 14
Dec -14
Jun -15
Dec -15
Jun -16
Dec -16
Jun -17
N'Billion
NFA
NDA
Oin
RM


The corresponding downward movement in the liabilities of reserve money reflected the
decline in currency-in- circulation and banks’ deposits with the CBN.
FINANCIAL STABILITY REPORT – JUNE 2017

Figure 2.6: Reserve Money and its Components (Liabilities)

Jun-14
Dec 14
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
N' Billion
CIC
Bank reserves
RM

2.1.3.1 Currency-in–Circulation and Bank Deposits with the CBN
Currency-in-circulation, which constituted 34.13 per cent of reserve money, fell by 14.03 per
cent to N1,873.54 billion at end-June 2017 compared with the level at end-December 2016.
Similarly, bank deposits with the CBN fell by 2.51 per cent to N3,616.09 billion at end-June
2017, compared with N3,709.03 billion at end-December 2016.
2.1.4
Interest Rate
The tight monetary policy stance of the Bank coupled with the new flexible foreign exchange
policy during the first half of 2017 affected liquidity in the money market. Consequently,
rates varied in line with liquidity conditions with significant spikes due to high demand for
foreign exchange and special sales of CBN bills. The average short-term money market rates
traded mostly above the MPR of 14.00 per cent.

On the average, all the rates in the first half of 2017 were higher than their levels in the
second half of 2016. Savings deposit rate increased marginally by 0.11 percentage point
from 4.07per cent in the second half of 2016 to 4.18 per cent in the first half of 2017.
Similarly, average deposit rates for 7-day, 3-month and 1-year tenors rose from 3.65, 8.13
and 7.20 per cent in the second half of 2016 to 4.31, 9.17 and 11.21 per cent in the first half
of 2017, respectively.

The 6-month average prime and maximum lending rates rose in the first half of 2017 by 0.24
and 2.3 percentage points to 17.35 and 30.05 per cent compared with their levels in the
second half of 2016, respectively. Relative to the second half of 2016, the average term
deposit rate, increased by 1.71 percentage points to 8.67 per cent in the first half of 2017.
Consequently, the spread between the average term deposit and the average maximum
lending rates widened by 0.58 percentage point to 21.38 per cent at the end of the first half of
2017. Real deposit rates were negative, while real prime and maximum lending rates were
positive.


FINANCIAL STABILITY REPORT – JUNE 2017

Figure 2.7: Lending and Deposit Rates


The 6-month average open-buy-back (OBB) rate in the first half of 2017 stood at 26.84 per
cent while inter-bank call rate averaged 23.01 per cent, representing 2.89 and 13.69
percentage points above their levels in the second half of 2016. The NIBOR averaged 32.22
and 27.83 per cent for the call and 30-day segments in the first half of 2017, compared with
19.24 and 17.36 per cent in the second half of 2016. The corridor around the MPR for
standing lending and deposit facilities was retained at +200 and -500 basis points,
respectively, in the first half of 2017. Similarly, the cash reserve ratio (CRR) and liquidity
ratio (LR) were also retained at 22.50 and 30.00 per cent for commercial banks, respectively,
during the first half of 2017.

Figure 2.8: Money Market Interest Rates and Monetary Policy Rates

FIRST HALF 2016
SECOND HALF 2016
FIRST HALF 2017
per cent
Call
OBB
MPR

2.1.5
Maturity Structure of Bank Deposits and Credit
Short-term maturities maintained dominance in the credit market, though their share of total
credit declined. Commercial and merchant banks’ outstanding credit at the end of the first
half of 2017 showed that maturities below one year accounted for 43.7 per cent, compared
with 46.4 per cent of the total at the end of the second half of 2016. The medium-term3 credit
fell to 18.4 per cent at end-June 2017 from 20.7 per cent, at end-December 2016. However,
the long-term4 credit rose by 5.0 percentage points to 37.9 per cent, compared with 32.9 per

3Medium-term implies maturities ≥1yr and < 3yrs.
4 Long-term implies maturities of 3yrs and above.

FIRST HALF 2016
SECOND HALF 2016
FIRST HALF 2017
Percentage point
Per cent
Saving
Prime
Maximum
Avterm Dep.
Spread (Max-Avtrm) rhs
FINANCIAL STABILITY REPORT – JUNE 2017

cent at the end of the second half of 2016 (Figure 2.9). The CBN through its developmental
programmes provided long term funds for on-lending to the real sector of the economy.

Figure 2.9: Distribution of Banks Loans and Advances by Maturity


The banks’ deposit liabilities showed that the short-term deposits (below one year)
constituted 96.07 per cent of the total, (of which 74.87 per cent had a maturity of less than 30
days) compared with 95.62 per cent at end-December 2016. Medium and long term deposits
constituted 0.97 and 2.95 per cent of total deposits, at the end of the first half of 2017,
compared with 1.23 and 3.15 per cent at end-December 2016, respectively (Figure 2.10). The
loans to deposit ratio fell to 79.0 per cent at end June 2017 from 80.5 per cent at end
December 2016.

Figure 2.10: Maturity Structure of Banks’ Deposits


2.1.6
Market Structure of the Banking Industry
The low concentration ratios in the industry showed a trend towards more competition across
the banks. The market share of the largest bank with respect to deposits and assets stood at
12.93 and 14.79 per cent, respectively, while that of the second largest bank stood at 12.88
and 11.72 per cent. Twenty-three other banks had market shares ranging from 0.02 to 9.01
per cent in deposits and 0.08 to 9.96 per cent in assets. The increased competition in the

Dec 13
Jun 14
Dec 14
Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
Per cent
Short term
Medium-term
Long-Term


End-Jun
'14
EndDec'14
End-Dec
'15
End-Dec
'15
End-Jun
'16
End-Dec
'16
End-Jun
'17
Per cent
Per cent
Short-term
Medium-term (rhs)
Long-Term (rhs)
FINANCIAL STABILITY REPORT – JUNE 2017

banking industry was supported by the Herfindahl-Hirschman Index (HHI)5 for the industry,
which stood at 737.66 and 783.65 for deposits and assets, respectively, at end-June 2017
compared with 773.21 and 774.50 for deposits and assets at end-December 2016.

The Concentration Ratio (CR6) of the six largest banks with respect to deposits and assets
stood at 57.05 and 60.11 per cent at end-June 2017, compared with 53.70 and 53.68 per cent
at end-December 2016, respectively. This highlighted the oligopolistic market structure of the
banking industry, with few banks controlling more than 50 per cent of the industry deposits
and assets (Figure 2.11).

Figure 2.11: Concentration Ratios of the Banking Industry Assets and Deposits


2.2
Licensed Financial Institutions
The following financial institutions were licensed in the review period:

S/N
Institution Type
Licensed in 2017
Total at end-June 2017

Microfinance Banks

Bureaux de change

3,292

Finance Companies

Commercial Banks
Nil

Merchant Banks
Nil

Development Finance Institutions (DFIs)

Primary Mortgage Banks
Nil

Mortgage Refinancing Company
Nil

Of the 999 MFBs, one licensed in June 2016 has been included in the database and forms part
of the total MFBs at end-June 2017.

The authorizations issued to commercial banks as at end-June 2017 were as follows:
10 commercial banking licences with international authorization;

5HHI is based on a scale of 0 to 10,000.

Dec 15
oct' 14
Dec 16
Jun 17
HHI
CR
CR(Deposits)
CR( Assets)
CR( Largest-Deposits)
CR (Largest-Assets)
HHI (Deposits) (rhs)
HHI (Assets) (rhs)
FINANCIAL STABILITY REPORT – JUNE 2017

Nine commercial banking licences with national authorization;
Two commercial banking licences with regional authorization; and
One non-interest banking licence with national authorization.

2.3
Other Financial Institutions
The total number of Other Financial Institutions (OFIs) stood at 4,409 at end-June 2017,
compared with the 4,242 institutions at end-December 2016, reflecting an increase of 167
OFIs or 3.94 per cent. The new OFIs include 145 Bureaux de Change (BDCs), 19
Microfinance Banks (MFBs) and 3 Finance Companies (FCs). The total number of OFIs
comprised 6 Development Finance Institutions (DFIs), 34 Primary Mortgage Banks (PMBs),
999 (MFBs), 77 FCs, 3,292 BDCs and 1 Mortgage Refinancing Company.

The provisional total assets increased by 2.04 per cent to N1,861.03 billion at end-June 2017,
from N1,823.79 billion at end-December 2016, and total net loans and advances increased by
12.90 per cent to N1,080.66 billion at end-June 2017, from N957.19 billion at end-December
2016. Total deposits also increased by 15.01 per cent to N623.02 billion at end-June 2017
from N541.73 billion at end-December 2016. Similarly, the shareholders’ funds increased by
0.47 per cent to N440.99 billion at end-June 2017, from N438.93 billion at end-December
2016. The improved financial performances were largely due to the ongoing regulatory
reforms in the sub-sector.

2.3.1
Development Finance Institutions
Provisional data showed that the total assets of the five Development Finance Institutions
(DFIs) - excluding the newly established Development Bank of Nigeria (DBN) - increased
marginally by 2.08 per cent to N984.32 billion at end-June 2017, compared with N964.24
billion at end-December 2016. Bank of Industry (BOI), Federal Mortgage Bank of Nigeria
(FMBN), Nigerian Export-Import Bank (NEXIM), Bank of Agriculture (BOA) and The
Infrastructure Bank (TIB) accounted for 67.72, 21.26, 6.94, 3.35, and 0.73 per cent of the
total asset base, respectively. These institutions also accounted for 74.51, 19.22, 6.12, 0.11
and 0.55 per cent of the net loans and advances, respectively.

Similarly, the paid-up capital of the DFIs increased by 0.73 per cent from N230.73 billion, at
end-December 2016, to N232.42 billion, at end-June 2017. The net loans and advances of the
institutions also increased by 18.32 per cent to N676.64 billion at end-June 2017 from
N571.85 billion at end-December 2016. The shareholders’ funds, however, decreased by 3.28
per cent to N198.61 billion at end-June 2017, from N205.35 billion at end-December 2016
due mainly to increased loan provisioning arising from loan defaults.

Development Bank of Nigeria
The DBN was granted licence to operate as a wholesale DFI in the first half of 2017. The
bank’s mandate is to provide funding to Participating Financial Institutions (PFIs) for onlending to the Micro, Small and Medium Enterprises (MSME) sub-sector. The Federal
FINANCIAL STABILITY REPORT – JUNE 2017

Government appointed a Managing Director for the bank and constituted its Board of
Directors. The bank was, however, yet to commence operations.

2.3.2
Microfinance Banks
The provisional data indicated that the total assets of microfinance banks (MFBs) increased
to N375.17 billion at end-June 2017, from N354.09 billion at end-December 2016, reflecting
an increase of 5.95 per cent. The paid-up capital and shareholders’ funds of MFBs also
increased by 0.97 per cent and 14.36 per cent to N63.50 billion from N62.89 billion at endDecember 2016, and N79.78 billion to N91.24 billion at end-June 2017. The increases in
paid-up capital and shareholders’ funds were largely attributed to additional capital injection
and increase in retained earnings, respectively.

Similarly, total deposit liabilities and net loans and advances increased by 7.34 and 1.52 per
cent to N185.11 billion and N193.20 billion at end-June 2017, compared with N172.45
billion and N190.31 billion at end-December 2016, respectively. Reserves increased by 64.12
per cent, to N27.72 billion at end-June 2017 from N16.89 billion at end-December 2016.

2.3.2.1 Microfinance Certification Programme (MCP)
The certification examinations administered by the Chartered Institute of Bankers of Nigeria
(CIBN) were held in the review period and the results released revealed that an additional
172 candidates completed the Level II of the certification examinations, resulting in a total of
4,071candidates duly certified by the CIBN.

The Bank continued its collaboration with the CIBN and the Federal Cooperative Colleges on
the review of the MCP. The Syllabus Review Sub-Committee incorporated inputs from the
CBN and relevant international partners during the review period.
2.3.3
Primary Mortgage Banks
The number of licensed Primary Mortgage Banks (PMBs) as at June 30, 2017 remained 34
made up of 11 national PMBs and 23 State PMBs. However, the number of State PMBs
declined from 24, with the conversion of Safetrust Mortgage Bank Limited to a national PMB
during the review period.

Total loans and advances, short-term investments, non-current assets held for sale and
placement with banks increased by 10.0, 7.0, 3.0 and 4.0 per cent to N169.83 billion, N9.48
billion, N68.03 billion and N37.20 billion from N154.46 billion, N8.84 billion, N66.36
billion and N35.94 billion at end-December 2016, respectively. Total assets decreased
marginally by 0.82 per cent to N380.51 billion at end-June 2017 from N383.67 billion at endDecember 2016. Shareholders’ funds decreased to N127.30 billion from N132.18 billion at
end-December 2016 reflecting a decrease of 3.69 per cent mainly due to operating losses.

FINANCIAL STABILITY REPORT – JUNE 2017

Table 2.3: Selected Performance Indicators of PMBs as at June 30, 2017

June 2017
(N’ billion)
December 2016
(N’ billion)
% Change
Total Assets
380.51
383.67
(0.82)
Loans and Advances
169.83
154.46

Placements with Banks
37.20
35.94

Deposit Liabilities
114.98
115.77
(0.67)
Other Liabilities
80.58
68.06

Shareholders’ funds
127.30
132.18
(3.69)

2.3.4
Finance Companies
The number of finance companies (FCs) stood at 77, including two newly licensed
institutions that were yet to commence operations and a company that had its license
reinstated. Five institutions had earlier been delisted pending their liquidation.

The total assets of the sub-sector decreased marginally by 0.63 per cent to N121.02 billion at
end-June 2017, compared with N121.79 billion at end-December 2016. The decrease in total
assets was attributed to operational losses due to economic downturn. Loans and advances
increased by 1.2 per cent to N52.99 billion at end-June 2017, from N52.36 billion at endDecember 2016, while investments, balances with banks and fixed assets decreased by 7.2,
18.77 and 3.16 per cent to N14.29 billion, N2.12 billion and N13.47 billion at end-June 2017
from N15.40 billion, N2.61 billion and N13.91 billion at end-December 2016, respectively.
The sub-sector continued to reap the benefits of the regulatory induced recapitalization
exercise, as shareholders’ funds increased by N0.27 billion to N21.87 billion at end-June
2017, from N21.60 billion at end-December 2016.

Table 2.4 Selected Performance Indicators of FCs as at June 30, 2017

End-Jun. 2017
(N’ billion)
End-Dec. 2016
(N’ billion)
% Change
Total Assets
121.02
121.79
(0.41)
Cash in Vault
1.69
1.69

Balances with Banks
2.12
2.61
(18.77)
Loans and Advances
52.99
52.36
1.2
Investments
14.29
15.40
(7.2)
Fixed Assets
13.47
13.91
(3.16)
Borrowings
71.47
71.53

Paid up capital
19.11
19.18
(0.3)
Reserves

Bureaux de Change

The number of licensed BDCs increased to 3,292 at end-June 2017, from 3,147 at endDecember 2016. The increase of 4.61 per cent was as a result of the licensing of 145 new
BDCs during the review period.


FINANCIAL STABILITY REPORT – JUNE 2017

2.4
Financial Markets

2.4.1
The Money Market
The Bank maintained its contractionary monetary policy stance in the first half of 2017 in the
bid to moderate inflationary pressures, attract capital inflows and strengthen the value of the
domestic currency. Monetary policy measures during the first half included the retention of
the MPR at 14.00 per cent and an asymmetric corridor of +200 basis points and -500 basis
points around the MPR for standing lending and deposit facilities, respectively. The CRR and
the liquidity ratio were also retained at 22.50 and 30.00 per cent, respectively.

To achieve the monetary policy objectives, open market operations (OMO) were conducted
extensively during the period. Consequently, money market rates closed high at the end of the
first half of 2017. The overnight call and open buy back (OBB) rates which opened on
January 3, 2017 at 9.05 and 8.27 per cent, respectively, traded significantly above the upper
bound of the MPR corridor for most of the first half of 2017. The monthly weighted average
OBB and inter-bank call rates closed at 25.53 and 12.37 per cent in June 2017, compared
with 7.45 and 11.62 per cent recorded in December 2016, respectively. The monthly average
OBB rate ranged from 4.18 to 104.22 per cent, while the inter-bank call rate ranged from 4.43
to 20.00 per cent.
Figure 2.12: Money Market Rates (July 2016 – June 2017)

2.4.1.1 Nigerian Treasury Bills
Nigerian Treasury Bills (NTBs) for 91-, 182- and 364-day tenors totalling N2,929.25 billion
were issued and allotted in the first half of 2017. This represented an increase of N831.02
billion or 39.61 per cent compared with N2,098.23 billion recorded during the preceding
period. The increase was attributed to the issuance of new NTBs to finance fiscal deficit.
Similarly, total subscription at N3,966.92 billion at end-June 2017 indicated an increase of
9.57 per cent compared with N3,620.30 billion at end-December 2016.

The holding structure of investments in NTBs in the review period indicated that commercial
and merchant banks took up N1,553.27 billion and N72.66 billion, representing 53.03 per
FINANCIAL STABILITY REPORT – JUNE 2017

cent and 2.43 per cent of total NTBs allotted, respectively. Mandate and Internal customers
(parastatals) and CBN take-up accounted for N1,176.14 billion and N127.18 billion
representing 40.20 per cent and 4.34 per cent, respectively, of total allotment.

The stock of NTBs outstanding at end-June 2017 showed that commercial banks accounted
for 41.83 per cent, Mandate and Internal customers accounted for 57.52 per cent, merchant
banks 0.54 per cent, while the CBN take-up accounted for 0.11 per cent. Average marginal
rates ranged from 13.4000-14.0000 for the 91-day, 17.1390-17.5000 for the 182-day and
18.4495-18.9800 for the 364-day tenors.

2.4.2
The Foreign Exchange Market
The Bank continued in its efforts to maintain a stable, liquid and transparent foreign
exchange market in the first half of 2017. In this regard, it opened a special window to fund
eligible small and medium scale imports of not more than US$20,000 and introduced an
Investors and Exporters window for timely settlement of eligible transactions. In addition, the
Bank continued to participate at the OTC Naira Settled Futures market and resumed the sale
of foreign exchange to the BDC segment.

2.4.2.1 Foreign Exchange Rates
The exchange rate of the naira at the inter-bank segment opened at N305.00/US$ on January
3, 2017 and closed at N305.90/US$ on June 30, 2017, representing a depreciation of 0.29 per
cent. At the BDC segment, the rate opened at N490.00/US$ on January 3, 2017 and closed at
N366.00/US$ at end-June 2017, representing an appreciation of 25.31 per cent.

The average exchange rates at the inter-bank market depreciated marginally by 0.16 per cent,
compared to its level at end-December 2016, while it appreciated by 19.55 per cent at the
BDC segment from N305.22/US$ and N455.26/US$ as at end-December 2016, to close at
N305.71/US$ and N366.25/US$ at end-June 2017, respectively (Figure 2.13).

FINANCIAL STABILITY REPORT – JUNE 2017

Figure 2.13: Inter-bank and BDC Rates (July 2016 - June 2017)

2.4.2.2 Foreign Exchange Spot, Forwards and OTC FX Futures Transactions
In the first half of 2017, the Bank intervened in the inter-bank segment of the market with the
sum of US$7,642.61 million, comprisingUS$1,893.75 million at the spot market and
US$5,748.86 million forwards.

The notional amount of naira-settled OTC FX Futures contracts amounted to US$1,830.45
million, while the sum of US$2,771.24 million matured and US$2,714.41 million remained
outstanding.
2.4.3
Capital Market
The Nigerian Stock Exchange All Share Index (NSEASI) and Market Capitalization (MC)
increased due to improved confidence in the market and gradual economic recovery.
2.4.3.1 Bond Market
Total bonds outstanding at end-June 2017 was N7,792.13 billion, of which FGN, subnational, and corporate bonds were N7,037.51 billion (90.32 per cent), N379.09 billion (4.87
per cent) and N375.54 billion (4.81 per cent), respectively. This reflected a 2.96 per cent
increase over the end-December 2016 figure of N7,567.84 billion.

Table 2.5: Bonds Outstanding (N Billion)

Issuer
Dec-16
Jun-17
% Change
% of Total
FGN

Sub-National

Agency

Corporate

Total

Source: FMDQ OTC


July
Aug
Sept
Oct
Nov
Dec
January
February
March
April
May
June
Inter-Bank

BDC

Exchange Rate (NGN/US$)
FINANCIAL STABILITY REPORT – JUNE 2017

FGN Bonds
In the first half of 2017, new issues of N186.04 billion and re-openings of N785 billion were
auctioned. The re-openings represented an increase of 21.70 per cent over the N645 billion
re-opened in the second half of 2016. The increase was to bridge the infrastructure financing
gap in the economy. Public subscriptions and sales increased to N1,237.94 billion and
N849.53 billion in the first half of 2017, compared with N941.90 billion and N499.20 billion
in the second half of 2016, respectively. The over-subscription was traceable to investors’
preference for fixed income assets buoyed by the higher yields on FGN bonds in the review
period (Figure 2.14).

Figure 2.14: FGN Bond Yield Curves

Source: FMDQ-OTC Plc
Agency Bonds
There was no new issue of agency bonds during the review period. However, the Federal
Mortgage Bank of Nigeria (FMBN) bonds with an issuance value of N6.00 billion matured
during the first half of 2017.
Sub-National Bonds
There was no new issue of sub-national bonds in the first half of 2017, same as in the second
half of 2016. However, a total of N68.33 billion was redeemed by 2 states, while the value of
bonds outstanding issued by 15 state governments stood at N379.09 billion.

Corporate Bonds
One corporate bond with an outstanding value of N4.50 billion was issued in the review
period, compared with one bond with an outstanding value of N7.97 billion issued in the

Yield %
Time to Maturity (Years)
June-16
June-17
Dec-16
FINANCIAL STABILITY REPORT – JUNE 2017

second half of 2016. The outstanding value of corporate bonds issued by 23 corporate entities
at end-June 2017 stood at N375.54 billion.
2.4.3.2 The Equities Market
At end-June 2017, the NSE ASI closed at 33,117.48, reflecting an increase of 23.23 per cent
above the 26,874.62 recorded at end-December 2016. Market capitalization also closed
higher at N11,452.12 billion, reflecting an increase of 23.84 per cent above the N9,246.92
billion recorded at the end of the preceding period.
Foreign portfolio investment (FPI) on the NSE showed investments (inflows) of N215.97
billion, and divestments (outflows)of N214.26 billion, reflecting a net investment of N1.71
billion in the first half of 2017, compared with a net FPI inflow of N22.12 billion in the
second half of 2016.
Overall, FPI transactions (inflow and outflow) accounted for 46.00 per cent of total equity
transactions in the period, compared with 47.13 per cent at end-December 2016. Domestic
transactions accounted for the balance of 52.87 per cent.
Table 2.6: Participation in Equity Trading
Period
Total
Transactions
(N billion)
Foreign
Transactions
(N billion)
% Foreign
Transactions
Domestic
Transactions
(N billion)
% Domestic
Transactions
Foreign
Inflow (N
billion)
Foreign
Outflow
(N
billion)
NSE ASI
Market
Capitalization (N
billion)
Jun-17

Jun-16

Dec-16


2.5
Financial Inclusion
2.5.1
EFInA 2016 Access to Financial Services Survey
The EFInA 2016 Access to Financial Services Survey report, released in the first half of
2017, showed an increase in the national exclusion rate from 39.5 per cent in 2014 to 41.6 per
cent in 2016. The exclusion rate increased in the North West from 56 per cent in 2014 to 70
per cent in 2016 and in the North Central from 33 per cent in 2014 to 39 per cent in 2016.
These regions accounted for the high exclusion rate followed by the South-South and SouthEast zones respectively.

The major factors that contributed to the increase in the exclusion rate included:
Declining oil revenues, that led to a reduction in the Federal Government
income which culminated in a recession in the first half of 2016;
Fall in household consumption year-on-year index by 1.05 per cent in the first
quarter of 2016 and by 6.00 per cent in the second quarter of 2016; and
Rise in unemployment rate to 13.3 per cent in the second half of 2016 from
8.2 per cent in the same period of 2015.
FINANCIAL STABILITY REPORT – JUNE 2017

Other reasons include loss of income and sustained inflationary pressure which made it
impossible for them to operate their various bank accounts.

Table 2.7: Access to Financial Services

Source: EFInA Access to Finance Survey 2016
2.5.2
Pre-disbursement Training for Persons with Disabilities
The Financial Inclusion Secretariat, during the period under review, held the first batch Predisbursement training for Persons with Disabilities (PWDs) in 12 states of the Federation.
This was in preparation for the disbursement of the 2.0 per cent Micro, Small and Medium
Enterprises Development Fund (MSMEDF) set aside for PWDs. The training was in line with
the goal of empowering at least 150 PWDs per state, with a total of 1,929 PWDs trained at
the end of the review period.

2.6
Real Sector Intervention Programmes

2.6.1
Risk Mitigation and Insurance Schemes

2.6.1.1 The Agricultural Credit Guarantee Scheme Fund
A total of21,073 loans valued at N3.03 billion were guaranteed in the first half of 2017 for
two commercial and 36 microfinance banks as against 34,774 loans valued N4.47 billion for
three commercial and 37 microfinance banks in the second half of 2016. This indicated a
decrease of 39.40 and 32.21 per cent in the number and value of loans guaranteed. The sum
of N2.94 billion involving 18,600 projects was repaid compared with N5.55 billion for
34,083 projects in the corresponding period of 2016. This performance reflected a decrease of
47.03 and 45.43 per cent in the value and number of loans repaid, respectively. Cumulatively,
1.08 million loans valued N107.04 billion had been guaranteed from inception to end-June
2017.

2.6.1.2 National Collateral Registry
The legal framework for the National Collateral Registry (NCR) was completed with the
enactment of the Secured Transactions in Movable Assets Act 2017 on May 30, 2017. The
Act provides for secured transactions, registration and regulation of security interest in
FINANCIAL STABILITY REPORT – JUNE 2017

movable assets. It also allows banks, other financial institutions and the public to participate
actively by the registration of their financing statements and conducting searches on the
registry portal.
The NCR carried out the following activities during the review period:
i.
Registry Operations
A total of 125 financial institutions comprising 23 commercial banks, 94 MFBs, three
merchant banks, three DFIs, one NIB and one non-bank financial institution were registered
on the NCR portal in the period under review.

Figure 2.15: Distribution of Financial Institutions Registered on the National Collateral
Registry at end-June 2017


ii.
Registration of Financing Statements
During the review period, 13,900 financing statements detailing priority interest in movable
assets valued at N363.99billion and US$5.69 billion were registered by five financial
institutions. This indicated an increase of 12,438 in number and N339.85 billion in value
respectively when compared to the 1,462 financing statements detailing priority interest in
movable assets valued at N24.14 billion, that were registered by five financial institutions in
the second half of 2016.

Commercial Banks
DFIs
MFBs
Non-Bank Financial Institution
Merchant Banks
NIB
FINANCIAL STABILITY REPORT – JUNE 2017

2.6.2
Credit Support Schemes

2.6.2.1 Commercial Agriculture Credit Scheme
The sum of N79.56 billion was disbursed to 11 banks for 23 projects in the first half of 2017
compared withN35.99 billion disbursed to 13banks for 39 projects in the preceding period.
This reflected an increase of N43.57 billion and a decrease of 16 projects. The total
repayments during the first half of 2017 stood at N19.78 billion through 17 banks for 185
projects, bringing the repayments to N244.79 billion from inception. The amount disbursed
under the scheme from inception to end-June 2017 totalled N472.98 billion for 513 projects.

2.6.2.2 Small and Medium Enterprises Restructuring and Refinancing Facility
The total disbursements to the participating banks at end-June 2017 remained at N381.99
billion for 604 projects. The total repayment under the Facility in the review period was
N6.73 billion, while the total repayment from Bank of Industry (BoI) from inception was
N186.54 billion.

2.6.2.3 Small and Medium Enterprises Credit Guarantee Scheme
In the first half of 2017, no application was received under the Small and Medium Enterprises
Credit Guarantee Scheme (SMECGS). Cumulatively, 88 projects valued at N4.25 billion
guaranteed under the scheme were fully repaid.

2.6.2.4 Real Sector Support Facility
During the period under review, the sum of N22.73 billion was released to seven projects.
Cumulatively, 10 projects valued at N30.58 billion had been financed under the initiative
from inception to end-June 2017.

2.6.2.5 Textile Sector Intervention Fund
The Bank earmarked the sum of N50 billion for restructuring of existing loans and provision
of new facilities under the Textiles Industry Intervention Fund. During the period under
review, 17 projects valued N10.29 billion were disbursed, bringing the number of projects to
31 valued N26.39 billion from inception in February 2016.

2.6.2.6 Agri-Business Small and Medium Enterprises Investment Scheme
In an effort to support the Federal Government policy measures for the promotion of agribusiness and SMEs as vehicles for sustainable economic development and employment
generation, the Bankers’ Committee established the Agri-Business Small and Medium
Enterprises Investment Scheme (AGSMEIS) in February 2017.The scheme would be funded
from an annual payment of 5.0 per cent of profit after tax by banks. The total contribution to
the fund stood at N26.87 billion at end-June 2017.

FINANCIAL STABILITY REPORT – JUNE 2017

2.6.2.7 Micro, Small and Medium Enterprises Development Fund

i.
MSMEDF Disbursements to SME and Micro Enterprises
The sum of N1.59 billion was disbursed in the first half of 2017, compared with N15.15
billion in the second half of 2016. The disbursement from inception stood at ₦77.06 billion.
A total of 113,077 female and 78,411 male micro-enterprise owners as well as 410 SMEs
(Commercial Bank Projects) had benefited from the Fund since inception in 2013.

ii.
Anchor Borrowers’ Programme
The sum of ₦12.58 billion was disbursed to 56,430 farmers in 17 states in the first half of
2017 compared to ₦12.09 billion to 49,658 farmers in 16 states in the preceding half of 2016.
The cumulative disbursement as at end-June 2017 stood at ₦31.52 billion.
2.6.2.8 Power and Aviation Intervention Fund
The sum of N4.79 billion was disbursed to two power projects in the first half of 2017.
Cumulative disbursement from inception stood at N277.40 billion for 59 projects, comprising
43 power and 16 airline projects. The sum of N13.01 billion was repaid by 27 obligors
bringing the cumulative repayment toN106.13 billion at end-June 2017.The construction of
120-kilometre natural gas pipeline and the generation of over 2,000 mega-watts of electricity
were achieved under the scheme at end-June 2017.

Table 2.8: Disbursement and Repayments under PAIF Scheme at end-June 2017
S/N
Type
No. of Obligors
No. of
projects
Amount
Disbursed(N’
Billion)
Percentage of
Amount
Disbursed (%)
Repayments (N’
Billion)

Airline

120.76
43.53
55.84

Power

156.64
56.47
50.29

Total

277.40
100.0
106.13


2.6.2.9 Nigeria Electricity Market Stabilization Facility
The sum of N4.48 billion was repaid by eight distribution companies (Discos), bringing the
cumulative repayments to N10.73 billion, while total disbursement of funds from inception
stood at N114.74 billion to 29 eligible electricity market participants.
FINANCIAL STABILITY REPORT – JUNE 2017

Table 2.9: NEMSF Repayments at end-June 2017

Obligor (Discos)
Repayment
Obligation
(N' Billion)
Repayment to Date
(N' Billion)
Amount Outstanding
(N' Billion)
Benin
17.31
1.39
15.92
Eko
5.85
0.61
5.24
Enugu
26.64
2.60
24.04
Ibadan
21.32
2.12
19.20
Ikeja
5.99
0.48
5.51
Jos
11.69
0.95
10.74
Kano
9.67
0.99
8.68
Port Harcourt
16.27
1.59
14.68
Total
114.74
10.73
104.01

Note: Only Discos are required to make repayments for the legacy debts settled under NEMSF

2.6.2.8 Entrepreneurship Development Centres
The number of participants trained by the Entrepreneurship Development Centres (EDCs)
during the review period was 6,806, surpassing the target of 6,600. A total of 3,691 (54.23%)
of the participants were female and 3,115 (45.77%) were male. Cumulatively, the sum of
N2.5 billion had been accessed through banks and other financial institutions by the graduates
since inception, while a total of 43,350 participants have been trained.

2.6.2.9 Youth Entrepreneurship Development Programme
The sum of ₦85.75 million was disbursed to 32 entrepreneurs under the Youth
Entrepreneurship Development Programme (YEDP) during the period under review. A total
sum of ₦691.02 million was refunded to the CBN due to operational issues relating to
disbursements.

2.6.2.10 National Food Security Programme
The sum of N101.20 billion was approved for four major companies to enable them to
increase local production of grains and enhance the nation’s strategic reserves. The sum of
N24.91 billion was released for nine projects under the Programme. The commodities
financed included rice, maize, sorghum, cassava, soya bean, sugar and millet.


FINANCIAL STABILITY REPORT – JUNE 2017

3.0
REGULATORY AND SUPERVISORY ACTIVITIES
3.1
Financial Soundness Indicators
The soundness of the banking industry was appraised using assets, capital, and
income/expense-based indicators.
3.1.1
Assets-Based Indicators
The asset quality of commercial banks declined in the first half of 2017. The ratio of nonperforming loans (NPLs) to gross loans increased by 2.2 and 4.3 percentage points to 15.0 per
cent at end-June 2017 compared with the levels at end-December 2016 and end-June 2016,
respectively.

Figure 3.1: Banking Industry NPLs to Gross Loans

3.1.1.1 Core Liquid Assets to Total Assets Ratio
The ratio of core liquid assets to total assets increased by 1.0 percentage point to 17.2 per
cent at end-June 2017, from 16.2 per cent recorded at end-December 2016. Similarly, the
ratio of core liquid assets to short-term liabilities increased by 1.4 percentage points to 25.9
per cent at end-June 2017, compared with 24.5 per cent at end-December 2016. The increase
reflected improved liquidity buffers to meet short-term obligations.


End-Dec. 2015
End-Jun. 2016
End-Dec. 2016
End-Jun. 2017
Per cent

FINANCIAL STABILITY REPORT – JUNE 2017

Figure 3.2: Banking Industry Liquidity Indicators
Liquid Assets (core) to total Assets

3.1.2
Capital-Based Indicators
The ratio of regulatory capital to risk weighted assets decreased by 3.3 percentage points to
11.5 per cent at end-June 2017, compared with14.8 per cent at end-December 2016. The ratio
of tier 1 capital to risk-weighted assets declined by 3.9 percentage points to 12.4 per cent at
end-June 2017 from 16.3 per cent at end-December 2016.
Figure 3.3: Banking Industry Capital Adequacy Indicators


The ratio of non-performing loans net of provision to capital for the industry increased to
31.8 per cent at end-June 2017 from 29.0 per cent at end-December 2016.

3.1.3
Income and Expense Based Indicators
Return on assets (ROA) increased by 1.3 percentage points to 2.6 per cent at end-June 2017
from 1.3 per cent recorded at end-December 2016, while the ratio of non-interest expenses to
gross income declined to 52 per cent at end-June 2017 from 62.8 per cent recorded in the
second half of 2016. The ratio of interest margin to gross income deteriorated to 57.8 per cent
during the review period from 67.6 per cent at end-December 2016. Furthermore, the ratio of
staff costs to non-interest expenses declined to 34.5 per cent at end-June 2017 from 36.1 per
cent recorded at end-December 2016.

End Dec. 2015
End Jun. 2016
End Dec. 2016
End Jun. 2017
Per cent

End Dec. 2015
End Jun. 2016
End Dec. 2016
End Jun. 2017
Per cent
Regulatory capital to risk-weighted assets
Regulatory Tier 1 capital to risk-weighted assets
FINANCIAL STABILITY REPORT – JUNE 2017

Table 3.1: Selected Financial Soundness Indicators*
Indicator

EndJun
EndDec
EndJun
EndDec
EndJun
EndDec
EndJun
EndDec
EndJun
1. Asset Based Indicators
Nonperforming loans to total
gross loan*

Liquid assets (core) to total
assets*

Liquid assets (core) to short
term liabilities*

2. Capital Based Indicators


Regulatory capital to riskweighted assets*

Regulatory Tier 1 capital to
risk-weighted assets*

Nonperforming loans net of
provisions to capital

3. Income and Expense Based Indicators
Return on asset*

Interest income to gross
income*


Noninterest expenses to gross
income*

Staff costs to noninterest
expenses

Note:
*FSIs are computed based on IMF guidelines.
3.2
The Banking Industry Stress Test
3.2.1
Solvency Stress Test
The end-June 2017 banking industry stress test which covered 20 commercial and four
merchant banks was conducted to evaluate the resilience of the banks to credit, liquidity,
interest rate and contagion risks (shocks). The industry was categorized into large (assets ≥N1
trillion), medium (assets >N500 billion but <N1 trillion) and small banks (assets ≤N500
billion).

3.2.1.1 Baseline Position
The average baseline capital adequacy ratios (CARs) for the banking industry, large, medium
and small banks at end-June 2017 stood at 11.51, 13.13, -6.71 and 13.54 per cent,
respectively. These represented a decline of 3.27, 2.34 and 19.46percentage points for the
industry, large and medium banks, respectively from the position at end-December 2016.
However, the small banks group grew by 10.40 percentage points from 3.14 to 13.54 per cent
(Table 3.2, Figure 3.4).


FINANCIAL STABILITY REPORT – JUNE 2017

Table 3.2: Baseline CAR

Banks
Industry
Large
Medium
Small
June 2017

December 2016

Percentage Point Change


Figure 3.4: Capital Adequacy Ratio


The decline in CARs was attributable to the challenges in the oil and gas sector coupled with
the slow recovery in the domestic economy which resulted to a rise in NPLs and capital
deterioration.

The pre-shock ROA of the banking industry, large, medium and small banks were0.25, 0.26,
0.22 and 0.18 per cent, respectively, while the ROE of the banking industry, large, medium
and small banks were 3.84, 3.53, -5.06 and 1.04 per cent in June 2017 (Figure 3.6).

Dec '15
Jun '16
Dec '16
Jun '17
Per cent
Industry
Large Banks
Medium Banks
Small Banks
FINANCIAL STABILITY REPORT – JUNE 2017

Figure 3.4: Baseline (Pre-shock) ROA and ROE (%)


3.2.1.2 Credit Risk
The stress test showed that only large banks could withstand a further deterioration of their
NPLs by up to 50 per cent. However, none of the groups withstood the impact of the most
severe shock of a 200 per cent increase in NPLs as their post-shock CARs fell below the 10
per cent minimum prudential requirement. The impact of the severe shocks on the banking
industry, large, medium and small banks will result in significant solvency shortfall of 15.21,
9.78, 93.42 and 17.53 percentage points from the regulatory minimum of 10 per cent CAR,
amounting to N2.77 trillion, N1.54 trillion, N0.98 trillion and N0.25 trillion, respectively.

Table 3.3: Credit Default Shocks

The credit concentration stress test showed that the banking industry and the three other
categories exhibited high levels of credit concentration as their respective CARs fell below
10 per cent regulatory threshold under scenarios 2 and 3 in Table 3.4. Under scenario 3, the
CARs of the banking industry, large, medium and small banks deteriorated to -10.43, -10.71,
-24.94 and 5.51 per cent, from the pre-shock positions, respectively.

Table 3.4: Credit Concentration Risk

Jun-2017 ROA
Jun-2017 ROE
Banking Industry
Large Banks
Medium Banks
Small Banks
Single Factor Shocks
Solvency Ratio After Shocks
Banks
Industry
Large
Medium
Small
Baseline CAR

50% NPLs increase

100% NPLs increase

200% NPLs increase


Banks
FINANCIAL STABILITY REPORT – JUNE 2017

Figure 3.5: Credit Concentration Risk


3.2.1.3 Sectoral Credit Concentration Risk
The breakdown of banking industry total credit by sector showed that, oil and gas sector
accounted for 28.83 per cent of industry credit while manufacturing, general, information and
communications, government and others accounted for 13.76, 8.82, 4.94, 8.53 and 35.12 per
cent, respectively, at end-December 2016.


Baseline
Five biggest corporate obligor credit facilities shifted
from Doubtful to Lost (100%)
Industry
Large banks
Medium-sized banks
Small banks

Industry Large Medium Small
Baseline CAR

Single Factor Credit Concentration Shocks
Solvency Ratio Post-Shocks
Scenario 1
Five biggest corporate obligors’ credit facilities
shifted from pass-through to sub-standard (10%)

Scenario 2
Five biggest corporate obligor credit facilities shifted
from sub-standard to doubtful (50%)

Scenario 3
Five biggest corporate obligor credit facilities shifted
from doubtful to lost (100%)

FINANCIAL STABILITY REPORT – JUNE 2017

Figure 3.6: Sectoral Concentration of Credit


The results of the stress test of default in exposure to oil and gas sector showed that the
banking industry and peered groups, with the exception of medium banks, withstood up to
20.00 per cent default as their post-shock CARs remained above 10.00 per cent –industry
(10.74%), large banks (12.30%) and small banks (13.34%). Under a more severe shock of 50
per cent default, only small banks had CARs above 10.00 per cent (12.30%). This showed
that banking industry, large and medium banks were more exposed to the credit risk in the oil
and gas sector than the small banks (Figure 3.9 and Table 3.5).

Table 3.5: Oil & Gas Sector Default Stress Test

Banks

Industry
(%)
Large (%)
Medium (%)
Small (%)
Baseline CARs

20% Default on total
exposure to Oil &
Gas

50% Default on total
exposure to Oil and
Gas


3.2.1.4 Interest Rate Risk
The results of the stress tests on the net position of interest sensitive instruments showed that
the banking industry and other categories (except medium banks) maintained a stable
solvency position to interest rate shock (at 10% downward shift in yield curve) as their postshock positions (in terms of capital impairment) only deteriorated marginally. However, the
interest rate shocks had significant adverse impact on the ROA and ROE of all categories
(Figure 3.10).

Oil and Gas
28.83%
Manufacturing
13.76%
General
8.82%
Infor. &
Communication
4.94%
Government
8.53%
Others
35.12%
FINANCIAL STABILITY REPORT – JUNE 2017

Figure 3.7: Impact of Interest Rate Shocks on CAR


Figure 3.8: Impact of Interest Rate Shocks on ROE and ROA


Table 3.6: Impact of Selected Shocks on CAR, ROA and ROE

Banks
Industry
(%)
Large
(%)
Medium
(%)
Small
(%)
Baseline ROA

Baseline ROE

Impact of Downward Shift in Yield Curve Shocks on CAR
5% downward shift in yield curve

10% downward shift in yield curve

Impact of Downward Shift in Yield Curve Shocks on ROA
5% downward shift in yield curve

10% downward shift in yield curve

Impact of Downward Shift in Yield Curve Shocks on ROE
5% downward shift in yield curve

10% downward shift in yield curve


Baseline CAR
Impact of 10% downward shift in yield curve on
CAR
Industry
Large banks
Medium-sized banks
Small banks

Baseline ROA
Baseline ROE
Impact of 10% downward shift in
yield curve on ROA
Impact of 10% downward shift in
yield curve on ROE
Industry
Large
Medium
Small
FINANCIAL STABILITY REPORT – JUNE 2017

3.2.2
Liquidity Stress Test
Liquidity stress test was conducted at end-June 2017, using the Implied Cash Flow Analysis
(ICFA) and Maturity Mismatch/Rollover Risk approaches to assess the resilience of the
banking industry to liquidity shocks.

The result showed that after a one-day run, the liquidity ratio of the industry declined to 31.5
per cent from the 48.1 per cent pre-shock position, and to 11.8 and 7.9 per cent after a 5-day
and cumulative 30-day run, respectively. A 5-day and cumulative 30-day run on the banking
industry resulted in a liquidity shortfall of N2.01 trillion and N2.38 trillion, respectively. The
result indicated that the industry was significantly vulnerable to liquidity risk, especially after
a cumulative 30-day run.


Figure 3.9: Impact of Runs on Banking Sector Liquidity Ratio


Table 3.7: Liquidity Stress Test Results
Scenarios
Number of Banks with
Liquidity Ratios (LR) < 30%
(Post –Shock)
June 2017
December 2016

June 2017

Post–Shock
System LR
(%)
Shortfall to 30% LR
threshold
(N’ billion)
Day 1

31.5
29.62
Day 2

27.1
570.71
Day 3

22.4
1,071.85
Day 4

17.5
1,535.66
Day 5

11.8
2,009.93
Implied Cash Flow
Test (30 Days)

7.9
2,388.00
-5

Pre-Shock
After Day 1
After Day 2
After Day 3
After Day 4
After Day 5
After cum 30 days
Jun-16
Dec-16
Jun-17
FINANCIAL STABILITY REPORT – JUNE 2017

3.2.3
Maturity Mismatch
At end-June 2017, the industry pre-shock assets and liabilities maturity position indicated that
the shorter end of the market (≤30 day and 31-90 day buckets) was adequately funded. The
cumulative position for the industry showed an excess of N6.2 trillion assets over liabilities
(Table 3.8).
Table 3.8: Maturity Profile of Assets and Liabilities at end-June2017

Liabilities
Assets
Mismatch
Cumulative
N’ billion
≤30 days

31-90 days

91-180 days

181-365 days

1-3 years

Above 3 years

Total
19,577.18
25,820.88
(6,243.70)


Table 3.9: Test Results for System-wide Maturity Mismatch

Test 2A
Descriptive Maturity
Mismatch
Test 2B
Static Rollover Risk Analysis
Test 2C
Dynamic Rollover Risk Test

N’ billion
No of
banks
with
mismatch
N’ billion
No of
banks with
mismatch
N’ billion
No of banks with
mismatch
≤30 days
7,050.43

4,231.23

(113.93)

31-90 days
3,311.04

141.15

91-180days
1,688.68

(976.45)

(298.73)

181-365days
1,436.68

(1,301.18)

(554.46)

1-3 Years
-202.46

(2,833.74)

(1,514.09)

Above 3
years
-4,630.64

(7,117.07)

(5,490.48)

Total
8,653.73

(7,856.06)

(7,971.69))


FINANCIAL STABILITY REPORT – JUNE 2017

The Test 2A bucket was adequately funded, but Test 2B and 2C buckets had mismatch of
N7.8 trillion and N7.9 trillion, respectively (Table 3.9).


Box 1: Liquidity Stress Test Assumptions
Implied Cash Flow Analysis (ICFA)
The ICFA assessed the ability of the banking system to withstand unanticipated substantial
withdrawals of deposits, short-term wholesale and long-term 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 intragroup 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 1-30and
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 3.10: Percentage of Assets Unencumbered after Fire Sales

Item
No
Assets
% Unencumbered
1.
Cash and cash equivalent

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 placement and money at call

7.
CRR

FINANCIAL STABILITY REPORT – JUNE 2017

3.2.4
Contagion Risk Analysis through Interbank Exposures
During the review period, analysis of banks based on unsecured interbank exposures showed
that one bank was central in the network, as it was exposed to more than two counterparties
in the system. The result indicated that one bank failed capital adequacy ratio (CAR) after a
100 per cent assumed default of its interbank exposures (Table 3.11).

Table 3.11: Impact of Net Interbank Unsecured Exposures on Capital Adequacy Ratio
Lending Banks
Bank 5
Bank 10
Bank 14
Bank 18
Bank 21
Bank 23
Industry
Pre-Test CAR(%)

Post-Test CAR(%)

Placement (N’ Billion)


Figure 3.10: Tiered Structure of Unsecured Placements at end-June 2017

Note: Node colour representation (Blue= Lenders; Red= Borrowers; Purple= Borrowers and Lenders); the
sizes of the nodes represent the quantum of transactions.

3.3
Supervision of Banks
3.3.1
Routine/Target Examinations
A joint (CBN/NDIC) target examination of banks’ risk assets was carried out in the review
period to ascertain the quality of banks’ assets and the adequacy of loan loss provisions.

The monitoring of banks’ implementation of examiners’ recommendations from the riskbased examination reports was carried out within the first half of the year. The examinations
of some specialized financial institutions, the three private credit bureaux and the Asset
Management Corporation of Nigeria (AMCON) were also conducted in the first half of the
year. Similarly, examinations of some banks’ off-shore subsidiaries were conducted in
collaboration with host supervisors.
FINANCIAL STABILITY REPORT – JUNE 2017

During the review period, the CBN conducted spot-checks on the top obligors in the banking
system with a view to determining the status of their exposures as well as the utilization of
foreign exchange purchased from the interbank window.

3.3.1.1 Foreign Exchange Examinations
The review of foreign exchange activities of all the banks for the period of October 2016 to
March 2017 was conducted in the first half of 2017. Major infractions observed were failure
to comply with regulations on the utilization of foreign currency purchased from the CBN,
non-issuance of certificates of capital importation to beneficiaries within allowable time
frame, non-repatriation of export proceeds, incorrect rendition of returns to the CBN, noncompliance with approved Net Foreign Currency Trading Positions, and foreign trade
documentation lapses.

3.3.1.2 Bank Examiners Training
Bank examination courses were organized for participants from the CBN, Securities and
Exchange Commission (SEC), Nigerian Pension Commission (PENCOM), Nigeria Stock
Exchange and the Central Bank of The Gambia. A total of 87 examiners were trained at the
Level 1 module. The programme is part of the Bank’s effort to ensure that bank examiners
remain equipped for the task of overseeing the institutions under their purview.

3.3.2
Enhanced Supervision of Domestic Systemically Important Banks
Using the indicator-based measurement approach of the Basel Committee on Banking
Supervision (BCBS), seven banks were designated as Domestic Systemically Important
Banks (D-SIBs) during the period under review. The banks were subjected to enhanced
supervision in view of the significant impact the failure of any one of them may portend for
the stability of the financial system.

At end-June 2017, the D-SIBs accounted for N20.07 trillion (65.02%) of the industry total
asset of N30.78 trillion. They also accounted for N11.63 trillion (64.53%) of total industry
deposit of N18.03 trillion and N10.19 trillion (64.04%) of the aggregate industry loans of
N15.91 trillion. The D-SIBs were largely compliant with enhanced prudential requirements
on capital adequacy and liquidity ratios during the period under review.

3.3.2.1 Recovery and Resolution Plans
The D-SIBs submitted their Recovery and Resolution Plans (RRPs) in compliance with the
D-SIB Supervisory Framework, which were in line with the “Minimum Content for Recovery
Plans and Requirements for Resolution Planning” guideline.

The following deficiencies were noted from the review of the RRPs:
i.
Improper identification of critical functions and services, with the DSIBs focusing
mainly on their market share and the impact of the discontinuation of these functions
on their operations rather than the financial system;
ii.
Non-integration of the RRP with existing risk management frameworks;
FINANCIAL STABILITY REPORT – JUNE 2017

iii.
Designed scenarios/assumptions in the RRPs did not adequately reflect the baseline
conditions and the likely risk factors; and
iv.
Inadequate recovery options capable of restoring the viability of the D-SIBs in a
severe stress situation.
During the review period, four of the D-SIBs were engaged to address the above concerns
and resubmit to the CBN, with engagements planned with the remaining three D-SIBs in the
second half of 2017.
3.3.3 Cross Border Supervision
3.3.3.1 Foreign Subsidiaries/Offices of Nigerian Banks
The total number of cross border institutions increased from 68 at end-December 2016 to 70
at end-June 2017, following the opening of one subsidiary each in Mali and Mozambique.
Also, a representative office was opened and another closed. The 70 entities comprised 61
subsidiaries, a branch and eight representative offices located in 28 countries.

3.3.3.2 Regulatory Collaborations
The CBN, in collaboration with the Association of African Central Banks (AACB), the
Community of African Bank Supervisors (CABS) and Making Finance Work for Africa
(MFW4A) organized a Seminar on Crisis Management and Bank Resolution in January2017
in Abuja, Nigeria. The seminar provided opportunity for participants to examine issues in
managing systemic crisis. It also presented different approaches to facilitate the effective
resolution of banks without disrupting the broader financial system. In attendance were
participants from 22 African countries.
The 12thBCBS-FSI High Level meeting for Africa was held in South Africa in January 2017.
Participants, including the CBN, focused on strengthening financial sector supervision and
current regulatory priorities. The 24thand 25th meetings of the College of Supervisors for the
West African Monetary Zone (CSWAMZ) were held in Liberia and Ghana, respectively in
the review period. The College, in line with its mandate, deliberated on issues requiring
supervisory cooperation in the zone and decided as follows:
i.
The WAMI is to coordinate a study on zonal correspondent banking relationships and
the external assessment of member countries on the Basel Core Principles (BCPs);

ii.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) to be
invited to the 26th meeting of the College in Monrovia, Liberia, to make a
presentation on its products and activities;

iii.
A seminar for the College on Islamic Banking and e-banking is to be organized by
WAIFEM in October2017; and

iv.
WAMI to prepare a paper which analyses the CSWAMZ Charter vis-a-vis its current
responsibilities and make a proposal to the Committee of Governors on the
appropriateness of its Charter.
FINANCIAL STABILITY REPORT – JUNE 2017

3.3.3.3 Onsite Examination of Offshore Subsidiaries of Banks
Two solo onsite examinations of the foreign subsidiaries of Nigerian banks were conducted
in the period under review.
3.4
Supervision of Other Financial Institutions
3.4.1
Routine Examination of Development Finance Institutions
The routine examinations of five DFIs were conducted during the period under review. The
composite risk rating of four of the institutions was “High”, while one was “Moderate”. The
earnings of one of the institutions was rated “Acceptable”, another “Needs Improvement” and
three others “Weak”. The “Needs Improvement” and “Weak” ratings were as a result of
significant deterioration in asset quality which led to high provisions for loan losses.
The capital ratings for the DFIs were “Strong” for one, “Acceptable” for another and “Weak”
for the remaining three. The prudential and soundness analysis of the DFIs revealed that only
two of the institutions met the minimum capital requirement.
3.4.1.1 Third Bi-annual Forum for Development Finance Institutions in Nigeria

The 3rd Bi-annual Consultative Forum for the stakeholders of DFIs in Nigeria was held in
June 2017 in Abuja. The Forum identified the challenges confronting the sub-sector to
include weak corporate governance, poor risk management and inadequate capital.
Recommendations and policy options identified to address the challenges included:
i.
Merger of DFIs with similar mandates to save costs and improve efficiency and
service delivery, while adopting a public private partnership framework;
ii.
Strict implementation of the CBN Regulatory and Supervisory Guidelines for
Development Finance Institutions in Nigeria;
iii.
Review of the mechanism for the disbursement of CBN real sector intervention
funds by channelling funds through the relevant DFIs; and
iv.
Recapitalizing and restructuring of the DFIs to operate on more efficient terms.

3.4.2
Examination of Microfinance Banks
A total of 226 MFBs were examined using the RBS methodology during the period under
review with the reports being finalized at end-June 2017.

3.4.2.1 Uniform Application Platform for Microfinance Banks
The CBN, during the period under review, commenced the on-boarding of MFBs on the
National Association of Microfinance Banks Unified Information Technology (NAMBUIT)
platform. The platform comprises core banking and agent banking solutions that will promote
economies of scale, connect the sub-sector to the payments system and drive financial
inclusion. The project commenced in May 2017 and is expected to end in April 2018.

FINANCIAL STABILITY REPORT – JUNE 2017

3.4.2.2 Committee of Microfinance Banks in Nigeria
The 17thMeeting of the Committee of Microfinance Banks in Nigeria (COMBIN) held in
May 2017 in Abuja. The meeting recommended the creation of Regional MFBs category on
the basis of geo-political zones.

3.4.2.3 Utilization of Credit Bureaux Services by OFIs
During the period under review, a training programme for compliance officers of OFIs was
organized to facilitate the exchange of credit information with private credit bureaux. This
was with a view to simplifying reporting and monitoring of borrower’s exposures. Similar
trainings are being planned for the managing directors and chairmen of board credit
committees of OFIs. The Bank paid the fees for each of the MFBs to sign up with any two of
the three licensed private credit bureaux of its choice in order to facilitate the integration of
OFIs into the credit reporting system.

In view of the need to obtain customers’ consent before disclosing their information to credit
bureaux, all OFIs were advised to insert a disclosure clause in the Terms and Conditions
section of their account opening documentation detailing OFIs obligation to continuously
share credit information without further recourse to customers. OFIs were further directed to
ensure compliance with the provisions of the CBN Guidelines for the Licensing, Operations
and Regulation of Credit Bureau and Credit Bureau Related Transactions in Nigeria.
Appropriate penalties were also introduced for contravention of the Guidelines.

3.4.3
Examination of Finance Companies
In the first half of 2017, the examination of 51 finance companies was conducted using the
risk-based methodology.


3.4.4
Financial Institutions Applications Processing System
During the period under review, the CBN deployed the Financial Institutions Applications
Processing System (FIAPS) to ease the processing of audited financial statements and other
off-site requests of OFIs.

3.5 IFRS 9 Implementation
In line with the Guidance Notes issued by the CBN on December 20, 2016,all the banks
submitted their detailed IFRS 9 implementation plans. The review of the implementation
plans showed that significant progress had been made in the development of the necessary
processes, policies, database and other capabilities for the implementation of the new
standard.

Banks were required to conclude the development of their IFRS 9 policies and Expected
Credit Loss (ECL) models latest by September 30, 2017 to enable them to undertake parallel
runs of IAS 39 and IFRS 9 impairment systems commencing October 1, 2017.
FINANCIAL STABILITY REPORT – JUNE 2017

3.6
Implementation of Basel II/III
The Internal Capital Adequacy Assessment Process (ICAAP) reports for 2016 submitted by
banks during the first half of 2017 were reviewed. The supervisory review and evaluation
process revealed overall improvement in the quality of the ICAAP reports. However,
inadequacies were observed with respect to the risk governance processes, quantification of
Pillar 2 risks and capital, linkages between ICAAP and strategic decision making, and
internal audit review and incorporation of the quantitative impact of IFRS 9 implementation
in capital planning. The CBN engaged the affected banks to address the exceptions.
3.7
Anti-money Laundering/Combating the Financing of Terrorism
3.7.1
Appointment of Executive Compliance Officers
The CBN continued to ensure strict compliance with extant regulations on AML/CFT. The
Bank issued a circular directing banks to appoint Executive Compliance Officers (ECOs) not
below the rank of an Executive Director, who were to report to the Board. The ECOs were to
be appointed in addition to the Chief Compliance Officers (CCOs) and were to be held
accountable for any breach of extant regulations.
In line with the recommendations of the Financial Action Task Force (FATF), the CBN
carried out AML/CFT compliance examination of banks for the period May 2016 to March
2017. The examination reviewed foreign and local currency deposits beyond prescribed
statutory thresholds and investigated suspicious transactions.

3.7.2
Virtual Currencies
During the review period, a circular was issued to banks and OFIs, drawing their attention to
the risks associated with Virtual Currencies (VCs) and advising them not to use, hold, trade
and/or transact in virtual currencies, pending substantive regulation or decision by the CBN.

3.7.3
GIABA Plenary Meeting
The Bank participated at the 27th GIABA Technical Commission/Plenary Meeting held in
Monrovia, Liberia in May 2017. Following the plenary meeting, an administrative letter was
issued to all banks and OFIs advising on the need to strengthen their governance systems and
enhance identification, monitoring and reporting of suspicious transactions on terrorism
financing and money laundering in accordance with extant laws.
Banks and OFIs were also required to take proactive measures that would enhance
customers’ identification, verification, transactions monitoring and filing of suspicious
transactions reports (STRs) with the Nigerian Financial Intelligence Unit (NFIU).
3.7.4
Compliance with AML/CFT International Standards
In compliance with international standards, particularly FATF Recommendation 35, the Bank
developed an Administrative Sanctions Regime which was forwarded to the AttorneyGeneral of the Federation and Minister of Justice for gazetting.
FINANCIAL STABILITY REPORT – JUNE 2017

In line with the FATF Recommendations 2 and 40 on national cooperation and coordination
and other forms of international cooperation, the Bank:
i.
Reviewed the draft report of the maiden Money Laundering/Financing of Terrorism
National Risk Assessment exercise coordinated by the NFIU.
ii.
Participated in the FATF Plenary meetings held in Valencia, Spain in February 2017.
3.7.5
OFI Compliance with AML/CFT Requirements
Forms designed to capture OFI compliance with AML/CFT requirements were forwarded to
MFBs and also uploaded on the CBN website during the review period. OFIs were expected
to complete and submit the forms to the CBN on a quarterly basis.

The Bank issued a directive to all OFIs limiting the use of cash for the purchase of equity
shares of OFIs to a cumulative maximum of N100,000 for individuals, while cash payment
by corporate bodies was prohibited.

3.7.6
2017 FHAN AML/CFT Training Programme
The Bank, in collaboration with the Finance Houses Association of Nigeria (FHAN),
organised the AML/CFT Compliance Workshop for Compliance Officers, Heads of Internal
Audit and Risk Management of various finance companies.

The workshop was organized to among others:
i.
Sensitize FCs on AML/CFT and draw participants’ attention to extant AML/CFT
laws and regulations and their compliance obligations thereon;
ii.
Equip participants with the required competencies to identify money laundering and
terrorist financing threats and vulnerabilities in the FC sub-sector;
iii.
Equip participants to conduct KYC and customer due diligence procedures as well as
recognize and report suspicious transactions; and
iv.
Expose participants to the AML/CFT returns templates and provide guidance on
rendition of statutory returns.

3.8
The Asset Management Corporation of Nigeria
The net carrying value of the Asset Management Corporation of Nigeria (AMCON)
outstanding liabilities stood at N4.5 trillion as at June 30, 2017. The carrying value of its
assets net of impairment increased from N624.00 billion at end-December 2016 to N808.48
billion at end-June 2017. The liabilities of AMCON were projected to be recovered through
the Banking Sector Resolution Cost Trust Fund (BSRCTF), credit recoveries and assets sales
by AMCON.
The BSRCTF had realized total collections of N190.89 billion in the first half of 2017
towards the redemption of AMCON bonds.
FINANCIAL STABILITY REPORT – JUNE 2017

3.9
Key Risks to the Financial System

3.9.1
Credit Risk
Risk Rating (High Risk, Trending Up)


Total non-performing loans (NPLs) grew by 14.59 per cent from N2,084.92 billion at endDecember 2016 to N2,389.11 billion at end-June 2017. Also, the exposure of the top 50 and
100 obligors stood at N5,461.51 billion (34.33%) and N7,111.53 billion (44.7%)of the total
industry exposure of N15,908.08 billion, respectively, reflecting high concentration risk.
Consequently, credit risk increased as the industry-wide NPLs ratio rose from 12.8 per cent to
15.02 per cent at end-June 2017, reflecting a 2.22 percentage points increase compared with
1.1 percentage points in the preceding period. The increase was occasioned by the continued
low level of oil prices and government revenue. It is expected that NPL growth would
moderate as aggressive debt recovery strategies are employed by banks.

Sectoral credit distribution during the review period showed that loans to the oil and gas
sector constituted 29.29 per cent of the gross loan portfolio of the banking system as credit to
the sector fell by 4.71 per cent from N4,890.91 billion to N4,660.50 billion. On the other
hand, loans to State Governments rose marginally from N1,376.89 billion to N1,378.01
billion at end-June 2017.

Composite credit risk remained elevated in the first half of the year with several obligors
unable to service outstanding obligations.

Figure 3.11: Non-Performing Loans Ratio


To address these concerns, in addition to engaging the banks, the CBN is in the process of
developing a framework that will permit private asset management companies to participate
in the resolution of non-performing facilities.


Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Per cent
FINANCIAL STABILITY REPORT – JUNE 2017

3.8.2
Liquidity Risk
Risk Rating(Medium Risk, Stable)


The liquidity ratio for the banking industry decreased by 3.01 percentage points to 45.62 per
cent at end-June 2017 from 48.63 per cent at end-December 2016. This ratio was above the
prudential minimum limit by 15.62 percentage points. The liquidity position was as a result
of the preferred holdings in government securities by banks as against lending to the private
sector. However, some banks continued to face intermittent liquidity challenges during the
review period.
3.8.3 Market Risk
Risk Rating (Medium Risk, Trending Down)


Average interest on savings fell by 0.10 percentage points from 4.18 per cent at endDecember 2016 to 4.08 per cent at end-June 2017, while the prime and maximum lending
rates grew by 6.47 and 3.96 per cent to 17.58 and 30.75 per cent, respectively in the same
period. The increasing spread in rates continued to discourage potential savers due to low
returns on deposits. The CBN, in an effort to encourage savings, continued to enforce the
provisions of the 2017Guide to Bank Charges that require banks to pay a minimum of 30 per
cent of MPR on savings accounts deposits.

The Federal Government, during the review period introduced the FGN Savings Bonds with
an interest rate of 13.01 per cent and a minimum tenure of two years. The bonds were aimed
at deepening national savings culture and encouraging greater participation by the general
public. The minimum subscription for FGN securities was set as follows:

FGN Savings Bonds - N5,000.00

Nigerian Treasury Bills - N50,001,000.00

FGN Bonds - N50,001,000.00.

In the money market, the 91-day NTB rates fell to 13.50 per cent at end-June 2017 from
13.96 per cent at end-December 2016, while inter-bank and OBB rates rose to 13.46 and
29.57 per cent, respectively from 10.39 and 7.35 per cent at end-December 2016. Monthly
average spikes of as high as 64.58 and 51.04 per cent in April 2017 were recorded, signifying
periods of liquidity squeeze in the market due to intensified Open Market Operations by the
CBN. The sustained demand in the inter-bank market combined with liquidity shortages
culminated in increased rates.

The foreign exchange market experienced improved liquidity as a result of the Bank’s
introduction of special foreign exchange windows for investors and exporters, small and
medium enterprises and BDCs. Consequently, the exchange rate in the inter-bank market was
relatively stable during the period recording a range of N305.00/US$ to N305.90/US$.
Conversely, rates in the BDC segment were less stable in the period, opening at
N493.29/US$ in January 2017, peaking at N515.00/US$ in February 2017 and closing at
N366.25/US$ at end-June 2017. The relative stability in the foreign exchange market in the
FINANCIAL STABILITY REPORT – JUNE 2017

second quarter of 2017 along with the Nigeria’s retention of its B rating with a stable outlook
is expected to attract increased portfolio inflows and foreign direct investment.

3.8.4
Operational Risk
Risk Rating(High risk, trending up)


Operational risk events reported during the period included incidences of fraud, forgeries,
rising insecurity in parts of the country as well as global rise in cyber-attacks. Reported cases
of fraud and forgeries increased to 16,762 at end-June 2017 from 9,929 at end-December
2016. Similarly, the total amount involved increased from N4.12 billion at end-December
2016 to N5.52 billion at end-June 2017. However, actual losses reduced from N1.003 billion
to N0.78 billion at end-June 2017, reflecting stringent internal control measures and enhanced
risk management processes. The reported cases involved robbery attacks, suppression and
conversion of customer deposits, illegal fund transfers and fraudulent ATM withdrawals.

Mobile banking fraud continued to increase as a result of sim swap manipulation, identity
theft via mobile devices and compromised customer details. Cybercrime also remained a key
operational risk during the period due to increased use of technological platforms. In May
2017, a global ransomware outbreak occurred, attacking over 150 countries and infecting
more than 250,000 computers simultaneously. In order to mitigate this class of operational
risks, bank customers were sensitized on safe banking practices, while banks were
encouraged to train their employees to identify suspicious emails and protect their web
presence. In addition, banks were directed to operate 24-hour fraud desks manned by
competent staff with the necessary investigative tools to promptly resolve fraud complaints.

3.8.5 Macroeconomic Risk
Risk Rating (High Risk, Stable)


During the review period, macroeconomic risks remained unchanged, largely due to slow
economic recovery, high inflation, slow recovery in oil prices and low government revenue.
Economic activities are expected to improve in the oil and gas sector, following the passage
of the Petroleum Industry Governance Bill 2017 and improved security in the Niger Delta.

Efforts by the government to stimulate domestic demand through investment in
infrastructure, Conditional Cash Transfer Programme, implementation of the Executive
Orders and Economic Recovery and Growth Plan are expected to have positive impact on the
overall economic conditions.

3.9
Credit Risk Management System
In the review period, the Bank deployed a redesigned Credit Risk Management System
(CRMS).The new system addressed the challenges associated with lack of unique identifier
by adopting the use of Bank Verification Number (BVN) and Taxpayer Identification
Number (TIN) as unique identifiers for individual and corporate borrowers, respectively.
FINANCIAL STABILITY REPORT – JUNE 2017

Also, the redesign was to capture all loans and borrowers of lending institutions irrespective
of amount. The Bank issued regulatory guidelines to participating institutions for the
operation of the redesigned CRMS.
Highlights of activities on the CRMS include:
a) The number of registered borrowers in the CRMS rose from 147,828 at endDecember 2016 to 824,387 at end-June 2017, representing an increase of 457.67 per
cent.
b) The total number of credit facilities reported on the database stood at 1,905,997
showing a 268.77 per cent increase over the December 2016 position of 516,848.
c) Total number of facilities with outstanding balances on the database stood at
1,105,671 at end-June 2017 as against the December 2016 figure of 127,374.
The significant increase in the number of borrowers, credit facilities and compliance levels
recorded in the review period was largely due to the implementation of the new regulatory
guidelines on CRMS, update of the database using the redesigned rendition template and
enhanced monitoring.
Table 3.12: Borrowers Registered on the CRMS
Description
December

June 2017
Absolute
Change
% Change
Total No. of Borrowers reported on the
CRMS:

Individuals
106,074
755,076


Corporates
41,754
69,311


* Total No. of Credit/facilities reported
on the CRMS:

Individuals
215,990
1,513,452


Corporates
300,858
392,545


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

Individuals
81,605
1,018,819


Corporates
45,769
86,852


Note: These figures are based on submissions by Commercial and Merchant Banks only and for all amounts of
credits.
* The figures include borrower(s) with multiple loans and/or credit lines.
National Credit Reporting Act
The Credit Reporting Act, 2017 was enacted in the review period. The Act provides the legal
framework for the operation of private credit bureaux in Nigeria and provides guidance for
regulation, licensing and credit reporting.


FINANCIAL STABILITY REPORT – JUNE 2017

3.10 The Financial Services Regulation Coordinating Committee


3.10.1 National Road Map on Sustainable Finance
Following the approval of the roadmap for the Nigerian Sustainable Finance Principle
(NSFP) by Financial Services Regulation Coordinating Committee (FSRCC) in 2016, each
member agency was required to set up a steering committee to coordinate the development of
sector-specific Sustainability Principles and Guidelines. Consequently, implementation
steering committees were established by member agencies within the review period to ensure
full implementation by 2018.

As part of efforts to further build capacity in sustainable finance in the Nigerian financial
services industry, the FSRCC, in collaboration with the International Finance Corporation
(IFC), organized a two-day workshop for the staff of member agencies in January 2017.

3.10.2 Consolidated Examination of the Financial Holding Companies
The FSRCC commenced the consolidated examinations of FBN, FCMB and Stanbic IBTC
Holdings within the review period. The reports of the examinations are due to be issued in
December 2017.

3.10.3 Executive Order on the Ease of Doing Business in Nigeria
An ad-hoc Committee was set up by FSRCC to review the Executive Order on the Ease of
Doing business in Nigeria as it affects the financial system, charged with the responsibility of
accomplishing the task before the end of 2017.

3.10.4 Fight Against Illegal Fund Managers
An ad hoc committee set up to investigate the activities of ‘MMM’ and other ponzi schemes
had concluded its work and presented its recommendations on ways to prevent the
reoccurrence of such fraudulent activities to the FSRCC in May, 2017. The FSRCC
approved the recommendations of the ad-hoc committee, including the immediate shutdown
of the websites of the illegal fund managers.

3.11 Consumer Protection
The CBN received 1,141 new complaints from consumers of financial services in the period
under review, compared with 1,183 received in the second half of 2016. The breakdown
showed that 1,112 complaints or 97.46 per cent were against commercial banks, while 29
complaints or 2.54 per cent were against other financial institutions. The complaints covered
excess/unauthorized charges, frauds, guarantees, account management, ATM dispense errors,
funds transfers amongst others.

A total of 1,270 complaints were resolved and/or closed in the period under review compared
with 928 in the second half of 2016, representing an increase of 342 or 36.85 per cent. Total
claims amounted to N14.72 billion, US$2.42million and €6,940, while the sums of N7.21
billion, US$2.40 million and €6,940, respectively were refunded by financial institutions to
customers.
FINANCIAL STABILITY REPORT – JUNE 2017

3.11.1 April 2017 Compliance Examination
The Bank conducted an examination of 19 banks in April 2017 to ascertain their level of
compliance with consumer protection policies and guidelines, particularly the provisions of
the Revised Guide to Bank Charges. The result of the examination is shown in Table 3.13.


Table 3.13: Compliance Level
S/N
Issues
Compliance Level (%)

Maximum fees applied on facilities
50.00

Insurance charges applied on facilities
66.67

Alignment of internal policies with the consumer protection framework
0.00

Management of dormant accounts
55.60

Outstanding complaints
26.20

Compliance with directives issued after the last examination and other
directives
52.63

Consequently, non-compliant banks were directed to implement specific remedial actions,
including making refunds where applicable.
3.11.2 Implementation of the Consumer Protection Framework
Subsequent to the issuance of the Consumer Protection Framework (CPF) to the industry, the
Bank developed draft guidelines on the following:
a. Disclosure and Transparency;
b. Fair Treatment of Consumers; and
c. Consumer Protection Regulation and Supervision.

The draft guidelines have been exposed to stakeholders for comments.
3.11.3 Financial Literacy Activities
3.11.3.1
Targeted Financial Education Programme for MSMEs and Farmers
In pursuit of its financial literacy programme, the Bank conducted the second phase of the
Targeted Financial Literacy programme For Micro, Small and Medium Enterprises (MSMEs)
and farmers in Awka, Anambra State. Participants were drawn from Small and Medium
Enterprises Development Agency of Nigeria (SMEDAN),NGOs, women organizations, and
farmer groups.
3.11.3.2
Targeted Train-the-Trainer Peer Educator Initiative
The Bank conducted a train-the-trainer programme for participants drawn from the Federal
Ministry of Youth and Sports Development, NDIC, Association of Non-Bank Micro Finance
Institutions of Nigeria, and the National Pension Commission (PENCOM).
The Bank in collaboration with the Federal Ministry of Youth and Sports Development
organised a similar programme for the National Youth Service Corps (NYSC). The objective
FINANCIAL STABILITY REPORT – JUNE 2017

of the programme was to acquaint NYSC members with financial literacy concepts and equip
them with the skills to transfer the knowledge to the public at the grassroots.
3.11.3.3
Global Money Week Activities
The Bank, in collaboration with stakeholders, celebrated the 2017 Global Money Week in the
first half of 2017. Activities carried out included Global Money Walk, Financial Literacy
Fair/Exhibition and School Mentoring and Reach-out Programme. A total of 1,696 students
from 11 schools benefitted from the various activities.

The Bank also, in collaboration with the Bankers’ Committee Sub-committee on Financial
Literacy and Enlightenment, implemented the school mentoring programme in 36 states. A
total of 85,233 students in 626 schools nationwide benefited from the initiative.

3.11.3.4
Development of Teachers’ Guide for Financial Education
Further to the revision of the school curriculum to integrate financial literacy topics into
various subjects, the Bank, in conjunction with the Nigeria Educational Research and
Development Council (NERDC), developed a draft Teachers’ Guide to be used for teaching
financial education in basic and senior secondary schools.


FINANCIAL STABILITY REPORT – JUNE 2017

4.0
DEVELOPMENTS IN THE PAYMENTS SYSTEM

The Bank, in its effort to enhance the safety and efficiency of the payments system in
Nigeria, continued the implementation of the following initiatives:
4.1
Implementation of the Bank Verification Number Scheme
The Bank undertook the following during the review period:

i.
Assessed banks’ compliance with the under-listed directives that:
-
All banks’ customers should have their BVN. Any bank customer without BVN
would be placed on “Post No Debit”;
-
Invalid BVNs linked to customers’ accounts should either be corrected or
delinked; and
-
Mismatched names on BVN and core banking application of banks should be
corrected.
The Report of the compliance monitoring exercise showed that 17 banks had some
invalid BVNs and 20 banks had some mismatched names on BVN and core banking
applications while the banks largely complied with “Post No Debit” for accounts without
BVN. Major causes of invalid BVNs were deletion of BVNs after linkage, linking of
BVN to accounts without validation and typographical errors while linking BVN to
accounts manually. The causes of mismatched names were identified to include minors’
accounts that are linked to the parents’ BVN, correction of name at enrolment bank after
other banks had linked the BVN with the old name and typographical errors at the
enrolment bank.

ii.
Feedback had been received from stakeholders on the exposure draft Regulatory
Framework for BVN Operations and Watch-list for the Nigerian Financial System.

iii.
The Bank extended the BVN initiative to OFIs to enhance KYC procedures in the
sub-sector. The deadline for compliance was set atJuly31, 2017.

iv.
The BVN database was being integrated into the National Identity Management
Commission (NIMC) identity database under the Federal Government Committee on
Identity Management and Harmonization of Data. The Committee agreed on
minimum data standards, data fields and resolved issues on the NIN6-BVN
harmonisation process.

At end-June 2017, the implementation of the BVN Scheme had recorded 29,565,684
registered BVNs and 40,676,362 accounts linked with BVN out of 62,615,344 active
customer accounts.


6 National Identity Number
FINANCIAL STABILITY REPORT – JUNE 2017

4.2
Nigeria electronic Fraud Forum
The Nigeria electronic Fraud Forum (NeFF) organized a workshop in May 2017 on
Cybercrime with the theme: “Tackling Enforcement Challenges under the Cybercrime Act”.
The workshop provided the opportunity for stakeholders7 to brainstorm on the
implementation of the Act.

4.3
Migration from Merchant Service Charge to Interchange Fee Regime
The plan to migrate the Nigerian payment card industry from Merchant Service Charge to
Interchange Fee Regime with effect from May 2017 was suspended to enable stakeholders to
resolve outstanding issues relating to the migration.

4.4
Cheque Standards and Cheque Printers Accreditation Scheme
The revised Nigeria Cheque Standards was exposed to key stakeholders for comments.
Notable changes in the revised Standards included introduction of Quick Response code for
faster verification of cheque details, expiry date of cheque booklet and clear zone at the back
of the cheque. The objective of the revised Standards was to improve the efficiency and
safety of the cheque clearing system.
4.5
Licensing of Payments System Participants
During the review period, one card scheme, one mobile money operator and two Payment
Solution Service Providers (PSSPs) were licensed, bringing the total of card schemes, mobile
money operators and PSSPs to 4, 23 and 8, respectively. In addition, there were a total of 18
Payment Terminal Service Providers (PTSPs), six transaction switching companies and three
third party processors in Nigeria.

Table 4.1: Licensed Payment System Participants
License Type
Number
End-Dec 2016
End-Jun 2017
Card Scheme

Mobile Money Operator

Payment Solution Service Provider

Payment Terminal Service Provider

Transaction Switching Company

Third Party Processor

Total

4.6
Payments System Vision 2020
In continuation of the implementation of Payments System Vision 2020 (PSV 2020), the
Bank delivered on the following:

7CBN, financial institutions, Federal Ministry of Justice, law enforcement agencies, the military and other
regulators.
FINANCIAL STABILITY REPORT – JUNE 2017

i.
Exposure of the following draft guidelines for comments from stakeholders:
Revised Guidelines for Nigeria Clearing System Rules
Revised Guidelines for Direct Debit Schemes in Nigeria
Revised Guidelines on Bills Payment in Nigeria
Guidelines on Instant (Inter-bank) Electronic Funds Transfer Services in
Nigeria

ii.
Definition of the point at which settlement is final and irrevocable for four major
payments schemes in Nigeria - RTGS, Card, Mobile and Automated Clearing
House (ACH)/Cheque/Instant Payment Schemes, in compliance with the Principle
8 of the BIS Principles for Financial Market Infrastructures (PFMI).

iii.
Review of the current collateral management framework for the operations of
deferred net settlement systems and recommendation for a phased approach for
migration from fixed collateral requirement to a risk-based collateral requirement,
amongst others.

4.7
Large Value Payments
The volume and value of inter-bank fund transfers through the RTGS system increased to
625,788 and N202,664 billion at end-June 2017 from 612,843 and N188,273 billion at endDecember 2016, representing an increase of 2.11 and 7.64 per cent, respectively. The
increase was largely attributed to bulk upload of government payments through the System.
4.8
Retail Payments
4.8.1
Electronic Transactions
The volume of electronic transactions rose to 646,258,116 at end-June 2017 from
538,080,841 at end-December 2016, while the value increased to N44,117.63 billion at endJune 2017 from N40,457.79 billion at end-December 2016. The rise in volume and value by
20.10 and 9.05 per cent, respectively, reflected the increased adoption and use of electronic
channels by the public.


FINANCIAL STABILITY REPORT – JUNE 2017

Table 4.2: Electronic Transactions
Payment
Channel
Number of Terminals
Number of Transactions
% Change
(Volume)
Value N’ Billion
% Change
(Value)
Dec-16
Jun-17
Dec-16
Jun-17
Dec-16
Jun-17
ATMs

PoS

Mobile

Internet
(Web)

NEFT


NIP


e-Bills Pay


REMITA


NAPS


Total


4.8.1.1 Instant Payment
The volume and value of instant payment transactions grew to 150,480,692 and N24,491.19
billion in the first half of 2017 from 97,298,109 and N21,743.80 billion, in the second half of
2016, respectively. The growth was due to the improved efficiency of the instant payment
platform and increased public confidence.
4.8.1.2 Point of Sale Transactions
The volume and value of Point of Sale (PoS) transactions increased to59,421,710 and
N610.11 billion at end-June 2017 from38,377,598and N450.52billion at end-December 2016,
representing increases of 54.83 and 35.42 per cent, respectively. The increases were
attributed to the greater acceptance by merchants, incentive programmes and improved
network availability.
4.8.1.3 Mobile Payment
The volume of mobile payments decreased to 24,168,814 at end-June 2017 from 24,317,729
at end-December 2016, while the value increased to N555.83billion at end-June 2017 from
N453.37 billion at end-December 2016, representing a decrease of 0.61 per cent and an
increase of 22.60 per cent, respectively.
4.8.2
Cheque Clearing
The volume and value of cheque transactions decreased to 5,298,031 and N2,781.48 billion at
end-June 2017 from 24,168,814 and N2,934.76 billion at end-December 2016, representing a
decrease of 78.08 and 5.22 per cent, respectively. The decrease was attributable to the
preference for e-payment channels.
FINANCIAL STABILITY REPORT – JUNE 2017

5.0
OUTLOOK
The outlook for the global economy remains optimistic as financial markets are expected to
be buoyant alongside a cyclical recovery in manufacturing and increased global trade.
Although there are uncertainties on the impact of fiscal stimulus on growth in the United
States, it is expected that improvements in other regions and individual economies would
keep the momentum of global recovery on track.
The moderate recovery of the domestic output growth, sustained decline in inflation rate,
stability in the foreign exchange market and the gradual accretion to external reserves are
expected to improve economic performance. In addition, implementation of the National
Economic Recovery and Growth Plan and the Executive Orders is expected to further spur
economic activities. As a result, Nigeria’s output growth is forecasted to rebound to 1.65 per
cent in 2017 and 2.66 per cent in 2018 (CBN revised forecast).
The enhanced supervision and strict monitoring of the industry risks by the Bank are
expected to mitigate the effect of shocks to the financial system. The implementation of the
Framework for the Regulation and Supervision of Domestic Systemically Important Banks
(SIBs) in Nigeria and the Supervisory Intervention Framework are also expected to curtail
systemic risks and vulnerabilities.

In its effort to sustain the safety and efficiency of the Nigerian payments system, the Bank
would continue to monitor developments in virtual currency operations, intensify consumer
education and ensure compliance by banks with existing guidelines on fraud and forgeries.


FINANCIAL STABILITY REPORT – JUNE 2017

ACKNOWLEDGEMENTS

List of Major Contributors

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

M. W. Muazu-Lere
Ditto

J. M. Gana
Ditto

M. Ekugo
Ditto

H. J. Audu
Ditto

P. N. Wondi
Ditto

C. O. Ugwueze
Ditto

V. K. C. Johnson
Ditto

Umar Babale
Ditto

L. Juma (Mrs.)
Development Finance Department

J. O. Tawose
Monetary Policy Department

O. A. Ben-Obi (Mrs)
Research Department

A. Shebe
Banking Supervision Department

Salihu Audu
Statistics Department

E. O. Shonibare
Risk Management Department

Phebian Bewaji
Financial Markets Department

U. U. Uche
Other Financial Institutions Supervision Department

M. M. Farouk
Reserve Management Department

P. I. Oluikpe (Dr.)
Strategy Management Department

B. D. Fada
Consumer Protection Department

H. Abdullahi
Banking and Payments System Department

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


KEVIN N. AMUGO
Director,
Financial Policy and Regulation Department