FINANCIAL STABILITY REPORT – DECEMBER 2018

FINANCIAL
STABILITY REPORT


DECEMBER 2018


FINANCIAL STABILITY REPORT – DECEMBER 2018

Contents

FINANCIAL STABILITY REPORT – DECEMBER 2018


FINANCIAL STABILITY REPORT – DECEMBER 2018


FINANCIAL STABILITY REPORT – DECEMBER 2018


FINANCIAL STABILITY REPORT – DECEMBER 2018

List of Figures


FINANCIAL STABILITY REPORT – DECEMBER 2018

List of Tables


Table 4. 1: Licensed Payment System Participants

Table 4. 2: Electronic Transactions

List of Boxes

LIST OF ACRONYMS
AMCON
Asset Management Corporation of Nigeria
FINANCIAL STABILITY REPORT – DECEMBER 2018

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
CRMS
Credit Risk Management System
DAX
Deutscher Aktienindex (German stock index of 30 major German companies)
DFIs
Development Finance Institutions
DMBs
Deposit Money Banks
EBAs
Eligible Bank Assets
ECB
European Central Bank
EGX CASE 30
Egypt Stock Exchange (Cairo and Alexandria Stock Exchange) 30 Stock Index
FAO
Food and Agriculture Organisation
FATF
Financial Action Task Force
FCs
Finance Companies
FGN
Federal Government of Nigeria
FMBN
Federal Mortgage Bank of Nigeria
FRACE
Financial Regulation Advisory Council of Experts
FSIs
Financial Soundness Indicators
FSR
Financial Stability Report
FSRCC
Financial Services Regulation Co-ordinating Committee
GDP
Gross Domestic Product
GSE
Ghanaian Stock Exchange
HHI
Herfindahl-Hirschman Index
ICE
Intercontinental Exchange
IFRS
International Financial Reporting Standards
IMF
International Monetary Fund
KYC
Know Your Customer
M1
Narrow Money Supply
M2
Broad Money Supply
M3
M2 plus CBN Bills held by the money holding sectors
MENA
Middle East and North African Countries
MFBs
Microfinance Banks
MICEX
Moscow Interbank Currency Exchange
MoUs
Memoranda of Understanding
MPR
Monetary Policy Rate
NBS
National Bureau of Statistics
NCR
National Collateral Registry
NDC
Net Domestic Credit
NDIC
Nigeria Deposit Insurance Corporation
NIBSS
Nigerian Inter-bank Settlement System
NMRC
Nigeria Mortgage Re-finance Company Plc
NPLs
Non-Performing Loans
FINANCIAL STABILITY REPORT – DECEMBER 2018

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 – DECEMBER 2018

GOVERNOR’S STATEMENT
The global economy witnessed a slowdown in the second half of the year, underpinned by weak
economic activity, reduction in private consumption, regional tensions and elevated financial
market pressures in Emerging Markets and Developing Economies. Furthermore, rising
interest rates in several advanced economies triggered capital outflows from most developing
economies, including Nigeria. However, the domestic economy has, through the successful
implementation of various policy measures, effectively moderated the negative impacts of
these developments.

Consequently, the GDP growth rate sustained its upward trend, largely driven by strong
performance in the non-oil sector, reflecting government efforts at diversification of the
economy and boosting alternative revenue sources. The Bank will continue to implement
programmes towards supporting the real sector to ensure that the economy remains on a steady
trajectory of recovery towards the achievement of its growth projections.

The Bank maintained its non-expansionary monetary policy stance in the second half of 2018
to rein in inflationary pressure. Inflation is anticipated to increase in the coming months.
Consequently, the Bank will continue to apply monetary policy tools to contain the inflationary
headwinds.

Potential risks to the stability of the banking system as a result of high exposure to the oil and
gas sector, cyber-crime and trade tensions remain. However, the Bank has implemented
appropriate policies and regulatory measures to significantly minimise the impact of such risks
on the Nigerian financial system.
The Bank will intensify efforts at strengthening the existing synergy between the fiscal and
monetary authorities. This will help to ensure that policies are complementary in engendering
growth and development of the Nigerian economy.

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


FINANCIAL STABILITY REPORT – DECEMBER 2018

FOREWORD

Global economic expansion continued at a decreasing rate in the second half of 2018, with
financial conditions slightly tightening against a backdrop of gradual increase in policy rates,
weakening financial market sentiment, trade policy uncertainty, Brexit concerns and China’s slow
growth. Global financial markets recorded bearish performance in the second half of 2018,
driven by declines in major equity markets in the North America region, Euro Area, UK and
Asia region.

In the foreign exchange market, the US dollar appreciated against other major currencies,
owing largely to increase in the US policy rate. In oil exporting countries, the relative stability
in oil prices led to a sustained rebound in economic growth and a relative stability in the foreign
exchange markets.

In Nigeria, real GDP growth rate rose in the second-half of the year by 2.10 per cent on a yearon-year basis from 1.73 per cent in the first half of 2018, reflecting a 0.27 percentage-point
increase. The sustained non-expansionary monetary policy stance of the Bank has continued to
support moderation in inflation trend and growth in foreign capital inflows.

In its continued efforts to strengthen regulation and ensure the safety and soundness of the
Nigerian banking system, the CBN issued regulatory guidelines for the adoption of IFRS 9
standards and the implementation of Basel II/III requirements. Similarly, the Bank sustained
its enhanced supervision of Domestic Systemically Important Banks (DSIBs) to manage
systemic risks and ensure prudent business conduct by Nigerian banks.

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

This Report is highly recommended for the general public, particularly business investors,
market players and private individuals.


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


FINANCIAL STABILITY REPORT – DECEMBER 2018

EXECUTIVE SUMMARY

Global output growth declined to 3.70 per cent in 2018 from 3.80 per cent achieved in 2017,
largely underpinned by dwindling consumer demand, decline in oil prices and weak financial
markets. Global inflation trended upward, owing mainly to the pass-through effect of currency
depreciation, especially for most emerging markets and developing economies. In Sub-Saharan
Africa, however, inflation dipped slightly on account of weak consumer demand. International
stock markets generally showed bearish performance, influenced majorly by heightened trade
tension, weak economic growth and increased geopolitical uncertainties. With the exception of
Brazil and Argentina, most other key stock markets declined considerably in the second half
of 2018. Monetary policy rates for most central banks were kept relatively stable. In the foreign
exchange market, major currencies depreciated against the US dollar with the exception of the
Japanese Yen, the Mexican Peso and the Kenyan Shilling which appreciated during the review
period.

On the domestic front, the economy continued its gradual recovery as the gross domestic
product grew by 2.10 per cent in the second half of 2018. The improvement was largely
attributed to the rebound of activities in the services and agricultural sectors. Inflationary
pressures edged up slightly in the second half of 2018 as headline inflation (year-on-year)
increased to 11.44 per cent in December 2018 from 11.23 per cent at end June 2018. External
reserves declined by US$4.57 billion in the second half of 2018 to US$42.59 billion, while in
the foreign exchange market, the naira remained relatively stable.

The non-expansionary stance of monetary policy continued in the review period in response to
global and domestic economic developments. Relative to the level at end-December 2017,
broad money supply, M3, rose by 16.58 per cent at end-December 2018. Net aggregate credit
to the economy rose marginally by 6.42 per cent at end-December 2018, reflecting the increases
in both net claims on the Federal Government and credit to the private sector. Reserve money
grew by 0.32 per cent in the review period, higher than the 2018 indicative benchmark. The
growth in reserve money reflected the increase observed in net domestic assets. The Bank
continues to play its developmental roles by supporting the real sector through the various
intervention programmes aimed at providing affordable credit for financing the sector.

The average short-term money market rates traded mostly above the MPR of 14.00 per cent.
Money market rates closed higher at the interbank market with the overnight call and Open
Buy Back rates trading above their levels in the preceding half year. Short-term maturities
maintained dominance in the credit market, though their share to total credit declined.
Similarly, banks’ short-term deposits (below one year) constituted a significant portion of the
total. In the capital market, the Nigerian Stock Exchange All Share Index and Market
Capitalization decreased, owing largely to foreign capital flow reversals.

Routine bank examination reports indicated improvements in the composite risk ratings of the
banks. The CAR of the banking industry increased to 15.21 per cent from 12.11 per cent in the
FINANCIAL STABILITY REPORT – DECEMBER 2018

first half of 2018, reflecting improvement in the capital cover of banks’ exposures. Similarly,
the industry ROA, ROE and interest margin recorded improvements, signifying the
profitability of the industry.

During the period under review, the Bank established a new Department known as Payments
System Management Department. Its mandate are to strengthen the supervision and regulation
of payment service providers as well as facilitate early identification of emerging risks, thereby
boosting public confidence in the payment system.


FINANCIAL STABILITY REPORT – DECEMBER 2018

1.0 ECONOMIC AND FINANCIAL DEVELOPMENTS

1.1 Global Developments
1.1.1
Output
Global output slowed during the second half of 2018, due largely to dwindling global consumer
demand, decline in oil prices and weak financial market sentiment. Accordingly, output growth
was estimated at 3.70 per cent in 2018, less than the 3.80 per cent recorded in 2017.

Growth in the advanced economies was estimated at 2.30 per cent in 2018, lower than the 2.40
per cent achieved in 2017. In the United States (US), growth increased by 2.90 per cent in 2018,
compared with 2.20 per cent in 2017, driven mainly by rising fiscal stimulus and consumer
spending. In Japan, output growth was estimated at 0.90 per cent in 2018, compared with 1.90
per cent in 2017, reflecting slowdown in private consumption. Growth in the Euro Area was
estimated at 1.80 per cent in 2018, lower than the 2.40 per cent recorded in 2017, following the
expected weak economic activity and political uncertainties.

In Emerging Market and Developing Economies, growth was estimated at 4.60 per cent in
2018, compared with 4.70 per cent in 2017, due largely to the slowdown in prices of crude oil
and other commodities. Growth in China slowed down to 6.60 per cent in 2018, from the 6.90
per cent achieved in 2017. In the Middle East and North Africa (MENA) region, growth was
estimated at 2.40 per cent in 2018, compared with 2.20 per cent in 2017.

Growth in Sub-Saharan Africa (SSA) was estimated at 2.90 per cent in 2018 as was the case in
2017. In Nigeria, growth was estimated at 1.90 per cent in 2018, higher than the 0.8 per cent
recorded in 2017, due largely to the increase in oil receipts and non-oil growth.

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

2019*
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 Update, January 2019 Note: * 2019 figures are Projections

1.1.2
Inflation
Inflation increased in some advanced economies, including Japan and the US, while it slowed
down in the Euro Area and United Kingdom (UK). In the emerging market and developing
FINANCIAL STABILITY REPORT – DECEMBER 2018

economies, inflation rose due to the pass-through effect of currency depreciations in most of
the economies.

Inflation in the US accelerated to 2.50 per cent in 2018, from 1.80 per cent recorded in 2017.
In Japan, inflation rose to 1.10 per cent in 2018, from 0.10 per cent in 2017, driven by wage
increases and sustained growth in commodity prices. However, inflation in Euro Area
moderated to 1.50 per cent in 2018 as against 2.00 per cent in 2017. Inflation in United
Kingdom declined to 2.70 per cent in 2018, from 2.80 per cent in 2017. The decline reflected
the decrease in household demand.

In the emerging market and developing economies, inflation rose marginally to 4.60 per cent
in 2018, from 4.50 per cent in 2017. Inflation in the MENA region increased significantly to
8.70 per cent in 2018, from 3.70 per cent in 2017, owing to oil production cuts, tighter financial
conditions and mounting geopolitical threats. Inflation in Sub-Saharan Africa declined from
10.80 per cent in 2017 to 9.50 per cent in 2018 due, largely, to weak demand.

Table 1. 2: Global Inflation
Region/Country

2019*
Advanced Economies

United States

Euro Area

Japan

United Kingdom

Emerging Market and Developing Economies

Middle East and North Africa

Sub-Saharan Africa

Source: WEO Update, October. 2018 & January, 2019.
* 2019 figures are projected annual averages.


1.1.3 Oil Prices
The prices of crude oil declined in the second half of 2018, driven by a surge in global oil
supply and economic slowdown. The OPEC Reference Basket (ORB) declined by 10.36 per
cent to US$65.33 per barrel at end-December 2018, from US$75.69 per barrel at end-June
2018. The ICE Brent also decreased from US$76.79 per barrel at end-June 2018 to US$51.93
per barrel at end-December 2018, reflecting a decrease of 32.37 per cent. The West Texas
Intermediate (WTI) declined by 26.98 per cent to US$45.15 per barrel at end-December 2018,
from US$61.83 per barrel at end-June 2018. The Bonny Light decreased by 24.50 per cent to
US$59.22 per barrel at end-December 2018, from US$78.44 per barrel at end-June 2018.

Table 1.3: Oil Prices (US$ per barrel)
End-Dec.

End-Jun.

End-Dec.

End-Jun.

End-Dec.

OPEC Reference Basket (ORB)

ICE Brent

FINANCIAL STABILITY REPORT – DECEMBER 2018

West Texas Intermediate (WTI)

Bonny Light

Source: OPEC and Reuters

1.1.4 Food Prices
The Food and Agriculture Organization (FAO) Food Price Index decreased by 6.91 per cent to
an average of 161.70 points at end-December 2018, from 173.7 points at end-June 2018. The
development was due mainly to the fall in the prices of sugar and dairy products.

The FAO Dairy Price Index reduced by 20.26 per cent to an average of 170.00 points at endDecember 2018, compared with 213.20 points at end-June 2018. The reduction was largely
due to lower price quotations for butter, cheese and whole-milk powder.

The FAO Vegetable Oils Price Index averaged 125.80 points at end-December 2018, from
146.1 points at end-June 2018, reflecting a decrease of 13.89 per cent owing, mainly, to large
palm oil inventories and excess supply of soy and sunflower oils.

The FAO Meat Price Index stood at 163.60 points at end-December 2018. This indicated a 3.65
per cent reduction from 169.80 points at end-June 2018, reflecting a marginal decrease in ovine
and porcine prices.

However, the FAO Cereal Price Index averaged 167.10 points at end-December 2018,
reflecting a marginal increase of 0.54 per cent, compared with 166.20 points at end-June 2018.
The increase was attributed to the rise in the prices of wheat and maize during the review
period.

Similarly, the FAO Sugar Price Index averaged 179.60 points at end-December 2018,
indicating an increase of 1.24 per cent from the 177.4 points recorded at end-June 2018, due to
reduction in harvest.

Table1. 4: World Food Price Index

Dec 2016
Jun 2017
Dec 2017
Jun 2018
Dec 2018
Food Price Index

Meat

Dairy

Cereals

Vegetable Oils

Sugar

Source: Food and Agriculture Organization (FAO), January 2019

1.1.5 International Stock Markets
The performance of the international stock markets during the second half of 2018 was
generally bearish, influenced majorly by growing trade uncertainty, weak economic
FINANCIAL STABILITY REPORT – DECEMBER 2018

performance and political challenges. The weak performance of most stock markets was
attributed to the US-China trade tension and other geopolitical uncertainties.
In North America, the United States S&P 500, the Mexican Bolsa index and Canadian
S&P/TSX Composite indices decreased by 8.56, 13.02 and 12.63 per cent respectively.
However, in South America, the Brazilian Bovespa Stock and Argentine Merval indices
increased by 20.29 and 16.34 per cent respectively, due largely to general improvement in
macroeconomic stability and economic growth, while the Colombian COLCAP index
decreased by 15.92 per cent.
Performance in some European countries showed that the UK FTSE 100, France CAC 40 and
the Germany DAX indices decreased by 11.82, 12.11 and 14.20 per cent respectively.
In Africa, the Nigerian NSE All-Share and South African JSE All-Share indices declined by
17.21 and 8.97 per cent respectively. Similarly, the Kenyan Nairobi NSE 20, Egyptian EGX
CASE 30 and Ghanaian GSE All-Share indices declined by 14.75, 20.58 and 13.29 per cent
respectively.
Table 1.5: Indices of Selected Stock Markets
Country
Index
End-Dec 17
(1)
End-Jun

(2)
End-Dec

(3)
% Change
(1) & (3)
% Change
(2) & (3)
AFRICA
Nigeria
ASI

South Africa
JSE African AS

Kenya
Nairobi NSE 20

Egypt
EGX CSE 30

Ghana
GSE All Share

NORTH AMERICA
US
S&P 500

Canada
S&P/TSX
Composite

Mexico
Mexico Bolsa (IPC)

SOUTH AMERICA
Brazil
Bovespa Stock

Argentina
Merval

Colombia
COLCAP

EUROPE
UK
FTSE 100

France
CAC 40

FINANCIAL STABILITY REPORT – DECEMBER 2018

Germany
DAX


1.1.6 Foreign Exchange Market
The foreign exchange market witnessed depreciation in major currencies against the U.S. dollar
during the second half of 2018. The strengthening of the US dollar precipitated currency
pressures in most economies.

In North America, the Canadian dollar depreciated by 3.68 per cent, while the Mexican peso
appreciated by 1.32 per cent. The appreciation of the peso was due, largely, to rate hike by
Banco De Mexico.

In South America, the Argentine peso and Colombian peso depreciated by 23.20 and 9.82 per
cent respectively, while the Brazilian real appreciated by 0.26 per cent.

Most currencies in Europe depreciated during the review period. The pound sterling, euro and
Russian ruble depreciated by 2.56, 1.15 and 10.01 per cent respectively.

In Asia, the Japanese yen appreciated by 0.98 per cent, while the Chinese renminbi and Indian
rupee depreciated by 3.78 and 1.86 per cent respectively (Table 1.6). The appreciation of the
yen against the dollar was due, largely, to Japan's growing economy, following strong export
growth and increased government spending.

In Africa, the Nigerian naira, South African rand, Kenyan shilling and Ghanaian cedi
depreciated against the US dollar by 0.41, 4.32, 0.82 and 3.86 per cent respectively, while the
Egyptian pound remained unchanged.

Table 1.6: Trend of Selected Currencies
Exchange Rates of Selected Countries (Value in local currency units to
US$)
Country/Region
Currency
31-Dec-17
(1)
30-Jun-

(2)
31-Dec-18
(3)
% Change
(App/Dep) (2) &
(3)
Y-on-Y %
(App/Dep) (1) & (3)
AFRICA
Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH
AMERICA


Canada
Dollar

FINANCIAL STABILITY REPORT – DECEMBER 2018

Mexico
Peso

SOUTH
AMERICA
Brazil
Real

Argentina
Peso

Colombia
Peso

EUROPE


UK
Pound

Euro Area
Euro

Russia
Ruble

ASIA
Japan
Yen

China
Renminb
i

India
Rupee

Source: bloomberg
YoY = Year on Year


1.1.7 Monetary Policy Rates
Monetary policy rates in most central banks were relatively stable during the second half of
2018.

In the advanced economies, the Bank of Japan, European Central Bank, Reserve Bank of New
Zealand and Reserve Bank of Australia maintained policy rates at 0.10, 0.00 - 0.05, 1.75 and
1.50 per cent respectively. These developments were attributed to moderate inflationary
pressure and fall in unemployment rate in Australia, a looming uncertain policy environment
of the Japanese economy and sustained efforts by the European Central Bank to achieve
convergence of inflation below 2.00 per cent. However, the Bank of England, the US Federal
Reserve, Bank of Canada and Bank of Korea increased policy rates from 0.50, 1.75 - 2.00, 1.25
and 1.50 per cent in the first half of 2018 to 0.75, 2.25 - 2.50, 1.75 and 1.75 per cent
respectively, in the second half of 2018. Strong labour market conditions, credit growth in the
United Kingdom and improved growth performance in the US accounted for the increases in
rates.

In Asia, policy rate of the Bank Negara Malaysia remained at 3.25 per cent, while Bank
Indonesia increased its rate from 5.25 to 6.00 per cent.

In the BRICS, the Central Bank of Brazil, Peoples’ Bank of China and South African Reserve
Bank kept policy rates unchanged during the second half of 2018 at 6.50, 4.35 and 6.50 per
cent respectively. However, the Bank of Russia and the Reserve Bank of India changed policy
FINANCIAL STABILITY REPORT – DECEMBER 2018

rates from 7.25 and 6.00 per cent during the first half of 2018 to 7.75 and 6.50 per cent,
respectively, during the second half of 2018.

In the emerging market economies, the Bank of Mexico and Central Bank of Chile increased
monetary policy rates from 7.75 to 8.25 per cent and 2.50 to 2.75 per cent respectively, while
Banco Central de Colombia maintained its rate at 4.25 per cent during the period under review.

In Africa, the Central Bank of Egypt, Bank of Ghana and Central Bank of Nigeria retained
policy rates at 16.75, 17.00 and 14.00 per cent respectively, during the second half of 2018
(Table 1.7). This was largely on account of relatively stable domestic prices, moderate output
growth and stable financial system.

Table 1. 7: Policy Rates of Selected Countries
1.1.8 Potential Risks from the Global Economic Developments

Country/Region
Jan -

Feb-

Mar-

Apr-

May-

Jun-

Jul -

Aug-

Sep-

Oct-

Nov-

Dec-

Developed Economies
Japan

Europe

UK

US

Canada

South Korea

New Zealand

Australia

Asia
Indonesia

Malaysia

BRICS
Brazil

Russia

India

China

South Africa

Other Emerging Economies & South America
Mexico

Chile

Colombia

Africa
Egypt

Ghana

Nigeria

Source: www.cbrates.com, www.tradingeconomics.com, Central Bank of Nigeria
FINANCIAL STABILITY REPORT – DECEMBER 2018

i.
Trade disputes, especially between the US and its major trading partners, could worsen
trade barriers and restrictions, thereby impacting negatively on global output.

ii.
The expected slowdown in China’s growth could significantly impact global demand
and commodity prices.

iii.
Uncertainties and soft asset prices in the global financial market could trigger
deterioration in market sentiment and impact negatively on most emerging market
economies, including Nigeria.

iv.
Normalisation of monetary policy in the US and the euro area could exacerbate risk of
capital reversal and increase foreign exchange demand pressure in emerging market
economies.

v.
Declining oil prices pose major threats to projected oil revenue inflows to Nigeria and
may worsen macroeconomic projections.
1.2
Domestic Developments
1.2.1
Output
The growth momentum of the economy improved in the second half of 2018, as real GDP,
measured at 2010 constant prices, grew on a year-on-year basis to 2.10 per cent, compared
with 1.73 per cent recorded in the first half of 2018. The sustained increase was attributed
mainly to the growth in the non-oil sector of the economy.
Figure 1.1: Real GDP Growth rate (%)


0.5

1.5

2.5
H1 2016
H2 2016
H1 2017
H2 2017
H1 2018
H2 2018
Per cent
REAL GDP

1.2.1.1: Non-Oil Sector
Non-oil real GDP grew by 2.52 per cent in the second half of 2018, compared with 1.41 per
cent in the first half of 2018. The percentage share of the non-oil sector to total GDP stood at
91.81 per cent, compared with 90.93 per cent recorded in the preceding half-year. With respect
to sectoral contributions in real terms, the services sub-sector accounted for the largest share
(35.73%), followed by agriculture (27.66%), industry (17.20%), trade (16.16%) and
construction (3.25%) sub-sectors (Table 1.8).
FINANCIAL STABILITY REPORT – DECEMBER 2018

Table 1. 8: Gross Domestic Product by Sub-Sectors (Percentage of Total)
Sub-sector
H1 2018 (%)
H2 2018 (%)
Agriculture
22.26
27.66
Construction
4.28
3.25
Services
37.93
35.73
Trade
16.75
16.16
Industry
18.77
17.20
Source: NBS

The percentage change of the non-oil GDP showed that the agricultural sub-sector grew by
2.17 per cent in the second half of 2018, compared with 2.05 per cent in the corresponding
period of 2017. Similarly, the other subsectors (except oil) recorded positive changes in the
second half of 2018, relative to their levels in the corresponding period of 2017 (Table 1.9).
Table 1. 9: Changes (per cent) in Real GDP by Sector
Sub-sector
H1 2018
H2 2018
Agriculture
2.05
2.17
Construction
3.18
1.36
Services
2.40
3.66
Trade
(2.36)
1.00
Industry
3.48
0.02

1.2.1.2 Oil Sector
Oil GDP fell by 2.34 per cent in the second half of 2018, in contrast to the increase of 4.90 per
cent in the first half of 2018. Consequently, the percentage share of the oil sector to the real
GDP declined by 0.88 percentage point to 8.19 per cent, from the 9.07 per cent recorded in the
first half of 2018.

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

H2 2017
H1 2018
H2 2018
Per cent
Oil
Non-oil


FINANCIAL STABILITY REPORT – DECEMBER 2018

1.2.2
Inflation
The all-items composite Consumer Price Index (CPI) stood at 274.60 at end-December 2018,
compared with 260.50 and 246.40 at end-June 2018 and end-December 2017, respectively. In
the review period, the index was higher than the levels in the first half of 2018 and the
corresponding half of 2017 by 5.41 and 11.44 per cent, respectively. Consequently, headline
inflation increased slightly to 11.44 per cent in December 2018, from 11.23 per cent at endJune 2018.

The twelve-month moving average headline inflation in December 2018 stood at 12.10 per
cent, compared with 14.37 and 16.50 per cent recorded in June 2018 and the corresponding
period of 2017, respectively. Core inflation fell by 0.62 percentage point to 9.80 per cent in
December 2018 from 10.40 per cent in June 2018, reflecting decreases in the prices of fuel and
lubricants, clothing materials, furniture and furnishing, clothing and footwear, transport, health,
education and miscellaneous goods.

However, food inflation, which comprised farm produce and processed food, rose to 13.56 per
cent in December 2018, compared with 12.98 per cent in June 2018. The increase was driven
by the two components of the index. Imported food inflation at end-December 2018 fell slightly
to 15.66 per cent, compared with 15.68 per cent recorded at end-une 2018. The relative
contribution of imported food components to food inflation was 3.90 percentage points at endDecember 2018, compared with 3.85 percentage points at end-June 2018.

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

H2 17
H1 18
H2 18
Per cent
Headline (Y-o-Y)
Core (Y-o-Y)
Food (Y-o-Y)


1.2.3
Fiscal Operations1
The estimated Federal Government retained revenue for the second half of 2018, at N1,952.16
billion, was lower than the half-year budget figure and the receipts in the preceding half of
2018 by 48.3 and 1.7 per cent, respectively. The breakdown of the retained revenue showed
that the share of the Federal Government from the Federation Account was N1,653.06 billion
(84.68%); VAT Pool Account, N80.08 billion (4.10%); Federal Government Independent
Revenue, N68.53 billion (3.51%); Excess Non-oil, N6.18 billion (0.32%); Exchange Gain,
N63.81 billion (3.27%); and Additional NNPC share, N5.50 billion (0.28%). Others (including
the FGN balance of Special Accounts, unspent balance from the previous year, transfer to CRF)

1 Data from January to September was obtained from OAGF, while October to December was CBN staff estimate.
FINANCIAL STABILITY REPORT – DECEMBER 2018

accounted for the balance of N75.01 billion (3.84%). The decrease in retained revenue relative
to the first half was attributed mainly to the fall in Federal Government Independent Revenue.

Federal Government expenditure in the second half of 2018 at N3,717.62 billion, was lower
than the half year budget figure by 21.80 per cent. However, it was above the level in the
preceding half-year by 2.00 per cent. The expenditure profile of the Federal Government
comprised recurrent expenditure (85.8%), capital expenditure (8.10%) and transfers (6.10%).
A breakdown of the total recurrent expenditure indicated that the non-debt obligations
accounted for 53.50 per cent and debt service payments, 46.50 per cent.

The fiscal operations of the Federal Government in the second half of 2018 resulted in an
overall deficit of N1,765.46 billion or 2.57 per cent of GDP, compared with the deficit of
N1,660.63 billion (2.81% of GDP) in the first half of 2018. The deficit was financed, mainly,
through domestic sources.


Figure 1. 4: Federal Government Fiscal Operations (N billion)


Source: OAGF & CBN

The consolidated domestic debt stock of the Federal Government at end-December 2018 was
N12,443.13 billion. This reflected an increase of 2.40 per cent over the N12,151.44 billion
recorded at end-June 2018. The FGN Bonds constituted 73.41 per cent, while the Nigerian
Treasury Bills constituted 21.99 per cent. The FGN Sukuk and Green Bond accounted for 1.61
and 0.09 per cent of the total domestic debt stock respectively. FGN Special Bonds, Savings
Bonds and Nigerian Treasury Bonds accounted for 1.61, 0.09 and 1.21 per cent respectively.
1.2.4
External Sector
The external sector remained favourable owing largely to higher earnings from crude oil
exports occasioned by the improved domestic production and prices at the international market.
There was relative stability in all segments of the foreign exchange market, arising from
increased liquidity, leading to gradual convergence of rates in the various foreign exchange
windows.


Half Year Budget Estimate
1st Half 2018
2nd Half 2018
Revenue
Expenditure
Fiscal Balance
FINANCIAL STABILITY REPORT – DECEMBER 2018

1.2.4.1 Foreign Exchange Flows
Foreign exchange inflow through the CBN amounted to US$28.91 billion in the second half of
2018, a decline of 5.25 per cent from the level in the preceding half-year. The sources of inflow
were mainly from crude oil sales, treasury single account, investment income and other official
receipts.

Foreign exchange outflow through the CBN rose by 45.54 per cent to US$33.39 billion,
compared with US$22.94 billion recorded in the first half of 2018.

Table 1.10: Foreign Exchange Flows through the CBN (US$ million)
Period
Inflow
Outflow
Net flow
H2 - 2018
28,910.00
33,390.29
(4,480.29)
H1 - 2018
30,511.65
22,942.31
7,569.34
H2 - 2017
27,799.64
18,959.03
8,840.61


Source: CBN
1.2.4.2 Reserve Management
External reserves decreased by US$4.57 billion or 9.69 per cent to US$42.59 billion at endDecember 2018, from US$47.16 billion at end-June 2018. The decrease in the external reserves
was attributed largely to sales to authorized dealers. A breakdown of the external reserves
indicated that the CBN, the FGN and the Federation holdings were 82.93, 15.93 and 1.14 per
cent of the total respectively. Further analysis showed that 89.24 per cent of the reserves was
held in US dollars, 4.90 per cent in SDR, 4.80 per cent in renminbi and 1.06 per cent in other
currencies at end-December 2018.
During the review period, inflows into external reserves stood at US$28.91 billion, on account
of receipts into the treasury single account, crude oil sales and related taxes, while outflows
amounted to US$33.39 billion. The outflows were driven mainly by interventions in the foreign
exchange market.

1.2.5 Threats from Domestic Macroeconomic Developments
• The challenges in some major food-producing areas, leading to less-than-expected
harvest.
• Pre-election spending poses a threat to inflation.
• The implementation of the OPEC production cuts and volatile oil prices could lead to
lower revenues, which may dampen domestic output growth recovery.
• Political uncertainties from the upcoming general elections could create negative
market sentiments and trigger capital flow reversals.

FINANCIAL STABILITY REPORT – DECEMBER 2018

1.2.6 Potential Risks from the External Sector
i.
Rising inflation and expected rate hike in the US could lead to rise in bond yields and
decrease in the value of the reserve portfolio.
ii.
The continued appreciation of the US dollar could result in translation losses on the
conversion of external reserve assets that are held in third currencies.
iii.
The prevailing policy rate uncertainties in the US could trigger major distortions in
pricing projections in the international financial system and may affect Nigeria’s ability
to forecast portfolio value and returns.
Fig1.5: Probability of Rate Hike by the US Federal Reserve


Source: Bloomberg.
Figure 1.5 showed that the likelihood of hikes or cuts in interest rate is low, indicating that the rate is
expected to remain unchanged in the short to medium-terms.


Cut
No Change
Hike
FINANCIAL STABILITY REPORT – DECEMBER 2018

2.0 DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.1
Monetary and Credit Developments2
In response to global and domestic economic developments, the Bank maintained its nonexpansionary monetary policy stance in 2018. Monetary aggregates trended upwards in the
second half of 2018 as broad money supply (M3)3 grew by 16.58 per cent at end-December
2018, compared with 2.35 and 0.59 per cent at end-June 2018 and end-December 2017,
respectively. This was due to the increases of 18.54, 6.42 and 1.65 per cent in net foreign assets,
domestic credit (net) and other assets (net) of the banking system. The growth in total monetary
liabilities was driven by the 5.15 and 18.22 per cent increases in narrow money and quasimoney respectively.

Provisional data indicated that narrow money (M1) rose by 5.15 per cent to N11,751.14 billion
at end-December 2018, in contrast to the decline of 4.36 per cent at end-June 2018. The
increase in M1 was due to 7.32 and 4.74 per cent rise in currency outside banks (COB) and
demand deposits (DD) respectively.
Figure 2.1: Trend in Monetary Aggregates

The intermediation efficiency of the banking system, measured by the proportion of currency
outside banks (COB) to total monetary liabilities stood at 5.72 per cent, indicating an increase
of 0.54 percentage point above the level at end-June 2018 and a slight deterioration in the
intermediation efficiency of the banking industry. The proportion of time and savings deposits,
to total monetary liabilities, fell by 2.23 percentage point below its level at end-June 2018.

2.1.1
Aggregate Credit to the Economy
Aggregate credit to the domestic economy (net) grew by 6.42 per cent to N27,594.16 billion at
end-December 2018 as against the decline of 16.29 per cent at end-June 2018. The growth in
aggregate credit was attributed to the 33.77 and 1.96 per cent increases in net claims on the
Federal Government and claims on the private sector, respectively. Consequently, aggregate

2 December 2018 figures are provisional.
3 M3 is M2 plus CBN Bills held by the money holding sectors (OFIs, State & Local Governments, Non-financial Public Corporations and
Households).


Dec 2016
Jun 2017
Dec 2017
Jun 2018
Dec 2018
Monetary Aggregates (N'B)
M1
M2
M3
FINANCIAL STABILITY REPORT – DECEMBER 2018

credit to the domestic economy (net) contributed 5.8 percentage points to the growth in M3 at
end-December 2018.

Figure 2.2: Credit to the Economy


2.1.1.1 Claims on the Federal Government (Net)
Net claims on the Federal Government increased to N4,867.52 billion at end-December 2018,
compared with N2,805.01 billion at end-June 2018, reflecting the growth in holdings of
government securities by banks.

2.1.1.2 Aggregate Claims on the Private Sector
Banking system credit to the private sector increased by 1.96 per cent to N22,726.58 billion at
end-December 2018, in contrast to a decline of 0.04 per cent at end-June 2018. The increase
was due to the 1.98 and 0.57 per cent growth in claims on the core4 private sector and state and
local governments, respectively.

Table 2.1: Growth in Monetary Aggregates
% Change (Over preceding December)
Jun 16

Dec 16

Jun 17

Dec 17
revised
Jun 18
revised
Dec 18
Provisional
Foreign Assets (Net)

Domestic Credit (Net)

Claims on Federal Government (Net)

Claims on Private Sector

Other Assets (Net)


Money Supply (M1)

Currency Outside Banks

Demand Deposits

Quasi-Money


4Exclude state and local governments.


Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
N Billion
N Billion
Claims on Private Sector LHS)
Net Domestic Credit (LHS)
Claims on Federal Government (Net) (RHS)
FINANCIAL STABILITY REPORT – DECEMBER 2018

Money Supply (M2)

CBN Bills held by Money Holding
Sectors

Money Supply (M3)

Source: CBN
2.1.1.3 Foreign Assets (net) of the Banking System
Net foreign assets of the banking system rose by 18.54 per cent to N18,397.82 billion at endDecember 2018, compared with the growth of 18.15 per cent at end-June 2018. The increase
reflected the growth in foreign assets of the CBN by 20.13 per cent. Accordingly, its
contribution to the growth of M3 was 9.80 percentage points at end-December 2018.
2.1.1.4 Consumer Credit
Outstanding consumer credit increased by 13.08 per cent to N683.36 billion at end-December
2018, compared with N608.33 billion recorded at end-June 2018. This constituted 3.23 per cent
of banks’ outstanding claims on the core private sector and was 0.28 percentage point higher
than the proportion at end-June 2018 (Figure 2.3).

Figure 2.3: Consumer Credit


2.1.2
Classification of Private Sector Credit
Credit to the private sector fell by 1.35 per cent to N15,134.20 billion, compared with
N15,340.93 billion at end-June 2018. Industry sub-sector accounted for the highest share of
total credit to the private sector at end-December 2018, representing 41.00 per cent, compared
with 38.50 per cent in the preceding half year.


Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
Ratio (%)
N Billion
Consumer Credit
Ratio of claims on core private sector (rhs)
FINANCIAL STABILITY REPORT – DECEMBER 2018

Table 2.2: Sectoral Distribution of Credit

Sector
June 2018
December 2018
N 'Billion
Share of
Total (%)
N 'Billion
Share of Total
(%)
Industry
5,899,919.1
38.46

6,203,191.74
40.99
Others
2,423,399.9
15.80

2,074,933.03
13.71
Government
1,474,130.7
9.61

1,362,578.41
9.00
Finance, Insurance and Capital Market
991,217.4
6.46

1,106,419.03
7.31
Oil & Gas
1,235,658.6
8.05

1,096,546.06
7.25
Trade/General Commerce
1,044,359.3
6.81

1,076,724.12
7.11
Real Estate
744,563.2
4.85

622,776.16
4.12
Construction
612,846.9
3.99

614,514.34
4.06
Agriculture
523,076.0
3.41

610,149.66
4.03
Power and Energy
319,914.4
2.09

309,117.02
2.04
Education
71,848.4
0.47

57,253.29
0.38
TOTAL PRIVATE SECTOR CREDIT
15,340,933.92
100.00

15,134,202.86
100.00

The share of agriculture, construction and trade/general commerce sub-sectors of total credit
increased to 4.03, 4.06 and 7.11 per cent above 3.41, 3.99 and 6.81 per cent respectively, in the
first half of the year. However, the share of real estate, education, and power & energy subsectors declined to 4.12, 0.38 and 2.04 per cent from 4.85, 0.47 and 2.09 per cent respectively,
in the first half of the year (Table 2.2).

2.1.3
Reserve Money
Reserve money at end-December 2018 grew by 10.08 per cent to N7,135.74 billion, compared
with N6,362.65 billion recorded at end-June 2018. The level of reserve money at endDecember 2018 was higher than the 2018 indicative benchmark of N7,112.74 billion by 0.32
per cent.. The rise in reserve money is attributable to the increase in net domestic assets. The
corresponding upward movement in monetary liabilities reflected the 8.00 and 11.20 per cent
increases in currency-in-circulation and bank reserves respectively.

Figure 2. 4: Reserve Money and its Components
FINANCIAL STABILITY REPORT – DECEMBER 2018


Dec -15
Jun -16
Dec - 16
Jun -17
Dec -17
Jun -18
Dec -18
N'Billion
NFA
NDA
Oin
RM


Currency-in-circulation, which constituted 32.65 per cent of reserve money at the end of the
second half of 2018, rose by 8.00 per cent to N2,329.71 billion. Bank deposits with the CBN
increased by 11.24 per cent to N4,806.03 billion at end-December 2018.
2.1.4
Maturity Structure of Bank Deposits and Credit
Commercial banks’ outstanding credit at the end of the second half of 2018 showed that
maturities below one year accounted for 47.10 per cent, compared with 44.10 per cent in the
first half of 2018. The medium-term5 and long-term6 credit fell to 17.40 and 35.40 per cent,
respectively, at the end of the second half of 2018 compared with 19.30 and 36.60 per cent
recorded in the first-half of 2018. Short-term maturities maintained dominance in the credit
market.

Figure 2.5: Distribution of Bank Loans and Advances by Maturity

The deposit liabilities of banks showed that the short-term deposits (below one year)
constituted 88.1 per cent of the total (72.90 per cent had a maturity of less than 30 days),
compared with 89.10 per cent at end-June 2018. Medium and long-term deposits constituted
3.80 and 8.10 per cent of total deposits at end-December 2018, respectively, compared with
4.00 and 7.30 per cent at end-June 2018 (Figure 2.5).


5Medium term implies maturities ≥1yr and < 3yrs.
6 Long term implies maturities of 3yrs and above.

Jun 15
Dec 15
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
Per cent
Short term
Medium-term
Long-Term
FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 2.6: Maturity Structure of Bank Deposits


2.1.5
Market Structure of the Banking Industry
The Concentration Ratio (CR) of the six largest banks with respect to deposits and assets stood
at 60.31 and 59.74 per cent at end-December 2018, compared with the 57.68 and 63.68 per
cent recorded at end-June 2018, respectively. The market shares of the largest bank with respect
to deposits and assets stood at 13.54 and 14.35 per cent respectively.
The remaining twenty banks had market shares ranging from 0.09 to 4.89 per cent, in deposits,
and 0.14 to 4.89 per cent in assets, reflecting the skewed structure of the banking industry. The
Herfindahl-Hirschman Index (HHI)7 for the industry stood at 783.35 and 774.58 for deposits
and assets at end-December 2018, compared with 846.14 and 732.72 at end-June 2018,
respectively (Figure 2.8), indicating high concentration.

Figure 2.7: Concentration Ratios of the Banking Industry Assets and Deposits


7HHI is based on a scale of 100 to 10,000, which measures concentration

Dec 15
Jun 16
Dec 16
Jun17
Dec17
Jun18
Dec18
Per cent
Per cent
Short-term
Medium-term (rhs)
Long-Term (rhs)


Jun 17
Dec 17
Jun 18
Dec 18
HHI
CR
CR(Deposits)
CR( Assets)
CR( Largest-Deposits)
CR (Largest-Assets)
HHI (Deposits) (rhs)
HHI (Assets) (rhs)
FINANCIAL STABILITY REPORT – DECEMBER 2018

2.1.6
Interest Rates
The 6-month weighted average prime and maximum lending rates fell in the second half of
2018 by 0.50 and 0.45 percentage points to 16.75 and 30.94 per cent, respectively, below the
levels in the first half of 2018. Similarly, the average term deposit rate fell by 0.07 percentage
point to 8.72 per cent in the second half of 2018. Consequently, the spread between the average
term deposit and the average maximum lending rates narrowed by 0.38 percentage point to
22.22 per cent at the end of the second half of 2018. Real deposit rates were negative, while
real prime and maximum lending rates recorded a positive trend, given the headline inflation
rate of 11.44 per cent at end-December 2018.

All rates (on weighted average basis) except savings deposit rate, were lower than their levels
in the first half of 2018. Average savings deposit rate remained at 4.07 per cent in the second
half of 2018. Average deposit rates for 3-month, 6-month and 1-year tenors fell from 9.94,
10.90 and 10.36 per cent in the first half of 2018 compared with 9.50, 10.49 and 10.33 per cent
in the second half of the same year. The decreases in rate were attributed to the liquidity surfeit
experienced during the review period, arising from matured treasury bills and fiscal injections.

Figure 2. 8: Lending and Deposit Rates

SECOND
HALF

FIRST
HALF

SECOND
HALF

FIRST
HALF

SECOND
HALF

FIRST
HALF

SECOND
HALF

Percentage point
Per cent
Saving
Prime
Maximum
Avterm Dep.
Spread (Max-Avtrm) rhs


2.2 Categorisation of Banks and Other Financial Institutions

The number of banks and other financial institutions (OFIs) licensed during the review period
was 299 Bureaux De Change (BDCs), 5 Microfinance Banks (MFB) and 12 Finance
Companies (FC), bringing the total number to 4,492 BDCs, 885 MFBs and 69 FCs at end-
December 2018.

Table2.3 Licensed Financial Institutions
FINANCIAL STABILITY REPORT – DECEMBER 2018

S/N
Type
Newly-Licensed
Jan – Jun 2018
Newly-Licensed
Jul-Dec 2018
Total Licensed
in 2018
Total Number
as at end-Dec

Microfinance Banks

Bureaux De Change

4,492

Finance Companies

Commercial Banks
Nil
Nil
Nil

Merchant Banks
Nil
Nil
Nil

Specialized Banks
Nil
Nil
Nil

Development
Finance
Institutions
Nil
Nil
Nil

Primary Mortgage Banks
Nil
Nil
Nil

2.3
Other Financial Institutions

There were 5,486 Other Financial Institutions (OFIs) at end-December 2018, compared with
the 5,350 institutions at end-June 2018, reflecting an increase of 136 OFIs. The change was
attributed to the licensing of 317 new OFIs, reinstatement of a Primary Mortgage Bank (PMB)
and revocation of the licences of 182 OFIs (154 MFBs, 22 FCs, 6 PMBs).

The total assets and net loans and advances of the sub-sector increased by 8.10 per cent and
8.93 per cent to N2,990.82 billion and N1,349.42 billion at end-December 2018, from
N2,766.628 billion and N1,238.75 billion at end-June 2018, respectively. Total deposits
increased by 5.09 per cent to N655.73 billion at end-December 2018 from N623.98 billion at
end-June 2018, while shareholders’ funds decreased by 0.29 per cent to N538.73 billion at endDecember 2018, from N540.31 billion at end-June 2018.

The increase in deposits was attributed largely to the disbursement of N50 billion Export
Simulation Facility (ESF) to the Nigerian Export-Import Bank (NEXIM) by the Ministry of
Finance Incorporated (MoFI), while the decrease in shareholders’ funds was due to the
revocation of the operating licences of 182 OFIs.


2.3.1 Development Finance Institutions
Total assets of the seven (7) DFIs increased by 8.59 per cent to N1,939.29 billion at endDecember 2018, compared with N1,785.84 billion at end-June 2018. The paid-up capital of the
institutions also increased by 0.73 per cent to N238.78 billion at end-December 2018, from
N237.05 billion at end-June 2018. Similarly, the net loans and advances of the institutions

8 First half figures for 2018 were revised.
FINANCIAL STABILITY REPORT – DECEMBER 2018

increased by 15.74 per cent to N918.47 billion at end-December 2018, from N793.53 billion at
end-June 2018.
However, the shareholders’ funds decreased by 26.41 per cent to N248.88 billion at endDecember 2018, from N338.18 billion at end-June 2018. The decline was due mainly to the
losses reported by Bank of Agriculture (BOA), Federal Mortgage Bank (FMBN), Nigerian
Export-Import Bank (NEXIM) and The Infrastructure Bank (TIB).
Bank of Industry (BOI), DBN and FMBN accounted for 56.08, 14.39 and 11.96 per cent of the
total assets of the DFIs, while BOA, NEXIM, NMRC and TIB accounted for 7.63, 6.08, 3.58
and 0.29 per cent respectively. The BOI, FMBN, BOA, NEXIM, DBN and NMRC accounted
for 69.37, 16.23, 5.10, 4.35, 3.08, and 1.87 per cent of the total net loans and advances
respectively.

2.3.2 Mortgage Refinancing
2.3.2.1 Nigeria Housing Finance Programme
The Bank completed the implementation of the 5-year Nigeria Housing Finance Programme
(NHFP), which was designed to increase access to housing finance. The Programme, supported
by the World Bank/International Development Association (IDA) loan of $300 million,
commenced on March 5, 2014 and terminated at end-December 2018.
2.3.2.2 Nigeria Mortgage Refinance Company

During the review period, NMRC issued a 15-year N11 billion Series II Bond with a coupon
of 13.80% as part of its N440 billion Medium Term Note Programme. Following the bond
issue and refinancing of mortgages valued N18.40 billion, NMRC fulfilled the conditions
precedent to draw-down of the third tranche of the US$250 million loan allocated to it under
the NHFP. With the disbursement of the third tranche of US$48.14 million, the total loan
granted to the NMRC rose to US$168.14 million.
2.3.2.3 Mortgage Guarantee Product

The Bank, in collaboration with other stakeholders, commenced the development of a
regulatory framework and design of the business plan for a mortgage guarantee company
(MGC). The stakeholders included the Mortgage Bankers Association of Nigeria (MBAN),
Nigeria Mortgage Refinance Company (NMRC), Federal Mortgage Bank of Nigeria (FMBN),
Credit Bureau Association of Nigeria (CBAN) and National Pension Commission (PenCom).
The following were concluded for the MGC during the review period:
• Feasibility and business plan
• Incorporation
• Draft Shareholders’ Agreement
• Programme Operational Manual

The draft Regulations for the operation of the MGC recommended a minimum paid-up capital
requirement of N6.0 billion which is to be contributed as a pre-condition for licensing the
company. The NMRC is designated to serve as anchor investor (with commitment to invest up
to N1.5 billion in equity) and host institution for the NMGC.
FINANCIAL STABILITY REPORT – DECEMBER 2018

2.3.2.4 Housing Microfinance
The implementation of the housing microfinance component continued in the review period
with the initial assessment of seven (7) eligible MFBs to access the facility from the NHFP. Of
the US$15 million Housing Microfinance (HMF) component of the NHFP, total disbursement
of N555.94 million was made to eligible MFBs on the first tranche.

2.3.3 Developments in the Mortgage Sector
The developments in the mortgage sector in the review period included:
• The establishment of the Mortgage Interest Drawback Fund (MIDF) to deepen the housing
finance market. The MIDF offers interest rate rebate/refund to mortgagors on conforming
mortgages and interest rate rebate/refund to developers of residential estates, subject to
compliance with the PMB guidelines.
• The commencement of the harmonisation of mortgage industry laws into a comprehensive
model mortgage and foreclosure legal framework. Two states have fully adopted the
implementation of the new framework, while six others have initiated processes towards
full adoption.
• The establishment of the Family House Fund Limited to address the housing gap and
employment challenges.
• The establishment of the Mortgage Warehouse Funding Limited (MWFL) to provide
additional access to funding for mortgage lenders.

• The adoption of uniform underwriting standards for non-interest mortgages by operators.

2.3.4 Primary Mortgage Banks
There were 35 PMBs at end-December 2018, comprising 12 National and 23 State PMBs,
compared with 34 at end-June 2018. The increase was due to the re-inclusion of Union Homes
Savings and Loans Plc which was hitherto excluded, owing to the proposed merger
arrangement with Aso Savings and Loans.

The total assets of the sector increased by 2.32 per cent to N451.95 billion at end-December
2018, from N441.71 billion at end-June 2018, owing largely to the increase in placements with
banks as well as loans and advances. In that regard, total loans and advances, and placement
with banks, increased by 3.27 and 11.65 per cent to N229.60 billion and N41.03 billion at endDecember 2018 from N222.32 billion and N36.75 billion respectively, at end-June 2018.

Table 2. 4: PMB Financial Highlights at end-December 2018

End-December
2018 (N’ billion)
End-June 2018 *
(N’ billion)
% Change
Total assets
451.95
441.71
2.32
Loans and advances
229.60
222.32
3.27
FINANCIAL STABILITY REPORT – DECEMBER 2018

Placements with banks
41.03
36.75
11.65
Deposit liabilities
140.43
138.87
1.12
Other liabilities
154.92
155.15
-0.15
Shareholders’ funds
82.99
78.82
5.29
*Revised due to inclusion of Union Homes Savings and Loans Plc.

2.3.5 Finance Companies
The number of FCs fell to 69 at end-December 2018 from 82 FCs at end-June 2018, following
the revocation of operating licences of 22 FCs during the review period. The affected
institutions comprised 14 FCs that did not meet the new regulatory capital of N100 million and
eight (8) other FCs for various reasons including: surrender of operating licences to the CBN;
insolvency; and discontinuation of business.

Total assets of the sub-sector increased by 9.54 per cent to N174.69 billion at end-December
2018, from N159.48 billion at end-June 2018. The increase was attributed largely to two (2)
FCs, which recorded increases of N6.7 billion and N2.6 billion respectively, in total assets. An
additional factor was the increase in borrowings by 3.77 per cent to N103.82 billion at endDecember 2018 from N100.05 billion at end-June 2018. Shareholders’ funds increased
marginally by 0.52 per cent to N29.25 billion at end-December 2018 from N29.10 billion at
end-June 2018, owing largely to the revocation of the operating licences of some FCs during
the review period.

Table 2. 3: Financial Position of the Finance Company Sub-sector at end-December 2018


End-Dec 2018
(N’ billion)
End-Jun 2018
(N’ billion)
Change
(N’
billion)
% Change

Total Assets

Cash in Vault

Balances
with
Banks

Loans
and
Advances

Investments

Fixed Assets

Borrowings

Shareholders’
Funds

Paid-up capital

Reserves


FINANCIAL STABILITY REPORT – DECEMBER 2018

2.3.6 Microfinance Banks
The total number of MFBs was 885, comprising 8 National, 135 State and 742 Unit MFBs at
end-December 2018, compared with 1,034 at end- June 2018. The change was attributed to the
revocation of the operating licences of 154 MFBs and licensing of five (5) new ones.

Total assets of the MFBs increased to N421.95 billion at end-December 2018, from N379.59
billion at end-June 2018, reflecting an increase of 11.16 per cent. The shareholders’ funds
increased by 3.63 per cent to N97.63 billion at end-December 2018 from N94.21 billion at endJune 2018. The increase was largely attributed to capital injection and the revocation of the
operating licences of some MFBs.
Total deposit liabilities increased by 9.76 per cent to N213.25 billion at end-December 2018,
from N194.28 billion at end-June 2018. Similarly, net loans and advances increased by 26.11
per cent to N220.95 billion at end-December 2018, from N175.20 billion at end-June 2018.

2.3. 7. Microfinance Certification Programme
During the review period, 609 candidates completed Level II Certification examination
administered by the Chartered Institute of Bankers of Nigeria (CIBN), resulting in a total of
5,790 certified candidates at end-December 2018, compared with 5,181 at end- June 2018.

2.3.8 Bureau De Change
The total number of BDCs stood at 4,492 at end-December 2018 compared with 4,193 at endJune 2018, indicating an increase of 299 in the second half of 2018.

2.4
Financial Markets
The non-expansionary monetary policy stance of the Bank was maintained in the second
half of 2018 to tame inflationary pressures, attract capital inflows and sustain the
stability of the exchange rate. Consequently, the Bank retained the Monetary Policy
Rate (MPR) at 14.00 per cent and an asymmetric corridor of +200 basis points and -500
basis points around the MPR for the standing lending and deposit facilities respectively.
Similarly, the Cash Reserve Ratio (CRR) and the Liquidity Ratio were retained at 22.50
per cent and 30.00 per cent respectively.

2.4.1
Money Market
Activities in the money market during the review period reflected liquidity conditions
in the banking system. Open Market Operations (OMO) and foreign exchange
interventions in the market were the major liquidity management instruments. The
open-buy-back (OBB) daily average rates opened at 29.69 per cent on July 2, 2018 and
unsecured inter-bank call weighted daily average rate opened at 15.00 per cent on July
3, 2018. The rates peaked at 63.00 and 60.00 per cent on December 11, 2018 and
thereafter moderated to 10.81 and 14.00 per cent, respectively at end-December 2018.
FINANCIAL STABILITY REPORT – DECEMBER 2018

During the review period, the OBB rate ranged between 2.94 and 63.00 per cent, while
the inter-bank call rate ranged between 2.5 and 60.00 per cent, respectively, compared
with 1.85 to 131.04 per cent and 1.00 to 140.00 per cent for the OBB and inter-bank
call rates in the first half of 2018. The monthly average OBB and inter-bank call rates
closed at 21.64 and 22.68 per cent at end-December 2018, respectively, compared with
12.49 and 17.28 per cent at end-June 2018.
Figure 2. 5: Daily Money Market Rates Movements July – December, 2018


2.4.1.1 Nigerian Treasury Bills
The Nigerian Treasury Bills (NTBs) for 91-, 182- and 364-day tenors totalling N1,689.02
billion were issued and allotted in the second half of 2018, indicating an increase of N35.66
billion or 2.16 per cent, from the N1,653.37 billion recorded in the first half of 2018. The
increase was attributed to the rise in NTB issues. Total subscription for NTBs was N3,136.83
billion during the second half of 2018, indicating a decline of N440.12 billion or 12.30 per cent
from the N3,576.95 billion recorded in the first half of 2018. The average marginal rates for
the issues ranged between 10.0000 - 11.0000 for the 91-day, 10.4000 - 13.4900 for the 182day and 11.2200 - 14.4500 for the 364-day tenors respectively.
Commercial banks (including foreign investors) took up N843.41 billion or 49.93 per cent,
merchant banks, N30.05 billion or 1.78 per cent, and mandate and internal funds customers,
N815.57 billion or 48.29 per cent, compared with the distribution. However, in the first half
of 2018, commercial banks (including foreign investors) took up N920.07 billion or 55.65 per
cent, merchant banks, N40.69 billion or 2.46 per cent, and mandate and internal funds
customers, N692.61 billion or 41.89 per cent.

Inter-Bank Call
Open-Buy-Back (OBB)
MPR
FINANCIAL STABILITY REPORT – DECEMBER 2018

The NTBs outstanding at end-December 2018 showed that commercial banks accounted for
47.11 per cent, parastatals, 38.16 per cent, merchant banks, 1.31 per cent, and mandate and
internal fund customers, 13.42 per cent.
2.4.2
Foreign Exchange Market
The Bank continued its intervention in the foreign exchange market through interbank
operations, Investors and Exporters (I & E), SMEs, BDCs and invisible trade windows.
The Bank also sustained its participation in the Naira-Settled OTC Futures Market to
stabilise the exchange rate.

During the review period, the CBN executed a Bi-lateral Currency Swap Agreement
with the People’s Bank of China. Consequently, the Bank introduced a bi-weekly
Renminbi auction on July 20, 2018, with a total of twelve (12) auctions conducted,
amounting to CNY669.66 million from the initial draw down of CNY1.00 billion.

2.4.2.1 Exchange Rate Movement
The rate at the I & E window opened at N361.40 /US$ on July 2, 2018 and closed at
N364.00/US$ on December 31, 2018, indicating a depreciation of 0.01 per cent. At the
BDC segment of the foreign exchange market, rates opened and closed at N360.50/US$
and N361.00/US$ respectively, with a high of N367.50/US$ within the review period.
The I & E window recorded a depreciation of 0.67 per cent, from N360.56/US$ on
January 2, 2018 to N363.03/US$ on June 29, 2018. The BDC segment witnessed 0.01
per cent appreciation from N362.24/US$ to N360.78/US$ during the same period. At
the inter-bank segment of the foreign exchange market, the rate opened at N305.75/US$
on July 2, 2018 and closed at N307.00/US$ on December 31, 2018.

FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 2. 6: Inter-bank, BDC and I & E Rates, January – December, 2018

2.4.2.2 Foreign Exchange Spot, Forwards and OTC FX Futures Transactions
The total foreign exchange sale by the Bank in the second half of 2018 was
US$16,168.52 million. Of this sum, the interbank spot sales accounted for US$1,898.34
million, invisibles, US$812.70 million, I & E, US$812.70 million and SMEs,
US$678.50 million. Inter-bank forward sales amounted to US$5,743.42 million, while
forwards that matured amounted to US$4,718.68 million and US$2,760.51 million was
outstanding.

In the first half of 2018, the total CBN foreign exchange sale at the inter-bank segment
was US$9,508.25 million. Of this, spot sales accounted for US$1,554.76 million;
invisibles, US$1,768.70 million; SMEs, US$637.00 million; I & E, US$1,236.69
million; and inter-bank forwards, US$5,311.10 million.

The notional amount of the OTC FX Futures totalled US$3,911.47 million in the second
half of 2018, compared with US$3,965.68 million in the first half of 2018. The sum of
US$3,508.81 million Futures matured, while US$4,772.35 million remained
outstanding at end-December, 2018, compared with US$2,914.86 and US$4,369.69
million, respectively in the first half of 2018.

2.4.3
Capital Market
Activities in the Nigerian capital market were generally bearish in the second half of
2018 as the major market indicators trended downwards, owing largely to foreign
capital flow reversals.
January
February
March
April
May
June
July
August
September
October
November December
I & E window

Inter-Bank

BDC

N/US$
FINANCIAL STABILITY REPORT – DECEMBER 2018

2.4.3.1 Bond Market
Total bonds outstanding at end-December 2018 stood at N9,102.46 billion, comprising
FGN bonds (N8,256.57 billion or 89.72%), FGN Sukuk (N200.00 billion or 2.17%),
sub-national bonds (N389.59 billion or 4.23%), sub-national sukuk (N4.94 billion or
0.05%) and corporate bonds (N351.36 billion or 3.82%). Total bonds outstanding at
end-December 2018 was 6.26 per cent higher than the N8,660.62 billion recorded at
end-June 2018.

Table 2. 4: Outstanding Bonds (N Billions)
Bond Issuer
June,

December,

%
Change
Proportion
of Total
(June,
2017)
Proportion
of Total
(December,
2017)
FGN Bonds

7,838.26

8,256.57

5.34

90.50 89.72
FGN Sukuk

100.00

200.00

100.00

1.15

2.17
Sub-National

413.39

389.59

(5.76)

4.77

4.23
Sub-National
Sukuk

6.24

4.94

(20.87)

0.07

0.05
Agency

-

-

-

-
-
Corporate

302.73

351.36

16.06

3.50

3.82
Total

8,660.62

9,202.46

6.26

100.00 100.00
Source: FMDQ OTC
During the review period, new issues and re-openings of N570.00 billion worth of bonds
were auctioned, indicating an increase of 14.00 per cent over the N500.00 billion
auctioned in the first half of 2018. Public subscriptions and sales decreased to N676.61
billion and N336.69 billion in the second half of 2018, compared with N829.42 billion
and N425.35 billion in the first half of 2018, respectively. The low subscription and
allotment reflected the impact of changes in FGN debt management strategy in favour
of foreign borrowing to reduce domestic borrowings.

The yield curves depicted the trend at the short and long ends of the market, both for
the first and second halves of 2018. Consequently, the yield curve in the second half of
2018 was higher compared with the position in the first half owing to the lower prices
prevalent in the market during the period (Figure 2.10)

FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 2. 7: Yield Curve for Nigeria

Source: FMDQ-OTC Plc
2.4.3.1 .1 Federal Government of Nigeria Savings Bonds
FGN Savings Bonds (FGNSB) worth N2.23 billion were issued and allotted, compared
with N1.36 billion recorded in the preceding period, indicating an increase of N0.87
billion or 64.29 per cent. The increase was attributed to government’s efforts to
encourage retail savings. The new issues were for 2- and 3-year tenors with the coupon
rates ranging between 10.4830 - 12.4020 per cent and 11.4830 - 13.4020 per cent
respectively. The coupon rates in the preceding period ranged from 9.4800 – 12.0980
per cent and 11.2770 - 13.0980 per cent for the 2- and 3-year tenors respectively. The
total value of FGNSB outstanding at end-December 2018 was N10.75 billion, compared
with N8.52 billion at end-June 2018.

2.4.3.1 .2 Green Bonds
There was no new issue of Green Bonds during the review period. However, the sum
of N10.69 billion in respect of 5-Year FGN Green Bond issued at a coupon rate of
13.4800 per cent in December 2017 was outstanding at end-December 2018. The bond

Yield %
Time to Maturity
29/Jun/2018
31/12/2018
FINANCIAL STABILITY REPORT – DECEMBER 2018

was issued to finance sustainable development projects with positive impact on the
environment and the economy.

2.4.3.1.3 FGN Sukuk
A N100.00 billion 7-Year Sukuk issued in December 2018 at a rental rate of 15.7430
per cent payable semi-annually, brought the total FGN Sukuk outstanding at endDecember 2018 to N200.00 billion.

2.4.3.1 .4 Sub-National Bonds
During the review period, sub-national debts worth N394.53 billion were outstanding,
including the N4.94 billion sukuk issued by one state government. Two states fully
redeemed N7.69 billion, eleven states partially redeemed N16.39 billion, while one
partially redeemed N1.02 billion sukuk. However, the total bonds of N419.63 billion
issued by 14 state governments were outstanding in the first half of 2018, of which one
state issued N6.24 billion worth of sukuk and N4.95 billion was redeemed by one state.

2.4.3.1 .5 Corporate Bonds
Eight corporate bonds worth N88.09 billion issued by six companies were listed, while
three bonds with a total outstanding amount of N35.76 billion were redeemed during
the review period, compared with two corporate bonds worth N13.15 billion listed and
a single redemption of N0.90 billion in the first half of 2018. The sum of N351.36 billion
against 31 listed companies was outstanding at end-December 2018, compared with
N302.73 billion against 27 listed companies at end-June 2018.

Table 2. 5: Corporate Bonds Listed
Issuer

Listing Date
Description
Outstanding
Value
(N’ Billion)
Union Bank of Nigeria Plc
7-Sep-18
15.50 Union I 3-Sep-2021
7.02
Flour Mills of Nigeria Plc
1-Nov-18
15.50 Flourmills I 30-Oct-

10.11
UACN Property Development
Company Plc
26-Apr-18
16.00 UPDC 26-Apr-2023
4.36
FINANCIAL STABILITY REPORT – DECEMBER 2018

C & I Leasing Plc
11-Jul-18
16.54 C&I Leasing 11-Jun-

6.52
Flour Mills of Nigeria Plc
1-Nov-18
16.00 Flourmills II 30-Oct-

10.00
Union Bank of Nigeria Plc
7-Sep-18
15.75 Union II 3-Sep-2025
6.31
Sterling Investment Management Plc
5-Oct-18
16.25 Sterling Inv. II 6-Oct-

32.90
NMRC
21-May-18
13.80 NMRC II 15-Mar-

10.87
Total
88.09
Source: FMDQ OTC
2.4.3.2 Equity Market
The Nigerian Stock Exchange (NSE) All Share Index (ASI) closed at 31,430.50 at endDecember 2018, a decrease of 17.89 per cent from the 38,278.55 recorded at end-June
2018. Market capitalisation (MC) also closed lower at N11,720.72 billion, a decrease
of 15.47 per cent from the N13,866.42 billion recorded at the end of the preceding
period. The decrease in both ASI and MC was due to foreign capital flow reversals.

Foreign portfolio investment (FPI) inflows in the second half of 2018 totalled N195.80
billion, while outflows stood at N223.59 billion, reflecting a net outflow of N27.79
billion. Inflows in the first half of 2018 amounted to N380.65 billion, while outflows
stood at N419.06 billion, reflecting a net outflow of N38.41 billion. The net outflow in
2018 was attributed to capital flow reversal which was due largely to concerns over
2019 general elections and policy normalization in the US.

Overall, FPIs accounted for 51.96 per cent of total equity transactions in the review
period, compared with 50.07 per cent recorded in the first half of 2018. Domestic
transactions accounted for the balance of 48.04 per cent in the equity market, compared
with 49.93 per cent in the first half of 2018.
The All-Share Index (ASI) opened at 38,221.71 and closed at 31,430.50, indicating a
decrease of 6,791.21 points or 17.77 per cent. The MC of equities decreased by N1.86
trillion or 13.70 per cent, from N13.58 trillion at the beginning of July to N11.72 trillion
at end-December 2018. In the first half of 2018, the ASI opened at 38,264.79 and closed
at 38,278.55, indicating an increase of 13.76 points or 0.04 per cent. Similarly, the MC
of equities increased by N0.25 trillion or 1.84 per cent, from N13.62 trillion at the
beginning of January to N13.87 trillion at end-June 2018.
FINANCIAL STABILITY REPORT – DECEMBER 2018

Table 2. 6: Equities Trading
Period
Total
Foreign
%
Foreign
Domestic
%
Domestic
Foreign
Inflow
Foreign
Outflow
NSE ASI
Market
Capitalization
H2 2018

807.14

419.39
51.96

387.75

48.04
195.80

223.59

31,430.50

11,720.72
H1 2018

1,597.25

799.71
50.07

797.54

49.93
380.65

419.06

38,278.55

13,866.42
H2 2017

1,607.64

777.33
48.35

830.31

51.65
556.28

221.05

33,243.19

13,609.47
H1 2017

935.26

430.23
46.00

505.03

54.00
215.97

214.26

33,117.48

11,452.12

Source: NSE
2.4.4 Potential Market Risks
1. Capital flow reversal, following continued interest rate normalization by the
United States Federal Reserve and domestic socio-political concerns, threatens
the continued stability of the foreign exchange market.
2. Higher preference for government securities by banks poses challenges to the
expansion of credit to the real sector.
3. Fiscal injections and stimulus programme pose challenges to liquidity
management and could trigger volatility in money market rates.


FINANCIAL STABILITY REPORT – DECEMBER 2018

2.5
Real Sector Interventions
2.5.1
Agricultural Policy Support
The agricultural sector continued to benefit from a number of policies, reforms and institutional
support in the second half of 2018.
2.5.1.1 Agricultural Credit Guarantee Scheme
In the period under review, 20,192 loans valued ₦2.62 billion were guaranteed, compared with
10,420 loans valued ₦1.75 billion in the first half of 2018, indicating increases of 93.8 and
49.5 per cent in the number and value of loans guaranteed respectively.
Furthermore, 12,395 loans valued ₦2.43 billion were repaid in the second half of 2018,
compared with 17,977 loans valued ₦3.05 billion in the first half of 2018. A total of 30,372
loans valued ₦5.47 billion were repaid in 2018, bringing the cumulative repayments to
₦86.945 billion in respect of 889,268 loans granted since inception.
2.5.1.2 Commercial Agriculture Credit Scheme
The sum of ₦40.36 billion was disbursed to 24 projects in the second half of 2018 compared
with ₦39.34 billion to 16 projects in the first half. A total of ₦37.72 billion was repaid in the
review period, compared with ₦17.01 billion in the first half of 2018. A total of ₦671.41 billion
has been disbursed since the inception of the Scheme, with ₦314.54 billion being repaid.

2.5.1.3 Anchor Borrowers’ Programme
The sum of ₦82.59 billion was disbursed in the second half of 2018 to 490,481 farmers in the
36 States and the Federal Capital Territory for the cultivation of cassava, cotton, maize, rice,
soya beans, wheat, sesame, sorghum, tomato, cocoa, castor seed and the production of fish and
poultry through 6 participating financial institutions (PFIs). This reflected increases of 127.08
and 214.95 per cent above the ₦36.37 billion disbursed to 155,732 farmers in the first half of
the year. Cumulatively, the sum of ₦174.48 billion had been disbursed to 902,518 farmers
since inception in 2014. Total repayment in the review period was ₦3.39 billion, bringing the
cumulative amount repaid from inception to ₦21.41 billion.
2.5.1.4 Paddy Aggregation Scheme
Under the first phase of the Paddy Aggregation Scheme (PAS), the sum of ₦5.0 billion was
disbursed to one project in the second half of 2018, compared with ₦4.25 billion for 3 projects
in the first half. The sum of ₦18.63 billion was repaid during the period under review. The
FINANCIAL STABILITY REPORT – DECEMBER 2018

cumulative disbursement and repayment stood at ₦39.62 billion and ₦25.41 billion
respectively since inception.
Under the second phase, the Bank approved the sum of N53.00 billion for on-lending to large-
scale integrated rice millers for a tenor of 24 months at an interest rate of 5.00 per cent. The
sum of N14.00 billion was disbursed to two (2) millers in the review period.

2.5.2 SME & Industrial Policy Support
In the second half of 2018, a number of reforms and incentives were sustained to support the
performance of the sector.
2.5.2.1 Micro, Small and Medium Enterprises Development Fund
The sum of ₦1.61 billion was disbursed to 1,091 beneficiaries through the PFIs and state
governments in the second half of 2018, compared with ₦4.77 billion to 14,492 in the first half.
This indicated a 66.2 per cent decrease in disbursements. The sum of ₦83.36 billion had been
disbursed, with ₦23.63 billion being repaid, since inception in 2013. Repayments in the review
period amounted to ₦3.73 billion, compared with ₦3.48 billion in the first half of 2018.
2.5.2.2 Agri-business/Small and Medium Enterprises Investment Scheme
The Agri-business/Small and Medium Enterprises Investment Scheme, which has debt and
equity components, was introduced in the second half of 2018 to enhance access to finance for
SMEs, leveraging on equity contribution by banks. A total of 162 projects accessed N343.23
million from the Scheme during the second half of 2018.
2.5.2.3 Youth Entrepreneurship Development Programme
The sum of ₦33.0 million was released for 11 projects under the programme in the review
period, bringing cumulative disbursements to ₦159.98 million. Repayments valued ₦5.27
million were received from 34 projects, resulting in cumulative repayments of ₦12.28 million.
2.5.3
Real Sector Support Facility
The Bank introduced two additional windows, the Differentiated Cash Reserve Requirement
(DCRR) and Corporate Bonds (CBs), to complement the regular window under the Real Sector
Support Facility (RSSF). The windows were established to enhance the flow of long-term
credit to the real sector, targeting the manufacturing, agriculture and other employment- and
growth-stimulating sectors. Emphasis was on projects with high backward integration and
import substitution potentials.
FINANCIAL STABILITY REPORT – DECEMBER 2018

During the review period, the sum of ₦6.15 billion, under the DCRR, was disbursed to 4
projects. The RSSF financed 4 projects worth ₦38.09 billion, compared with 5 projects worth
₦23.91 billion in the first half of the year, indicating a 20.00 per cent decrease in the number
of projects but a 59.30 per cent increase in the value. Total disbursements stood at ₦115.51
billion since inception. The sum of ₦4.95 billion was repaid in the second half of 2018,
bringing cumulative repayments to ₦6.63 billion.
2.5.3.1 Textile Sector Intervention Facility
During the review period, the sum of ₦10.29 billion was disbursed to 2 projects under the
Textile Sector Intervention Facility (TSIF), compared with ₦19.1 billion to two projects in the
first half of 2018. A total of ₦55.76 billion has so far been disbursed to 33 projects since
inception.
2.5.3.2 CBN-BOI Industrial Facility
The CBN-BOI Industrial Facility (CBIF) was introduced in 2018 to provide concessionary
finance for expansion and diversification of the industrial sector as well as attract new
investments and re-investments in value-adding projects. The Facility is managed by the Bank
of Industry (BOI). The sum of N50.0 billion was disbursed to 30 projects in the second half of
2018.
2.5.3.3 Small and Medium Enterprises Restructuring and Refinancing Facility
Disbursement under the scheme was discontinued following its replacement with the Real
Sector Support Facility in December 2014. However, repayments during the review period
amounted to ₦12.60 billion, bringing the cumulative repayments to ₦125.86 billion.
2.5.3.4 Federal Government of Nigeria Special Presidential Fertilizer Initiative
The FGN Special Presidential Fertilizer Initiative was introduced in 2017 to increase the
production of fertilizer by local blending plants with a view to making the product more
affordable to Nigerian farmers. In the review period, the sum of ₦10.0 billion was released to
one project, bringing the cumulative amount released since inception to ₦35.0 billion.
2.6. Export Policy Support
2.6.1
Non-oil Export Stimulation Facility
The Non-oil Export Stimulation Facility (NESF), aimed at improving access of exporters to
finance for expansion and diversification of the non-oil export basket, commenced in 2016.
During the review period , two projects were financed with the sum of ₦6.45 billion, compared
FINANCIAL STABILITY REPORT – DECEMBER 2018

with the same number of projects financed with the sum of ₦19.04 billion in the first half of
the same year. The total repayments on the facility stood at ₦5.04 billion at end-December
2018.
2.6.2
Export Development Facility
The Export Development Facility (EDF) was introduced in 2018 to improve access to finance
by exporters under the management of the Nigerian Export-Import Bank (NEXIM). The sum
of ₦10.17 billion was disbursed to 18 projects during the review period.
2.7. Energy Policy Support
2.7.1
Power and Airline Intervention Fund
The sum of ₦3.25 billion was disbursed to one project under the scheme in the second half of
2018, bringing cumulative disbursements to ₦301.37 billion, of which ₦180.61 billion was for
45 power projects and ₦120.76 billion for 24 airline projects. The sum of ₦13.35 billion was
repaid in the second half of 2018, resulting in cumulative repayments of ₦145.52 billion.
2.7.2
Nigerian Electricity Market Stabilization Facility
In the review period, the sum of ₦24.34 billion was disbursed to 31 market participants,
comprising one distribution company (DisCo), 18 generating companies (GenCos), 6 gas
companies (GasCos) and 6 service providers. Cumulatively, the sum of ₦183.09 billion had
been disbursed, of which ₦8.68 billion had been repaid, resulting in total repayments of ₦30.46
billion.
2.7.3
Nigeria Bulk Electricity Trading Payment Assurance Facility
The sum of ₦176.78 billion was disbursed under the facility to the Nigeria Bulk Electricity
Trading (NBET) Plc during the review period. Cumulatively, the amount disbursed stood at
₦534.10 billion at end-December 2018.
2.8.
Institutional Support and Financial Inclusion
2.8.1
National Collateral Registry
During the review period, 112 financial institutions were registered, bringing the total to 628
since inception in 2016. A total of 9,421 financing statements for 16,022 collaterals, valued
₦604.56 billion, US$1.11 billion and €22,949.36 were registered in the review period.
Cumulatively, a total of 39,786 financing statements for 58,843 collaterals valued ₦1.23
trillion, US$1.14 billion and €6.08 million had been registered.
FINANCIAL STABILITY REPORT – DECEMBER 2018

2.8.2
Shared Agent Network Expansion Facility
The Bank established the Shared Agent Network Expansion Facility in 2018 to facilitate the
achievement of the national financial inclusion objectives. The Facility was targeted at boosting
the number of super agents and mobile money operators’ agent locations to 500,000, across all
local governments in the Country, by 2020. The sum of ₦1.75 billion was released to 4 projects
in the second half of 2018, compared with ₦3.75 billion released to 7 projects in the first half.

2.8.3 Financial Inclusion

A revised National Financial Inclusion Strategy (NFIS) was issued in October 2018, identifying
five demographic sectors that suffer the most exclusion in Nigeria, namely, Women, Youth,
Rural Areas, Northern Region and Micro, Small and Medium enterprises. Some of the
recommendations for addressing the exclusion situation included: creation of appropriate
Regulation & Policy environment; massive roll out of Agent networks; simplification of
Identity/Know Your Customer (KYC) requirements and promotion of Digital Financial
Services (DFS).

The Enhancing Financial Innovation and Access (EFInA)9 bi-annual survey on Financial
Access Point in Nigeria released in December 2018 showed that exclusion rate in Nigeria had
dropped from 41.60 in 2016 to 36.80 per cent in 2018.
2.8.3.1 Mobile Money and Bank Verification Number
Transactions by mobile money operators increased by 29 per cent to 51,144,718 at endDecember 2018 from 35,941,542 at end-June 2018. The total value of transactions increased
by 32 per cent from N739,681,699,072 at end-June 2018 to N1,091,019,412,036 at endDecember 2018. Similarly, the total number of Bank Verification Number (BVN) enrolments
increased by 7.20 per cent from 33.50 million at end-December 2017 to 36.1 million at endJune 2018.

9 Source: Access to Financial Services Survey in Nigeria by Enhancing Financial Innovation and Access (EFInA)
FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 2. 8: Mobile Money and BVN Enrolment


2.8.3.3 Financial Literacy
The Bank, in collaboration with relevant stakeholders, undertook the following financial
literacy activities during the review period.
2.8.3.3.1 Awareness Campaign on Financial Education
The Bank carried out an awareness campaign and distributed consumer financial education
materials developed to serve various segments of the Nigerian population in Awka, Bauchi,
Yola, Ibadan, Calabar and Port-Harcourt.
2.8.3.3.2 World Savings Day 2018
The Bank in collaboration with stakeholders commemorated the 2018 World Savings Day
(WSD) on October 31, 2018. The WSD was used to create awareness on the importance of
savings, investment, earning a livelihood, creating employment as well as entrepreneurship to
enhance personal and national development. Nigeria has been part of this global programme
and participates actively in marking the WSD through a mentoring programme for the young.
The mentoring programme was conducted in 12 secondary schools in 12 states across the 6
geo-political zones, with 960 students directly benefiting. The Bankers’ Committee also
conducted the mentoring programme in secondary schools nationwide where 57,084 students
benefited.
2.8.3.3.3 Financial Education Curriculum
In collaboration with the Nigeria Educational Research and Development Council, the Bank
conducted a training workshop for school teachers selected to implement the pilot phase of

Volume
Value of Mobile Money
Transactions
Jun-18
Dec-18
FINANCIAL STABILITY REPORT – DECEMBER 2018

teaching the infused Financial Education Curriculum. The training, which took place in Lagos
and Katsina, was to expose the teachers to the Financial Education Curriculum and the
Teacher’s Guide and prepare them for the pilot run.
2.8.3.3.4 Financial Literacy E-Learning Workshop
The Bank in collaboration with external partners organized a workshop for members of the
Financial Literacy Working Group (FLWG) and other stakeholders for the deployment of an
e-learning platform. The platform was expected to serve as an avenue where consumers could
access financial education either as trainers or end-beneficiaries. Participants at the workshop
included financial services providers, other regulators in the financial system, banks and
development partners. The Bank also hosted other stakeholders to a content review session
where various financial education materials were reviewed in preparation for the deployment
of the e-learning platform.
2.8.3.3.5 National Peer Group Educator Programme
In partnership with external stakeholders, the Bank hosted participants from the Federal
Ministry of Youth and Sports Development and the National Youth Service Corps at a
workshop to review and evaluate the content and strategy of the National Peer Group Educator
Programme.
2.9 Potential Risks to the Financial System
• The weak internal complaints redress mechanism by banks coupled with the absence of
an independent financial ombudsman could negatively impact on consumer confidence
and undermine the attainment of financial inclusion targets.
• The gap between the increasing adoption of digital financial services and poor financial
consumer awareness could potentially increase the incidence of fraud and financial
losses for consumers.
• The security challenges in some parts of the Country, if not timely addressed, could
significantly increase the number of the financially-excluded and threaten the
achievement of national financial inclusion targets.


FINANCIAL STABILITY REPORT – DECEMBER 2018

3.0 REGULATORY AND SUPERVISORY ACTIVITIES
3.1
Financial Soundness Indicators
The financial soundness indicators used to assess the health and stability of the financial system
included:
3.1.1
Assets-Based Indicators
The quality of banks’ assets improved in the second half of 2018. The ratio of non-performing
loans (NPLs) to gross loans was 11.67 per cent at end-December 2018, compared with 12.45
per cent at end-June 2018, indicating a decrease of 0.78 percentage point. The improvement
was largely attributed to the sustained uptick in economic activities and the write-off of NPLs
by some banks.

Figure 3. 1: Banking Industry NPLs to Gross Loans

3.1.1.1 Core Liquid Assets to Total Assets and Short-term Liabilities
The ratio of core liquid assets to total assets increased by 2.58 percentage points to 22.64 per
cent at end-December 2018, from 20.06 per cent recorded in the first half of 2018. Similarly,
the ratio of core liquid assets to short-term liabilities improved by 4.60 percentage points to
34.15 per cent in the review period, compared with 29.55 per cent at end-June 2018. The
increase was attributed to banks’ preference for Treasury Bills.

End Dec. 2017
End Jun. 2018
End Dec. 2018
P
e
r
c
e
n
t
a
g
e
s
FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 3. 2: Banking Industry Liquidity Indicators

3.1.2
Capital-Based Indicators
The ratio of regulatory capital to risk weighted assets increased by 3.10 percentage points to
15.21 per cent at end-December 2018, from 12.11 per cent at end-June 2018. Similarly, the
ratio of Tier 1 capital to risk weighted assets increased by 3.53 percentage points to 13.54 per
cent at end-December 2018, from 10.01 per cent at end-June 2018. The improvement reflected
the capitalisation of earnings by banks to build additional capital buffers.
Figure 3. 3: Banking Industry Capital Adequacy Indicators


The ratio of non-performing loans (net of provisions) to capital for the industry increased to
0.05 per cent at end-December 2018, from negative 2.07 per cent at end-June 2018. Similarly,
the return on equity (ROE) and return on assets (ROA) improved by 1.90 and 0.20 percentage

End Dec. 2017
End Jun. 2018
End Dec. 2018
P
e
r
c
e
n
t
a
g
e
s
Liquid assets (core) to total assets*
Liquid assets (core) to short-term liabilities*

End Dec. 2017
End Jun. 2018
End Dec. 2018
Percentages
Regulatory capital to risk-weighted assets*
Regulatory Tier 1 capital to risk-weighted assets*
FINANCIAL STABILITY REPORT – DECEMBER 2018

points to 22.73 and 2.02 per cent at end-December 2018, from 20.83 and 1.82 per cent at endJune 2018 respectively.
3.1.3
Income- and Expense- Based Indicators
The ratio of interest margin to gross income increased to 67.27 per cent during the review
period, from 63.94 per cent at end-June 2018. Similarly, the ratio of personnel expenses to noninterest expenses increased to 34.19 per cent at end-December 2018, from 31.50 per cent at
end-June 2018. However, the ratio of non-interest expenses to gross income decreased to 60.90
per cent at end-December 2018, from 64.26 per cent in the preceding half.
Table 3. 1: Selected Financial Soundness Indicators of the Nigerian Banking Industry

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

End Jun
End Dec
End Jun
End Dec
End Jun
End Dec
End Jun
End Dec
Nonperforming loans to total gross
loans *

Liquid assets (core) to total assets*

Liquid assets (core) to short-term
liabilities*

Regulatory capital to risk-weighted
assets*

Regulatory Tier 1 capital to riskweighted assets*

Nonperforming loans net of
provisions to capital *

Return on equity*

Return on assets*

Interest margin to gross income*

Noninterest expenses to gross
income*

Personnel expenses to noninterest
expenses

1. Assets Based Indicators
2. Capital Based Indicators
3. Income and Expense Based Indicators
2018**

Indicators

FINANCIAL STABILITY REPORT – DECEMBER 2018

3.2
The Banking Industry Stress Test
3.2.1
Solvency Stress Test
The end-December 2018 banking industry stress test, which covered 21 commercial and 5
merchant banks10, was conducted to evaluate and determine the resilience of the industry to
probable and adverse shocks, including credit, liquidity, interest rate and contagion risks.
3.2.1.1 Baseline Position
Baseline capital adequacy ratio (CAR) for the banking industry at end-December 2018 was
15.26 per cent, indicating 3.18 percentage points increase from the 12.08 per cent recorded at
end-June 2018 (Table 3.2, Figure 3.4). The baseline banking industry NPL ratio was 11.64 per
cent at end-December 2018, showing a slight improvement of 0.81 percentage points from the
12.45 per cent recorded at end-June 2018.

Table 3.2: Banking Industry Baseline Selected Key Indicators

CAR
LR
NPLs
ROA
ROE
December 2018 (%)

June 2018 (%)

Percentage Point
Change


Figure 3.4: Baseline (Pre-shock) CARs (%)


The Baseline ROA and ROE of the banking industry stood at 0.18 and 2.44 per cent at endDecember 2018. (Figure 3.6).

10 Non-interest bank excluded because of its unique balance sheet structure

Jun ' 16
Dec ' 16
Jun ' 17
Dec '17
Jun ' 18
Dec '18
Per cent
Banking Industry CAR
FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 3.5: Baseline (Pre-shock) ROA and ROE (%)


3.2.1.2 Credit Risk
The stress test revealed that the banking industry could withstand a shock of up to 75.00 per
cent increase in the industry NPLs as the CAR remained above 10.00 per cent. However, the
industry was vulnerable to shocks above 100.00 per cent increase in NPLs as the industry CAR
fell below 10.00 per cent.
Table 3.3: Credit Default Shocks


Similarly, the credit concentration stress test showed that the CAR of the banking industry fell
below the 10.00 per cent regulatory threshold under scenarios 2 and 3 in Table 3.4. Under
scenario 3, the CAR of the banking industry declined to (1.42) per cent, from the pre-shock

Dec-2018 ROA
Dec-2018 ROE
Jun-2018 ROA
Jun-2018 ROE
Single Factor Shocks
Solvency Ratio After Shocks
Industry
Baseline CAR
15.26
10% NPLs increase
14.46
15% NPLs increase
14.22
20% NPLs increase
13.98
30% NPLs increase
13.50
50% NPLs increase
12.51
75% NPLs increase
11.26
100% NPLs increase
9.96
FINANCIAL STABILITY REPORT – DECEMBER 2018

position11. This imply a severe negative impact on the industry if the quality of the exposures
to five largest obligors worsened.

Table 3.4: Credit Concentration Risk


Figure 3.6: Credit Concentration Risk


3.2.1.3 Sectoral Credit Concentration Risk
The breakdown of banking industry total credit by sector showed that the oil and gas sector
accounted for 30.29 per cent, while manufacturing, government, general commerce, finance
and insurance, and others accounted for 14.53, 6.02, 7.40, 6.42 and 35.34 per cent respectively,
at end-December 2018.

11 The share of five largest obligors across all banks was 26.62 per cent.
15.26
-1.42
Baseline
Five largest corporate obligor credit facilities shifted from
Doubtful to Lost (100%)


Industry
Baseline CAR
15.26
Single Factor Credit Concentration Shocks
Solvency Ratio PostShocks
Scenario 1
Five largest corporate obligors’ credit facilities shifted from pass-through to substandard (10%)
12.38
Scenario 2
Five largest corporate obligor credit facilities shifted from sub-standard to doubtful
(50%)
7.67
Scenario 3
Five largest corporate obligor credit facilities shifted from doubtful to lost (100%)
-1.42
FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 3.7: Sectoral Concentration of Credit


The results of the stress test of default in exposure to the oil and gas sector showed that the
banking industry could withstand up to 50.00 per cent default as the post-shock CAR remained
at 10.24 per cent (Table 3.5).

Table 3.5: Oil & Gas Sector Default Stress Test

Industry CAR (%)
Baseline CAR
15.26
30% Default on total exposure to Oil & Gas
13.52
50% Default on total exposure to Oil and Gas
10.24

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 would maintain a stable solvency position to interest rate shock of up to
1000 bps downward shift in yield curve as the post-shock CAR declined marginally from 15.26
to 13.41 per cent. However, the interest rate shocks had significant adverse impact on the ROA
and ROE (Figure 3.8).

Oil and Gas
Manufacturing
Government
Gen Comm
Finance and Insurance
Others
FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 3.8: Impact of Interest Rate Shocks on CAR


Figure 3.9: Impact of Interest Rate Shocks on ROE and ROA


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

Banking
Industry (%)
Baseline ROA
0.18
Baseline ROE
2.44
Impact of Downward Shift in Yield Curve Shocks on CAR

15.26
13.41
Baseline CAR
Impact of 10% downward shift in yield curve on CAR

Baseline ROA
Baseline ROE
Impact of 10% downward shift
in yield curve on ROA
Impact of 10% downward shift
in yield curve on ROE
FINANCIAL STABILITY REPORT – DECEMBER 2018

500 bps downward shift in yield curve
14.34
1000 bps downward shift in yield curve
13.41
Impact of Downward Shift in Yield Curve Shocks on ROA

500 bps downward shift in yield curve
-0.37
1000 bps downward shift in yield curve
-0.92
Impact of Downward Shift in Yield Curve Shocks on ROE

500 bps downward shift in yield curve
-5.14
1000 bps downward shift in yield curve
-12.71

3.2.2
Liquidity Stress Test12

The stress test result revealed that after a one-day run scenario13, the liquidity ratio for the
industry declined to 34.69 per cent from the 51.87 per cent pre-shock position and to 17.55 and
13.48 per cent after a 5-day and cumulative 30-day scenarios, respectively. The result also
revealed that under 5-day and cumulative 30-day run scenarios on the banking industry,
liquidity shortfalls declined to N1.58 trillion and N1.98 trillion respectively.

Figure 3.10: Liquidity Ratio at Periods 1-5 and cumulative 30-day Shocks


12 Liquidity stress tests were conducted at end-June 2018 using the Implied Cash Flow Analysis (ICFA) and Maturity
Mismatch/Rollover Risk approaches to assess the resilience of individual banks and the banking industry to liquidity and
funding shocks.
13 Assuming that customers do not resort to deposit withdrawals from one bank to the other.
FINANCIAL STABILITY REPORT – DECEMBER 2018

Table 3. 7: Liquidity Stress Test Results (Post-Shock)
Scenario
Banks with
Liquidity Ratios (LR) < 30%
December 2018
June 2018
(24 DMBs)
December

(26 DMBs)
LR (%)
Shortfall to 30% LR
threshold
(N’ billion)
Test 1.1: Implied Cash Flow Test
Test 1.1: Implied Cash
Flow Test
Day 1

34.69
Nil
Day 2

30.69
Nil
Day 3

26.67

Day 4

22.37
1,025
Day 5

17.55
1,580
Implied Cash Flow
Test (30 Days)

13.48
1,985
3.2.3
Maturity Mismatch
The industry pre-shock assets and liabilities maturity profile at end-December 2018 revealed
that the shorter end of the market (≤90 day buckets) were adequately funded. In the ≤30 day
bucket, seven banks were not adequately funded, while in the 31-90 day bucket, nine banks
had funding gaps. However, the cumulative position for the industry showed an excess of N4.8
trillion assets over liabilities.

Table 3. 8: Maturity Profile of Assets and Liabilities
Bucket
Liabilities
Assets
Mismatch
Cumulative
N Billion
≤30 days

31-90 days

91-180 days

181-365 days

1-3 years

>3 years

Total
23,008.54
27,773.67
(4,765.13)


FINANCIAL STABILITY REPORT – DECEMBER 2018

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

Test 2A
Descriptive Maturity
Mismatch.
(no consideration of
rollover)
Test 2B
Static Rollover risk
Analysis.
(No possibility to close
liquidity gaps in other
buckets)
Test 2C
Dynamic Rollover risk test.
(The same assumption as in 2b
but with the option of closing
the liquidity gap from other
buckets)

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

≤30 days
8,363.64

5,162.13

(363.27)

31-90 days
3,210.98

(375.07)

(107.69)

91-180days
2,298.80

(773.05)

(81.41)

181-365days
(236.81)

(3,272.74)

(1,337.64)

1-3 Years
977.04

(2,248.06)

(1,156.12)

Above 3 years
(1,916.83)

(4,835.13)

(4,079.48)

Total
12,696.81
(6,341.91)
(7,125.61)

The Test 2A in Table 3.9 was adequately funded, but Test 2B and 2C had mismatches of N6.3
trillion and N7.1 trillion respectively.
3.2.4
Contagion Risk Analysis through Interbank Exposures
Contagion risk increased in exposure and interconnectedness (via interbank placement and
takings), when compared to the June 2018 position. Two banks were more central to the
network as they were exposed to at least seven counterparties each. Six banks accounted for 82
per cent (N 252.00billion) of total placements and 86.00 per cent (N 266.00 billion) of total
takings, of which 71.00% (N 190bn) was provided by the top four placers of funds.

FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 3. 11: Network Analysis based on Interbank Exposures


Figure 3. 12: Tiered Structure of Unsecured Placements and Takings14

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

FINANCIAL STABILITY REPORT – DECEMBER 2018

3.2.4.1 Unsecured Placements
Contagion risk from the unsecured transactions in the interbank market was moderate at endDecember 2018. The results of simulated conditional counterparty default from unsecured
interbank loans indicated low risk as the banks, except two, maintained post-shock CAR above
10 per cent (Table 3.10).

Table 3. 10: Results of Net Interbank Unsecured Exposure Stress Test on Capital Adequacy
Ratio.
Lending Banks
Bank 10
Bank 18
Bank 21
Bank 23
Bank 25
Bank 26
Industry
Pre-Test CAR(%)

Post-Test CAR(%)

Placement (N’ Billion)


Box 1: Liquidity Stress Test Assumptions
Implied Cash Flow Analysis
The Implied Cash Flow Analysis (ICFA) assessed the ability of the banking system to withstand
unanticipated substantial withdrawals of deposits, short-term wholesale and 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 130 and 31-90 day buckets, with assumptions of availability of funding from the CBN and intra-group
as described below:

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

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

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

Table 3. 11: Percentage of Assets Unencumbered after Fire Sales
Item
No
Assets
% Unencumbered
1.
Cash and cash equivalent

FINANCIAL STABILITY REPORT – DECEMBER 2018

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 – DECEMBER 2018

3.3 Supervision of Banks
3.3.1 Bank Examinations
CBN and NDIC carried out the examination of banks with composite risk ratings of ‘High’ and
‘Above Average’ and the three (3) financial holding companies during the second half of 2018.
The outcome of the examination showed that the composite risk rating of two banks improved
from ‘Above Average’ to ‘Moderate’, while one bank improved from ‘High’ to ‘Above
Average’. The examination of banks with composite risk rating of ‘Moderate’ and ‘Low’ was
also conducted between October and November 2018.
The examination of the three credit bureaux and AMCON was also conducted during the period
under review. Similarly, the Bank, in collaboration with some host supervisors, conducted
routine cross border examination of Nigerian banks’ foreign subsidiaries.
3.3.2 Foreign Exchange Examination
The examination of the foreign exchange transactions (Teller-point) of Authorised Dealers was
conducted during the review period to assess compliance with the directive on the
establishment of Foreign Exchange Teller-point in bank branches across Nigeria. The
examination revealed a high level of compliance with the directive.
3.3.3 Anti-Money Laundering /Combating Financing of Terrorism
During the review period, the Bank continued the implementation of AML/CFT regulations to
ensure compliance with the recommendations of the Financial Action Task Force (FATF). The
effort to strengthen the AML/CFT Regime was sustained with a review of extant AML/CFT
laws, including the Terrorism Prevention Act, 2011 (TPA) and Money Laundering Prohibition
Act, 2011(MLPA).
In addition, the AML/CFT on-site examination of 21 OFIs was conducted to assess the OFIs’
compliance with extant AML/CFT laws and regulations and evaluate the effectiveness of
controls put in place to mitigate their AML/CFT risks.
During the 30th Plenary meetings of the Inter-governmental Action Group Against Money
Laundering in West Africa (GIABA), Nigeria was exited from the follow-up process to enable
the Country to concentrate on preparations for its forthcoming 2nd Mutual Evaluation Exercise
(MEE) in 2019.
3.3.4
Domestic Systemically Important Banks
During the review period, seven banks were categorised as Domestic Systemically Important
Banks (D-SIBs). The banks were selected based on the D-SIB supervisory framework, given
their size, interconnectedness, substitutability and complexity. The D-SIBs accounted for 63.80
per cent of the industry total assets of N35.10 trillion and 65.23 per cent of the industry total
deposit of N21.73 trillion as well as 66.00 per cent of the industry total loans of N15.34 trillion.
The examination revealed that the D-SIBs were largely in compliance with the regulatory
requirements, including capital adequacy and liquidity ratios. The average CAR for the D-SIBs
stood at 19.82 per cent, while liquidity ratio stood at 46.29 per cent. There was an improvement
in non-performing loans ratio from 11.31 per cent at end-June 2018 to 9.82 per cent at endDecember 2018.
FINANCIAL STABILITY REPORT – DECEMBER 2018

3.3.5
Asset Management Corporation of Nigeria
The annual on-site routine examination of the Asset Management Corporation of Nigeria
(AMCON) was carried out during the review period.
The carrying value of AMCON’s liabilities increased from N4.53 trillion at end-June 2018 to
N 5.43 trillion at end-December 2018, arising from the Corporation’s investment of N898.45
billion in Polaris Bank Ltd. The carrying value of AMCON assets net of impairment increased
from N731.55 billion at end-June 2018 to N769.87 billion at end-December 2018. AMCON’s
liabilities N5.43 trillion was projected to be covered by the Banking Sector Resolution Cost
Trust Fund (BSRCTF) and the Corporation’s internal credit recoveries and asset sales.
Contributions to the BSRCTF by the CBN and fifteen participating banks for year 2018 was
valued N228.28 billion. The recoveries generated by AMCON as well as the contributions to
the BSRCTF were used to repay the Corporation’s debt obligations which fell due in December
2018.
The Corporation made cash recoveries of N89.97 billion for the 2018 financial year from asset
sales and credit repayments, bringing its total recoveries from inception to end-December 2018
to N759.05 billion, consisting of cash, N366.85 billion; shares forfeiture, N128.47 billion; and
property forfeiture, N263.73 billion.

3.3.6 Cross Border Supervision
3.3.6.1 Foreign entities of Nigerian banks
The number of offshore subsidiaries of Nigerian banks at end-December 2018 was 58,
compared with 55 at end-June 2018, owing to the failed divestment effort of a bank from three
of its subsidiaries.
The number of representative offices, affiliates and international branches of Nigerian banks
remained six (6), one (1) and two (2) respectively, bringing the total number of offshore entities
to 67.

3.3.6.2 Onsite Examination of Offshore Subsidiaries of Banks
Five (5) offshore banking subsidiaries were jointly examined by the CBN and the host
supervisors in the second half of 2018. The three subsidiaries visited in The Gambia were
examined using the risk-based approach as part of efforts to facilitate the country’s transition
to RBS under the subsisting collaboration to allow for a common risk assessment. The
examination revealed that the three subsidiaries had composite risk rating of ‘High’ and ‘Above
Average’ and ‘Moderate’. The subsidiaries were required to take appropriate remedies to
address the concerns. The reports on the fourth and fifth subsidiaries revealed that the risk
profile of the subsidiaries remained ‘Moderate’.
FINANCIAL STABILITY REPORT – DECEMBER 2018

3.3.6.3 Regulatory Collaborations
The Bank, in collaboration with CABS Working Group on Crisis Management and Banking
Resolution, administered a questionnaire based on the BCBS 12 Key Attributes for Effective
Resolution Regime to 39 African countries. This was to evaluate the state of their preparedness
towards developing an effective crisis management and resolution regime for cross border
entities.

3.3.6.4 Supervisory Colleges
During the review period, the Bank participated in key regional and cross-border meetings,
including the College of Supervisors of Standard Chartered Bank on Cyber Risk, College of
Supervisors of Ecobank Transnational Incorporated on credit concentration and operations
risks and the College of Supervisors for the West African Monetary Zone on crisis management
and banking resolution.

3.3.7
Non-Interest (Islamic) Banking
3.3.7.1 Non-Interest Financial Institutions Products Development Committee
The Non-Interest Financial Institutions Products Development Committee (NIFI-PDC)
developed processes for the operationalisation of two new instruments: “Funding for Liquidity
Facility (FfLF)” and “Intra-day Facility (IDF)”. Consequently, five accounts were created to
facilitate the implementation of the products at the CBN window.

3.3.7.1 Financial Regulation Advisory Council of Experts
During the period under review, the Financial Regulation Advisory Council of Experts
(FRACE) issued a regulation on the operations of the Non-Interest Version of the Commercial
Agricultural Credit Scheme (CACS) and conducted Shariah audit training for financial service
regulators.

3.4
Supervision of Other Financial Institutions
3.4.1 Bureau-De-Change
The target examination of 100 selected BDCs conducted during the review period revealed
lapses, including: poor AML/CFT compliance; failure to keep proper records of transactions;
and late/non-rendition of periodic returns. Appropriate sanctions were imposed on the errant
BDCs. The Bank also held a meeting with the leadership of the Association of Bureaux De
Change Operators of Nigeria (ABCON) to emphasise the need for compliance with the BDC
Guidelines.

FINANCIAL STABILITY REPORT – DECEMBER 2018

3.4.2 Finance Companies
A total of 52 FCs were examined in the review period, compared with 51 institutions in the
corresponding period of 2017. The on-site examinations included nine (9) FCs that were
granted forbearance of 90 days by the Bank to beef up their capital.

3.4.3 Primary Mortgage Banks
The Bank examined 30 PMBs during the period under review. The examination adjudged that
the Composite Risk Rating of 16 institutions was ‘High’, seven (7) ‘Above Average’ and seven
(7), ‘Moderate’. To ensure compliance with the provisions of IFRS 5 on non-current assets
held for sale, a special examination was conducted on some PMBs and those in breach were
required to comply.

3.4.4 Microfinance Banks
The Bank carried out examination of 490 MFBs during the review period. These included the
Routine Examination of 258 MFBs, Special Examination of 224 MFBs and Income Audit of
eight (8) MFBs designated as Systemically Important Financial Institutions (SIFIs). The
examination revealed the following shortcomings:
•
High incidence of non-performing credits (above PAR of 5%);
•
Inadequate capitalization;
•
Absence of Capital Management Plans and weak strategic objectives;
•
High operating costs;
•
Weak risk management practices; and
•
Poor corporate governance.
The CBN directed the affected MFBs to take appropriate measures to comply with regulatory
requirements.

3.5
Financial Services Regulation Coordinating Committee
The Financial Services Regulation Coordinating Committee (FSRCC) facilitated the
implementation of the Nigeria Sustainable Finance Principles (NSFP), the Executive Order on
the Ease of Doing Business in Nigeria and the Nigerian Financial System Stability Dashboard
(FSSD).
In a renewed effort to reduce the activities of Illegal Fund Managers/‘Wonder Banks’ in the
financial sector, the FSRCC continued to partner with the Bank to enlighten the public through
newspaper publications, radio, and television programmes.
FINANCIAL STABILITY REPORT – DECEMBER 2018

3.6
Other Developments in the Financial System
3.6.1
IFRS 9 Implementation
During the review period, the Bank issued the final version of IFRS 9 on Financial Instruments
for adoption by banks. To cushion the impact of first-time adoption of IFRS9, a transitional
arrangement circular15 was also issued to address the initial impact of the expected credit loss
model of IFRS 9 on banks’ financial statements.
3.6.2
Implementation of Basel II/III
A review of the ICAAP reports of banks as at December 31, 2017 was carried out during
the review period to evaluate the banks’ risk management practices, with emphasis on:
i.
Governance of ICAAP and Data Quality
ii.
Business Model and Strategy
iii.
Risk Identification and Materiality Assessment
iv.
Risk Appetite Statement
v.
Quantification of Pillar 2 Capital
vi.
Stress Testing Framework
vii.
Capital Planning and Management Processes
viii.
Role of ICAAP in Decision Making
ix.
Internal Audit Review of ICAAP

The deficiencies observed from the review included: failure to identify and assess all
material risks; failure to provide estimates of Pillar II capital add-ons; and weaknesses in
methodologies adopted for stress testing. The affected banks were advised to address the
deficiencies.
The Bank also issued Guidance Notes to the industry on:
✓ Interest Rate Risk in the Banking Book;
✓ Credit Concentration Risk;
✓ Banks’ Business Models;
✓ Reputational Risk; and
✓ Stress Testing.

3.6.3
Payment Service Banks
During the review period, the CBN issued the Guidelines for Licensing and Regulation of
Payment Service Banks in Nigeria. The Payment Service Banks (PSBs) are expected to
leverage mobile and digital channels to enhance financial inclusion and stimulate economic
activities at the grassroots.


FINANCIAL STABILITY REPORT – DECEMBER 2018

3.6.4 Complaints Management and Resolution
A total of 1,612 complaints from consumers of financial services were received in the period
under review, indicating an increase of 173 complaints or 12.02 per cent over the 1,439
received in the first half of 2018. Of this number, 1,602 complaints or 99.38 per cent were
against banks, while 10 complaints or 0.62 per cent were against OFIs. The complaints were
in various categories, such as Excess/Unauthorised charges, Frauds, Guarantees, Dispense
errors, Funds Transfers.
A total of 1,496 complaints were successfully resolved or closed in the period under review,
compared with 4,723 in the first half of 2018, indicating a decrease of 3,227 or 215.71 per cent.
Total claims made by complainants during the period amounted to N7.995 billion and
US$1.767 million, while the sums of N3.093 billion and US$1.724 million were refunded to
customers.
3.6.5 Potential Risks from Developments in the Financial System

•
The adoption of ECL models to meet IFRS 9 requirements may produce
fundamental errors and inaccurate outputs;
•
Insufficient expertise in the assessment of IFRS 9 impairments may affect the level of
compliance.
•
Cross-border vulnerabilities may pose threats to Nigerian banks with foreign
subsidiaries/affiliates.
•
High number of Nigerian bank subsidiaries in the West African Region exposes them to
concentration risks.

3.7
Key Risks to the Financial System
3.7.1 Credit Risk
Risk Rating (High Risk, Stable)


During the review period, loans to the oil and gas sector was N4,665.53 billion, compared with
N4,742.12 billion at end-June 2018. Also, loans to State Governments fell to N1,367.23 billion
from N1,486.84 billion. At end-December 2018, total NPLs stood at N1,792.48 billion,
compared with N1,939.15 billion at end-June 2018, while the NPL ratio declined to 11.67 at
end-December 2018, from 12.45 percent at end-June 2018. The moderation in NPLs reflected
loan write-offs, the impact of the debt recovery strategies employed by banks and the gradual
improvement in economic conditions leading to increased repayment by obligors.

FINANCIAL STABILITY REPORT – DECEMBER 2018

Figure 3. 13: Non-Performing Loans Ratio


3.7.2
Liquidity Risk
Risk Rating (Medium Risk, Stable)


The average liquidity ratio of the banking industry increased to 51.70 per cent at end-December 2018,
from 46.09 per cent at end-June 2018. The improved liquidity position in the industry reflected the
banks’ preference for holding liquid assets, as against lending.

Higher levels of liquidity in the domestic economy are anticipated as election spending peaks, with
concomitant impact on rates in the money markets and liquidity management.

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


The Interbank market experienced volatility during the review period, with several spikes in OBB rates,
which peaked at 63.00 percent on December 11, 2018. This was as a result of liquidity shortages arising
from sustained OMO operations of the Bank, reductions in bank deposits and significant FPI reversals
in the capital market. However, the rates trended downward to 22.68 per cent at end-December 2018.
Market rates are expected to trend lower, following heightened system liquidity in the first quarter of
2019.

Rates in the foreign exchange market remained stable as the Bank sustained its foreign exchange
policies and commenced the implementation of the PBoC and CBN Swap Agreement to reduce pressure
on the external reserves. Also, the frequency of foreign exchange sales to the BDCs increased from 3
to 4 times weekly to cater for the increased demand in the market.
Investor perception of domestic political risks, volatile commodity prices and monetary tightening in
the United States translated to a loss of 17.8 per cent in the capital market, as the NSE ASI closed at

Percent
NPL ratios
FINANCIAL STABILITY REPORT – DECEMBER 2018

31.430.50 points at end-December 2018, compared with 38,243.19 points at end-December 2017.
Similarly, investors lost N1.9 trillion of investment value, reflected in market capitalization which fell
to N11.72 trillion at end-December 2018, from N13.61 trillion at end-December 2017. Meanwhile, to
sustain market participation and aid efficient risk management, the NSE introduced the trading of
Exchange Traded Derivatives on its platform.

There was high level participation in the bond market by international investors during the review
period. However, the planned strategy of the Federal Government to achieve a 60/40 split for domestic
and external borrowings, which was aimed at lowering its debt servicing cost may expose the economy
to external vulnerabilities. Government deficit may also be exacerbated by oil prices falling below the
budget bench mark of $60 pbr and OPEC production cap of 1.685 mbd against the budgeted production
level of 2.3 mbd.

3.7.4
Operational Risk
Risk Rating (High risk, trending up)


Reported cases of fraud and forgeries by DMBs increased to 25,029 at end-December 2018 from 20,
774 at end-June 2018. However, the total amount involved, decreased to N18.94 billion at endDecember 2018 from N19.77 billion at end-June 2018. Similarly, actual losses declined to N2.21 billion
at end-December 2018 from N12.10 billion in the first half of 2018.The total number of reported fraud
cases in OFIs stood at 754 at end-December 2018, while the actual loss of N120.98 million recorded
during the same period.

ATM and mobile channels recorded the highest incidence of fraud. In order to tackle this trend, bank
customers were continually sensitized on safe banking practices while banks were encouraged to
implement strong authentication controls and carry out comprehensive infrastructure risk assessments.


Table 3.1: Fraud Analysis Index December 2018
Channel
Fraud Interest Index (%)
Across the counter
8.52
ATM
34.87
Cheques
1.87
e-Commerce
0.14
Internet Banking
0.43
Mobile
28.21
POS
19.55
FINANCIAL STABILITY REPORT – DECEMBER 2018

Others
1.42
Web
4.99
Source: NIBSS Fraud Landscape
*FII identifies the channel that are of highest interest to fraudsters.

During the period under review, the US Federal Bureau of Investigation issued a warning to banks on
a new type of fraud known as the ATM Fraud or ATM Cloned Card fraud, which involves hackers
accessing bank systems or payment card processors and altering data in order to withdraw large sums
of cash within a short period. In response to this warning, the Bank carried out vulnerability assessments
on all banks and payment system providers and directed the remediation of identified vulnerabilities on
all ATM servers.

By end-December 2018, various cyber-attacks had been carried out on high profile entities, including
the Central Bank of Bahamas, Marriot Hotels, Google plus, Arik Air, British Airways and UK NHIS,
leading to the loss of customers’ private information, revealing the vulnerability of all classes of
organizations. To mitigate the incidence of attacks in the financial system, the Bank released cybersecurity framework and guidelines for banks and payment service providers. The framework stipulates,
amongst other requirements, the establishment of Cyber-Threat Intelligence (CTI) programmes to
proactively identify, assess and mitigate potential cyber-threats and the appointment of a “Chief
Information Security Officer” (CISO) to oversee and implement a bank’s cyber-security programme.
In line with good practice, the Bank also appointed a Chief Information Security Officer to oversee its
Cyber-security programme.

Operational costs of banks increased at end-December 2018, reflecting increased fuel expenses as well
as the 14 per cent hike in electricity tariffs.

3.7.5
Macroeconomic Risk
Risk Rating (High Risk, Stable)


Government’s sustained efforts at implementing the Economic Recovery and Growth Plan continued
to yield positive results as evidenced by reduction in inflation rate, growth in the non-oil sector and
increased tax revenue through the Voluntary Assets and Income Declaration Scheme.

The 2.3 per cent growth forecast for 2019 was primarily based on high oil receipts, higher government
spending and sustained performance in the services and agricultural sectors. However, major factors
that may hinder its achievement include global shifts from fossil fuel to alternative energy sources,
which pose major threats to oil revenue, implementation of the OPEC production cap and inadequate
credit to the private sector to drive domestic activities.

In addition, inflation rate which had sustained a downward trend was expected to rise as a result of
increased electricity tariffs, reviewed minimum wages and high levels of liquidity in the system. The
increase in food inflation owing to less-than-expected harvest in 2018 as a result of insecurity in some
food-producing areas and NIMET’s prediction of below-normal rainfall could contribute to increase in
headline inflation.

FINANCIAL STABILITY REPORT – DECEMBER 2018

3.8
Credit Risk Management System
The Bank commenced offsite compliance status checks on banks during the review period and
continued the phased deployment of CRMS to OFIs with a pilot on DFIs. In addition, the Bank
commenced the re-validation of all eligible bank assets transferred to AMCON, while an
interface was created for the NDIC to manage credit records of banks-in-liquidation.

At end-December 2018, the total number of credit facilities reported on the database stood at
4,976,292, showing a 40.95 per cent increase over the June 2018 position of 3,530,495. Total
number of facilities with outstanding balances on the database stood at 1,866,468 at endDecember 2018, compared with the June 2018 figure of 1,561,869, indicating a 19.50 per cent
increase. The increase in the number of credits reported was largely due to the expansion of the
reporting base, the back-filling of previously unreported credits following compliance status
checks and creation of new loans by participating financial institutions.

Table 3. 12: Borrowers from the Banking Sector**
Description

June 2018
December

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

Individuals

Non-Individuals

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

Individuals

Non-Individuals

* The figures include borrower(s) with multiple loans and/or credit lines.
** Commercial, Merchant and Non-Interest Banks only
3.8.1
Private Credit Bureau
The number of licenced Credit Bureaux remained the same as at end-December 2018, though
the industry continued to record remarkable growth following increased awareness and
acceptance. As at December 31, 2018, the capital base of the three (3) Credit Bureaux was
above the minimum capital requirement of N500 million. The composition of the credit records
in their database was as follows:

S/N

CRC Credit
Bureau
CR Services
First Central
Credit Bureau

Number of credit records
24,860,062
46,607,328
20,846,145

Number of subscribers
1,186

1,020

Value of Credit Facilities
N23.076 trillion
N23.743 trillion
N16.601 trillion

Number of borrowers
14,656,028
22,223,751
13,142,703

FINANCIAL STABILITY REPORT – DECEMBER 2018

4.0 THE PAYMENTS SYSTEM
4.1.
Establishment of Payments System Management Department
In order to enable the early identification of emerging risks in the payments system and boost
public confidence, the Bank, during the review period, created a new department, with
responsibilities for licensing, regulation, supervision and monitoring of payments services
providers.

4.2
Bank Verification Number Operations
As at December 31, 2018, the number of Bank Verification Numbers (BVNs) assigned, stood
at 36,170,176 and the number of accounts linked with BVNs was 49,318,972 out of 71,214,706
active customer accounts. During the review period, the Bank issued the Amended Regulatory
Framework for Bank Verification Number (BVN) Operations and Watch-list for the Nigerian
Banking Industry. The regulation mandated entities that require access to BVN information to
accompany their requests with valid court orders addressed to the CBN.

4.3
Nigeria electronic Fraud Forum
The Nigeria electronic Fraud Forum (NeFF) issued its annual report titled, “Tightening the
BELT16 of e-fraud Prevention: A 4-sided Approach”. This was in addition to industry
engagements aimed at tackling ineffective e-product designs and account management for the
industry.

4.4
Examination of Payment System Participants
The Bank conducted the examination of licensed transaction-switching companies, mobile
money operators and accredited cheque printers, to monitor compliance with relevant policies,
guidelines and standards. The examination revealed a number of infractions, including: lack of
fraud management tools; failure to conduct failover test; non-compliance with biometric access
to restricted areas; late/non-rendition of regulatory returns; non-documentation of issues; and
remedial actions taken to prevent recurrence. Appropriate measures were recommended to
correct the observed lapses.

4.5
Licensing of Payment System Participants

During the review period, the Bank licensed 4 payment solution service providers, 1
transaction-switching company and 1 accredited cheque printer. The number of institutions
with valid licences at end-December 2018 and end-June 2018 are detailed below:


16 Banking, other Ecosystem players, Law Enforcement and Telecommunication operators
FINANCIAL STABILITY REPORT – DECEMBER 2018

Table 4. 1: Licensed Payment System Participants
License –Type
Number
end-Jun

end-Dec

Card Schemes

Mobile Money Operators

Payment Solution Service Providers

Payment Terminal Service Providers

Transaction Switching Companies

Third Party Processors

Super Agents

Non-Bank Acquirers

Accredited Cheque Printers

Total
85 91

4.6 Cheque Standards and Cheque Printers Accreditation Scheme

The Bank issued the revised Nigeria Cheque Standards and Nigeria Cheque Printers
Accreditation Scheme to improve the safety and efficiency of the clearing system. Notable
changes in the revised Standards included the introduction of QR code for faster verification
of cheque details, expiry date of printed cheque booklet and clear zone at the back of the
cheque. The new and old cheque standards would run concurrently till August 1, 2020, after
which only cheques that conform to the new standards would be allowed in the clearing system.

4.7
Payment System Vision 2020

In continuation of the implementation of Payment System Vision 2020, the Bank, through the
Payment Scheme Boards, Special Interest Working Groups and Initiative Working Groups,
undertook the following activities:

• Issued the Regulation on Instant (Inter-Bank) Electronic Funds Transfer Services in
Nigeria;
• Issued the ‘Nigeria Bankers’ Clearing System Rules, 2018 (Revised); and
• Conducted an independent assessment of the Payments Infrastructures in Nigeria
against the Bank for International Settlement (BIS) Principles for Financial Market
Infrastructure.

4.8
Payment System Statistic and Trend

FINANCIAL STABILITY REPORT – DECEMBER 2018

4.8.1
Large Value Payments
The volume and value of inter-bank fund transfers through the CBN RTGS System increased
to 559,317 and N204,212 billion at end-December 2018, from 530,121 and N179,748 billion
at end-June 2018, indicating increases of 5.51 and 13.61 per cent, respectively.
4.8.2
Retail Payments

4.8.2.1 Cheque Clearing
The volume and value of cheques cleared declined to 4,274,922 and N2,042.76 billion at endDecember 2018 from 4,744,356 and N2,595.97 billion at end-June 2018, indicating decreases
of 9.89 and 21.31 per cent, respectively. This development reflected customers’ preference for
electronic transactions.
4.8.2.2 Electronic Transactions
The volume and value of electronic transactions rose to 1,108,978,388 and N70,662.09 billion
at end-December 2018 from 963,118,182 and N62,965.50 billion at end-June 2018, reflecting
increases of 15.14 and 12.22 per cent, respectively. The rise reflected increased adoption of
electronic based transactions.

Table 4. 2: Electronic Transactions

Payment
Channel
Number of
Terminals
Number of Transactions
%
Change
(Volume)
Value N’ Billion
%
Change
(Value)
Jun
Dec
18-Jun
18-Dec
Jun-18
Dec-18

ATMs
18,052
18,615 429,788,814
445,730,493

3.71
3,172.12
3,307.97

4.28
POS
118,707
144,461 120,792,684
175,097,483

44.96
1,018.36
1,364.75

34.01
Mobile


42.30
739.68
1,091.02

47.50
Internet
(Web)


61.02

290.6

154.91
NEFT17


19,047,334 7,713,518

7,448.97
3,581.99

NIP


308,408,654
354,715,485

15.01 36,892.99
43,530.03

17.99
e-Bills
Pay


513,422
539,920


REMITA


20,300,564
24,161,282


NAPS


8,856,665
18,528,091

109.20
4,003.67
8,075.24

101.70
Total


963,118,182 1,108,978,388
62,965.50 70,662.09


17 Effective October 2018, data for NAPS comprised NEFT
FINANCIAL STABILITY REPORT – DECEMBER 2018

4.9 Potential Risks to the Payment System
Nigeria’s financial market infrastructures remained resilient to potential risks associated with
the payments system. However, potential risks identified included:
• Fraud and cyber-attacks;
• Concentration risk arising from the use of a single payment system shared service
infrastructure;
• Breakdown in the operations of third-party service providers; and
• Liquidity risk arising from the operations of Deferred Net Settlement system.


FINANCIAL STABILITY REPORT – DECEMBER 2018

5.0 OUTLOOK
The global output growth was projected at 3.5 per cent in 2019, less than 3.7 per cent estimated
for 2018. The forecast was anchored on receding fiscal stimulus and higher interest rates in the
US, weak economic activity and political uncertainties in the Euro Area. The expected
slowdown in prices of crude oil and other commodities could lead to reduction in economic
activities in oil exporting countries, with overall negative impact on global output.

Global inflation was projected to trend downwards in 2019, also driven largely by decline in
crude oil and other commodity prices. Inflation is expected to moderate in the United States
and United Kingdom, while it would inch up in some advanced economies, including the Euro
Area and Japan, owing largely to higher public spending and rise in wages. In the emerging
markets and developing economies, inflation was projected to increase, due to oil production
cuts, tighter financial environment and mounting geopolitical threats.

The outlook for the Nigerian economy is one of cautious optimism, premised largely on gradual
recovery of oil prices and a stable exchange rate regime. The moderate output growth in the
second half of 2018 is expected to be sustained in the near-term on account of further
improvement in the performance of the agricultural, manufacturing and services sub-sectors.
Furthermore, the implementation of the FGN budget is expected to stimulate consumption and
boost aggregate demand in the near-to-medium term. However, the likely reduction in crude
oil receipts and rising demand for foreign exchange remain downside risks to growth.

Increased election-related spending in the first quarter of 2019, alongside low harvest, could
trigger inflationary pressure in the economy. However, the sustained interventions by the Bank,
especially in the agricultural sub-sector should boost production and rein in inflation.

The Bank, in collaboration with key stakeholders, would continue to track the emerging
developments and activities in FinTech and Distributed Ledger Technology with a view to
assessing their potential impact on the Nigerian financial system. In addition, the proposed
revision of the licensing guidelines for payments service providers in 2019 is expected to
address the emerging issues regarding the activities of FinTech. Also, the proposed framework
for risk-based collateral management is expected to reduce settlement risk for deferred net
settlement and increase the efficiency of the system when implemented.

The banking industry’s outlook is positive, given the expected enhanced capital base for most
banks arising from the capitalisation of year 2018 profits in the first half of 2019. However,
banks’ exposure to the oil and gas sector as well as the implementation of IFRS9 remains a
threat to overall profitability.

The Bank will continue to collaborate with the fiscal authority and other financial services
regulators to address the observed challenges towards ensuring that the gains made are
sustained to reinforce financial system stability.

FINANCIAL STABILITY REPORT – DECEMBER 2018

ACKNOWLEDGEMENTS
List of Major Contributors

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

I. S. Tukur
Ditto

V. O. Ururuka (Dr.)
Ditto

J. S. Onojah
Ditto

J. M. Gana
Ditto

M. A. Baba
Ditto

H. J. Audu
Ditto

J. A. Mohammed
Ditto

C.P. Onyekwe
Ditto

Yemisi Babade
Ditto

Umar Babale
Ditto

S. Lampo
Ditto

Victor Johnson
Ditto

E. A. Osha
Development Finance Department

J. O. Tawose
Monetary Policy Department

C. P. Nwosu (Mrs)
Research Department

A. Shebe
Banking Supervision Department

Salihu Audu
Statistics Department

E. O. Shonibare
Risk Management Department

A. M. Ashiru
Financial Markets Department

V. A. Martins
Other Financial Institutions Supervision
Department

M. M. Farouk
Reserve 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