FINANCIAL STABILITY REPORT - DECEMBER 2015
i


FINANCIAL STABILITY
REPORT


December 2015


FINANCIAL STABILITY REPORT - DECEMBER 2015

CONTENT
1.0
MACROECONOMIC DEVELOPMENTS AND FINANCIAL SYSTEM STABILITY


FINANCIAL STABILITY REPORT - DECEMBER 2015


Basel II Implementation and Measures to Build Adequate Reserves in the Nigerian

FINANCIAL STABILITY REPORT - DECEMBER 2015


LIST OF TABLES
FINANCIAL STABILITY REPORT - DECEMBER 2015


FINANCIAL STABILITY REPORT - DECEMBER 2015

LIST OF FIGURES


FINANCIAL STABILITY REPORT - DECEMBER 2015

LIST OF ACRONYMS
AMCON
Asset Management Corporation of Nigeria
AML/CFT
Anti-Money Laundering and Combating the Financing of Terrorism
ASI
All Share Index (Nigerian Stock Exchange Index)
ATMs
Automated Teller Machines
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 Bank
CPFA
Closed Pension Fund Administrator
CR5
Concentration Ratio (of the five largest banks)
CRMS
Credit Risk Management System
DAX
DeutscherAktienindex (German stock index of 30 major German companies)
DFIs
Development Finance Institutions
DMBs
Deposit Money Banks
EBAs
Eligible Bank Assets
ECB
European Central Bank
EDC
Entrepreneurship Development Centre
EGX CASE 30
Egypt Stock Exchange (Cairo and Alexandria Stock Exchange) 30 Stock Index
EVD
Ebola Virus Disease
FAO
Food and Agriculture Organisation
FATF
Financial Action Task Force
FCs
Finance Companies
FCT
Federal Capital Territory
FGN
Federal Government of Nigeria
FMBN
Federal Mortgage Bank of Nigeria
FMDQ-OTC
Financial Market Dealers Quotation – Over the Counter Plc
FMF
Federal Ministry of Finance
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
GIZ
Deutsche Gesellschaft fur InternationaleZusammenarbeit (German Society for
International Cooperation)
GSE
Ghanaian Stock Exchange
HHI
Herfindahl-Hirschman Index
ICE
Intercontinental Exchange
IFRS
International Financial Reporting Standards
IMF
International Monetary Fund
KYC
Know Your Customer
FINANCIAL STABILITY REPORT - DECEMBER 2015

L/C
Letter of Credit
M1
Narrow Money Supply
M2
Broad Money Supply
MENA
Middle East and North African Countries
MFBs
Microfinance Banks
MICEX
Moscow Interbank Currency Exchange
MoUs
Memoranda of Understanding
MPR
Monetary Policy Rate
NAICOM
National Insurance Commission
NBS
National Bureau of Statistics
NDC
Net Domestic Credit
NDIC
Nigeria Deposit Insurance Corporation
NIBSS
Nigerian Inter-bank Settlement System
NIRSAL
Nigerian Incentive-based Risk Sharing System for Agricultural Lending
NMRC
Nigeria Mortgage Re-finance Company Plc
NPLs
Non-Performing Loans
NSE ASI
Nigerian Stock Exchange All Share Index
NSE 20
Nairobi Stock Exchange 20-Share Index
NYMEX
New York Mercantile Exchange
OBB
Open Buy Back
OFIs
Other Financial Institutions
OPEC
Organisation of Petroleum Exporting Countries
ORB
OPEC Reference Basket
PAIF
Power and Aviation Infrastructure Fund
PENCOM
National Pension Commission of Nigeria
PFAs
Pension Fund Administrators
PFCs
Pension Fund Custodians
PMBs
Primary Mortgage Banks
PoS
Point of Sale
PSV 2020
Payments System Vision 2020
ROA
Return on Assets
ROE
Return on Equity
RTGS
Real-Time Gross Settlement System
S&P/TSX
Standards and Poor’s Composite Index of the Toronto Stock Exchange
SEC
Securities and Exchange Commission
SMEs
Small and Medium Enterprises
WAMZ
West African Monetary Zone
WEO
World Economic Outlook
WTI
West Texas Intermediate
FINANCIAL STABILITY REPORT - DECEMBER 2015

GOVERNOR’S STATEMENT
This edition of the CBN FSR was characterized by declining growth in the global economy.
This was particularly evident among emerging market economies and commodity exporting
economies, which faced revenue shortfalls and attendant macroeconomic shocks. The general
decline in commodity prices, China’s efforts at rebalancing its economy and the gradual
tightening in US monetary policy all combined to hamper growth in many emerging market
economies, including Nigeria. The strengthening of the US dollar also contributed to the
slow growth. Growth in Nigeria was lower than in the corresponding period of 2014 as well
as the first half of 2015. The decline in oil prices was a major factor in the decline in
domestic growth.

Given the above scenario, the key task that faced monetary authorities in Nigeria in the
reporting period centered on the use of effective policy tools to ensure that the shocks arising
from instability in the global economy were not fully transmitted to the domestic economy.
To that end, it was necessary to take bold steps in ensuring that the value of the naira was
sustained. In doing this, the CBN continued to ensure that the stability of the financial system
was maintained and confidence in the system was sustained. The policy tool kit included both
conventional and unconventional measures and these enabled us to respond to the emerging
challenges. Key financial stability issues that arose in the reporting period included the
reduced foreign earnings, coupled with continued demand pressures in the foreign exchange
market, leading to the depletion of the external reserves. Although inflation remained within
single digit, inflationary pressures persisted.

This 12th edition of the FSR, like the earlier editions, analyses the key developments in the
Nigerian financial system during the reporting period and the associated macro-prudential
and economic stability issues. It highlights the efforts of the CBN at curbing potential
contagion risks to the banking system from the general macroeconomic downturn, in the
aftermath of the decline in oil prices.

The Report brings to the fore the need to sustain and enhance the existing collaborative
endeavours, particularly with the fiscal authorities, which have so far largely assisted in
addressing emerging challenges.

I believe this edition will be of immense benefit and, therefore, recommend it for use by all
stakeholders.


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


FINANCIAL STABILITY REPORT - DECEMBER 2015

FOREWORD
The second half of 2015 witnessed a combination of events that portended shocks to the
financial system. The decline in global growth, coupled with volatility in some of the major
financial markets threatened the stability of the global financial system. The combination of
macroeconomic and social disruptions in various regions noted in the June 2015 edition of
the FSR persisted in the second half. The revenue shortfalls occasioned by the decline in
commodity prices continued to give rise to severe fiscal contractions in some commodity
exporting countries including Nigeria. The strengthening US dollar also continued to impact
negatively on growth in many emerging market economies.

The December 2015Financial Stability Report reviews developments in the global and
domestic economy. In the reporting period, the Nigerian economy continued to witness a
slowdown in growth as the persistent decline in the international price of oil led to the decline
in government revenue. The decline also impacted the quality of bank assets owing to their
exposure to the oil and gas sector.

To ensure that the banking system remained safe and sound, regulatory actions were taken so
that systemically important institutions operated in a manner that would limit contagion.
While capital adequacy requirements were increased to provide a buffer for banks in the
prevailing unfavourable economic climate, they were required to develop their various
recovery and resolution plans. This would help ensure that in the event of a crisis, each bank
would have in place an easy-to-implement recovery plan which would see it safely through
the crisis. The supervisory authorities would continue to provide effective oversight of the
banking sector with a view to ensuring that they are safe and sound and also contribute to the
economic development of the country.

In appraising the stability of the financial system, it is understood that the goal of financial
system regulators remains the enhancement of its resilience to withstand unanticipated
adverse shocks while contributing to the growth of the real economy. A stable financial
system should facilitate economic growth and development necessary for improved standard
of living.

This edition of the FSR is divided into five sections. Section One reviews the global and
domestic economic and financial developments, highlighting key stability issues. Section
Two chronicles developments in the financial system, while Section Three covers regulatory
and supervisory activities. Key developments in the payments system are highlighted in
Section Four. Finally, Section Five provides the near-term outlook for financial stability.

Feedback on the FSR is welcome from all stakeholders.

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


FINANCIAL STABILITY REPORT - DECEMBER 2015

EXECUTIVE SUMMARY
Global output growth remained weak in the second half of 2015 as evidenced by the decline
in projected output growth to 3.1 per cent, lower than the 3.4 per cent recorded in 2014. The
decline was attributed to the general slowdown in economic activities in emerging markets
and developing economies, China’s rebalancing of economic activities away from investment
and manufacturing to consumption and services, declining oil and other commodity prices
and the gradual tightening of US monetary policy.

Nigeria’s output growth declined to 2.47 per cent in the review period. Broad money supply
increased, while the gross official reserves fell. The average exchange rate depreciated at the
inter-bank and BDC segments. Year-on-year inflation rate edged up slightly to 9.6 per cent in
the review period.

In the second half of 2015, average interest rates fell in response to the liquidity situation in
the economy. Broad money grew by 5.90 per cent. Also, narrow money (M1) increased by
24.14 per cent at end-December 2015, as against the 5.25 per cent decline at the end of the
first half of the year.

The Monetary Policy Rate (MPR) was reduced to 11.00 percent and the symmetric corridor
of 200 basis points around the MPR was made asymmetric at + 200 basis points and -700
basis points for standing lending and deposit facilities, respectively. In reaction, rates at the
inter-bank funds market fell in the review period. These measures were to encourage banks to
lend to the real sector of the economy. The intervention measures of the CBN were also
sustained to enhance inclusive growth in the real sector.

The quality of assets in the banking sector declined marginally in the second half of 2015
compared to the position at end-June 2015. The decline in asset quality was attributed to the
unfavourable macroeconomic environment in the review period. Also, capital adequacy
weakened during the period. This was attributable to the fall in the level of banks’ general
reserves. A stress test of the banking industry revealed that, generally, it remained relatively
resilient, although some banks were sensitive to credit concentration and interest rate risks
which did not pose systemic threats to the industry.

The Bank continued to process customers’ complaints with a view to enhancing public
confidence in banks. The payments system witnessed significant developments with the
implementation of the Bank Verification Number (BVN) Scheme. The Treasury Single
Account (TSA), an initiative aimed at reducing the cost of government borrowing, better
management of cash resources, and harmonized government receipts and payments, was fully
implemented.

Generally, the global economy is expected to recover slightly in 2016, despite the prospect of
rising interest rates in the US and economic slowdown in China. However, the recovery could
FINANCIAL STABILITY REPORT - DECEMBER 2015

be dampened by possible decline in commodity prices which would further constrain growth
in commodity exporting countries.

In Nigeria, the NBS projects a slight recovery in 2016. Economic activities are expected to
pick up as the effects of government reform policies gradually impact on the real sector. In
the foreign exchange market, the spread between the interbank and BDC rates is expected to
narrow, as stability is restored in the market.


FINANCIAL STABILITY REPORT - DECEMBER 2015

1.0
MACROECONOMIC DEVELOPMENTS AND FINANCIAL SYSTEM
STABILITY

1.1
Global Economic and Financial Developments

1.1.1
Output
Global output growth in 2015 remained weak. According to the IMF World Economic
Outlook for 2015, the estimated output growth of 3.1 per cent was 0.3 per cent lower than the
3.4 per cent recorded in 2014. The decline was attributed to the general slowdown in
economic activities in emerging markets and developing economies, China’s rebalancing of
economic activities away from investment and manufacturing to consumption and services,
declining oil and other commodity prices and the gradual tightening of US monetary policy.

In advanced economies, the 2015 output growth estimate was revised downward to 1.9 per
cent from the earlier projection of 2.1 per cent, slightly above the 1.8 per cent recorded in
2014. The modest rebound in output reflected primarily a strengthening of recovery in the
euro area and a gradual return to growth in Japan. Other contributory factors include
declining oil prices, accommodative monetary policies and currency depreciation. The
pickup in output is expected to continue in 2016, particularly in North America. Output
growth in advanced economies is projected at 2.1 per cent in 2016, which is 0.2 per cent
higher than in 2015.It is, however, anticipated that this projected recovery could be
dampened by downside risks.

Output growth in the US was expected to increase slightly from 2.4 per cent in 2014 to 2.5
per cent in 2015, despite strong second quarter growth of 3.9 per cent. The marginal rise in
output growth in the US economy was attributed to decline in oil prices, fall in the
unemployment rate, weakened inflationary pressures, dollar appreciation, and increased
household spending and industrial activities.

In the euro area, output growth was 1.5 per cent in 2015, compared to 0.9 per cent in 2014,
reflecting sustained recovery supported by stronger private consumption, lower oil prices and
easing financial conditions that outweighed a weakening in net exports. In 2016, the euro area
is expected to expand by 1.7 per cent. In the UK, growth weakened from 2.9 per cent in
2014 to 2.2 percent in 2015 and was estimated to remain at the same rate in 2016.

In Japan, output growth rose to 0.6 percent in 2015 from its zero-growth level in 2014. This
reflected the rebound in domestic spending arising from quantitative and qualitative policy
measures adopted during the review period.

Output growth in emerging markets and developing economies was estimated at 4.0 per cent
in 2015, compared to 4.6 per cent recorded in 2014. The slowdown in output growth
reflected difficult external conditions, sharp rise in financial market volatility, declining
commodity prices and downward pressure on many of their currencies. Other factors were
FINANCIAL STABILITY REPORT - DECEMBER 2015

low capital inflows and the effect of the lift-off of US policy rates from the zero lower bound.
Growth in China slowed to 6.9 per cent in 2015 from 7.3 per cent in 2014, reflecting, among
others, the decline in investment growth and weak exports.
In Latin America, the economic downturn in Brazil was deeper than expected, and with
declining commodity prices, the momentum continued to weaken in other countries in the
region. Output growth in Brazil decelerated to -3.8 per cent in 2015 from 0.1 per cent in
2014. Mexico’s growth of 7.5per cent in 2015 was lower than expected, reflecting slower US
growth and a drop in oil production.
In Russia, output growth declined from 0.6 per cent in 2014 to -3.7 per cent in 2015, owing
largely to declining commodity prices and the political turmoil in the region. The output
growth in India, at 7.3 per cent in 2015, the same as in 2014, was supported by a strong
expansion in the manufacturing and services sectors.
The Middle East and North Africa (MENA) region witnessed a decline in output growth from
2.8 per cent in 2014 to 2.5 per cent in 2015, owing to low oil prices and political instability in
several countries.
Also, output growth in sub-Saharan Africa (SSA) in 2015 was lower than projected, as it
declined to 3.5 per cent from the 5.0 per cent recorded in 2014. This was largely attributed
to the fall in crude oil prices, which affected oil exporting countries like Nigeria and Angola.
GDP growth in South Africa was estimated at 1.3 per cent in 2015 compared with 1.5 per
cent in 2014, while in Nigeria it was estimated to decline to 3.01 per cent in 2015 from 6.3 per
cent in 2014.
Table 1.1: Global Economic Outlook
Region/Country
Year-on-Year

2016*
World

Advanced Economies

United States

Euro Area

Japan

United Kingdom

Canada

Emerging Markets and Developing
Economies

China

Russia

Mexico

Brazil

MENA Region

Sub-Saharan Africa


1 However, the latest publication of the National Bureau of Statistics puts Nigeria’s growth at 2.82 per cent for
2015.
FINANCIAL STABILITY REPORT - DECEMBER 2015

South Africa

Angola

Nigeria

* Projections by WEO July 9, 2015; January 19, 2016 update & Global Economic Prospects,
January 2016

1.1.2
Global Inflation
Global inflation generally remained low throughout 2015, reflecting the continued decline in
oil prices and low aggregate demand. For most part of 2015, inflationary pressures remained
relatively low in China and advanced economies, but rose slightly in several emerging
markets and developing economies.

In the advanced economies, headline inflation fell to 0.3 percent in 2015from 1.4 per cent in
2014, owing to the sharp decline in commodity prices and the hedging downwards of marketbased measures of inflation expectations. Core inflation remained stable at low levels,
reflecting persistent economic slowdown and weak import prices, particularly in the US
where the effective exchange rate had appreciated by about 15 per cent over the past year.
Core inflation is expected to remain weak in 2016, but could edge up marginally if economic
conditions improve. Inflation in advanced economies was projected at 3.7 per cent for 2016.
Inflation in the US which was 1.6 per cent in 2014, dropped to 0.1 per cent in 2015 but is
expected to rise to 1.1 per cent in 2016 as the Federal Reserve raises interest rates. Overall,
the inflation rate in most advanced economies remained below their respective central banks’
targets for 2015.

In the euro area, inflation declined to 0.2 per cent in 2015 from 0.4 per cent in 2014 but is
expected to rise to 1.0 per cent in 2016, as economic conditions improve. Similarly, inflation
in the UK moderated to 0.1 per cent in 2015 from 1.5 per cent in 2014 and is projected to rise
to 1.5 per cent in 2016. Inflation in the euro area, however, remained within the European
Central Bank (ECB) target of 2.0 per cent for 2015.

In Japan, inflation declined from 2.7 per cent in 2014 to 0.7 percent in 2015 and is estimated
to decline further to 0.4 per cent in 2016.

Inflation in the emerging markets and developing economies rose from 5.1 per cent in 2014
to 5.6 per cent in 2015 but is expected to slow down to 5.1 per cent in 2016. In China and
India it remained subdued, while in Brazil and Russia inflation was elevated as currency
depreciations pushed up import prices. During the review period, the average inflation rate of
emerging markets and developing economies at 5.6 per cent was higher than the 3.0 per cent
inflation target of many of their central banks and the 5.5 per cent recorded in 2014.

In the MENA region, inflation remained at 6.5 per cent in 2015 as was in 2014, despite the
persistent social and political crises in the region.

FINANCIAL STABILITY REPORT - DECEMBER 2015

In sub-Saharan Africa, inflation rose from 6.4 per cent in 2014 to 6.9 per cent in 2015,
reflecting the pickup of inflation in Nigeria and Angola, the region’s largest oil exporters.
However, among oil importers, the impact of falling oil and commodity prices drove down
inflation marginally by the end of 2015.In Nigeria, inflation rose from 8.1 per cent in 2014 to
9.6 per cent in 2015 (Table 1.2).

Table 1.2: Global Inflation (per cent)
Sources: IMF World Economic Outlook, July 9, 2015 and Update January 19, 2016
Global Economic Prospects, January 2016
* Projections
1.1.3
Global Commodity Prices
The decline in key commodity prices witnessed in the first half of 2015 continued throughout
the second half, with the lowest decline of 5.42 per cent in agriculture and the highest of
40.35 per cent in crude oil. In terms of average changes between June and December 2015,
energy prices declined by 37.30 per cent as the index values dropped from 76.35 at end-June
2015 to 47.87 at end-December 2015, while agricultural output fell from 90.18 at end-June
2015 to 85.29 at end-December 2015.Food prices dropped by 5.76 per cent and those of
precious metals fell by 10.32 per cent during the review period (Table 1.3).

Table 1.3: Average Commodities Price (Nominal) Indices (2010 = 100)
Commodity

2014 (a)
2015 (b)
% change
(a)/(b)

Jun-15
(c)
Dec-15
(d)
% change
(c)/(d)
Energy

Non Energy

Metals

Agriculture

Food

Precious
Metal

Memorandum Items
Crude Oil
($/bbl)

Region/Country

2015 *
2016*
Advanced Economies

US

Euro Area

Japan

UK

Emerging and Developing
Economies/

MENA Region

Sub-Saharan Africa

Nigeria

FINANCIAL STABILITY REPORT - DECEMBER 2015

Gold ($/toz)

Source: Commodity Market Outlook, January 2016, World Bank Group
1.1.3.1 Oil
World crude oil demand in December2015 was 92.9 mbd compared with 92.5 mbd in
June2015, reflecting an increase of 0.43 per cent. World oil supply rose by 3.0 per cent to
94.9 mbd in December 2015 from its level in June 2015. The increased demand was partly
due to higher demand from the US and other advanced economies, while the increase in
world supply was due to better-than-expected growth in supply from the US, Canada, Russia
and Norway.

The OPEC Reference Basket (ORB) averaged $33.64/b in December 2015 compared with
$60.21/b in June 2015. The significant decline in oil price was due to oversupply in the oil
market, appreciation of the US dollar and downturn in equity markets.

Developments in Crude oil futures contracts indicated significant decline in oil prices. ICE
Brent ended December 2015 at $38.90/b compared with $63.5/b in June 2015, while Nymex
WTI settled at $37.33/b in December 2015 compared with $59.83/b in June 2015.

1.1.3.2 Food
The Food and Agriculture Organization (FAO) Food Price Index (FPI) averaged 154.1
points, reflecting a decline of about 6.5 points when compared with 164.9 in June 2015. The
decline was linked to the glut in global supply amidst weak demand and a strong US dollar.

The FAO Meat Price Index for December 2015 averaged 152.1 points, down 10.3 points
when compared with the 169.5 in June 2015. It was observed that for most part of the second
half of 2015, quotations fell for all categories of meat.

The FAO Dairy Price Index averaged 149.5 points in December 2015, down by 6.9 points
when compared with 160.5 in June 2015. The decline stemmed from a fall in prices for milk
powders. The weak demand for whole milk powder dairy products led manufacturers to
focus on producing other dairy commodities.

The FAO Cereal Price Index, which averaged 151.6 in December 2015, lost 7.1 points when
compared with 163.2 in June 2015. Expectation of larger supplies entering world markets
following the removal of export taxes in Argentina weighed on wheat quotations. Maize
prices also fell in December, amid intensifying export competition and sluggish international
demand.

The FAO Vegetable Oil Price Index averaged 141.1 points in December 2015, reflecting a
decrease of 9.7 per cent from 156.2 points in June 2015. However, international palm oil
prices remained stable, as concerns about possible production decline in Southeast Asia
were counterbalanced by weak global import demand.

The FAO Sugar Price Index averaged 207.8 points in December 2015, which was 17.5 per
cent higher than the 176.8 recorded in June 2015. The driving forces behind international
FINANCIAL STABILITY REPORT - DECEMBER 2015

sugar prices were continued concerns over harvesting delays in the South-Central producing
regions in Brazil, caused by excessive precipitation (Table1.3).

Table 1.3: Global Annual Average Food Price Indices, 2011- December 2015

June

Dec 2015
Change
June – Dec

Food Price Index

Meat

Dairy

Cereals

Vegetable Oils

Sugar

Source: Food and Agriculture Organization of the United Nations July 7, 2015 and January 7, 2016
1.1.4
International Financial Markets
1.1.4.1 International Stock Markets
International stock markets recorded negative performance during the second half of 2015
with most regions reflecting the bearish pattern. In North America, the Canadian S&P/TSX
Composite, Mexican Bolsa and US S&P 500 indices decreased by 10.6, 4.6 and 0.9 per cent
between end-June and end-December 2015, respectively.

In Asia, conditions in China added pressures on other emerging market equities. Major equity
markets in Asia reported losses in the second half of 2015 as China’s Shanghai Stock
Exchange-A, India’s BSE Sensex and Japan’s Nikkei 225 indices decreased by 17.3, 6.0 and
5.9 per cent, respectively.

In South America, the Argentine Merval index increased by 0.2 per cent, while the Brazilian
Bovespa and Columbian IGBC General indices lost 18.3 and 13.3 per cent, respectively.
Brazil recorded the largest losses owing to declining commodity prices and deteriorating
fiscal deficits.

In African stock markets, Kenyan Nairobi NSE 20, Egyptian EGX CASE 30, Ghanaian GSE,
Nigerian NSE and South African JSE All-Share indices decreased by 17.6, 16.3, 15.2, 14.4
and 2.1 per cent, respectively. Most of these stock indices were responding to developments
in the international economy, particularly the appreciation of the US dollar and the expected
normalisation of monetary policy by the Federal Reserve.

In Europe, UK’s FTSE 100, France’s CAC 40 and Germany’s DAX indices decreased by 4.3,
3.2 and 1.8 per cent, respectively, while Russia’s MICEX increased by 6.5 per cent (Table
1.4).

FINANCIAL STABILITY REPORT - DECEMBER 2015

Table 1.4: Indices of Selected International Stock Markets at end-Dec 2015
Country
Index
End Dec-

30-Jun-15
31-Dec-15
YTD
%
Change
June 30,
2015 -
Dec 31,
2015 %
Change
AFRICA
Nigeria
ASI

South Africa
JSE African AS

Kenya
Nairobi NSE 20

Egypt
EGXCSE 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
IGBC General


EUROPE
UK
FTSE 100

France
CAC 40

Germany
DAX

Russia
MICEX


ASIA
Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Source: Bloomberg
1.1.4.2 International Foreign Exchange Markets
The depreciation in the currencies of major emerging markets against the US dollar observed
during the first half continued in the second half of 2015. The development was largely due
to the persistent decline in international crude oil prices, turmoil in financial markets, slow
economic recovery in advanced economies and the impact of US monetary policy
normalization. In addition, the already moderating growth in advanced countries was
weakened by the increasing appreciation of the US dollar, volatile capital flows and financial
system vulnerabilities. At end-December 2015, the US dollar further strengthened against
other major currencies following the US Federal Reserve’s decision to raise benchmark
interest rates by 25 basis points, after a seven-year near zero rate.

In Asia, divergent monetary policy stances in China and Japan worsened the fragility of
financial markets and currency risks in developing economies. In South American and
African markets, uncertainties in commodity prices added pressures on domestic currencies.
FINANCIAL STABILITY REPORT - DECEMBER 2015

Exchange rate developments in the second half of 2015 relative to the first half are
summarised as follows:

North America: The Canadian dollar depreciated by 15.94 per cent at end-December 2015,
compared with end-June 2015, while the Mexican peso depreciated against the US dollar by
14.39 per cent at the end of the second half of 2015, as the peso-dollar exchange rate moved
from 15.68 in June 2015 to 17.23 in December 2015.

South America: The Brazilian real, Argentine peso, and Colombian peso depreciated
significantly against the US dollar at the end of second half of 2015 by 32.83, 34.49 and
25.14 per cent respectively.

Europe: The pound sterling depreciated by 5.88 per cent as at the end of second half of
2015, compared with end-June 2015. The value of euro currency depreciated by 9.78 per
cent against the US dollar during the review period, as the euro-dollar exchange rate
dropped from 0.9 at end-June 2015 to 0.92 at end-December, 2015. Russian ruble
depreciated by 24.13 per cent at the end of second half of 2015, as the rubble-dollar
exchange rate moved from 55.27 in June 2015 to 72.85 in December 2015.

Asia: The Japanese yen exchanged for 120.2 to the US dollar at the end of the second half of
2015, compared with 122.12 yen to the US dollar the end- June 2015. This represented an
appreciation of 1.6 per cent during the review period. The value of the Chinese yuan
depreciated by 4.31 per cent against the US dollar at the end of the second half of 2015.
India Rupee depreciated by 3.78 per cent at end-December 2015, as the exchange rate
moved from R63.04 in June 2015 to R66.15 in December 2015.

Africa: The Nigerian naira, Kenyan shillings and Egyptian pound depreciated in single
digit against the US dollar throughout the period under review, while the South African
rand depreciated in double digit. The Ghanaian cedi however, appreciated by 14.17
per cent at the end of second half of 2015.

Specifically, the Nigeria naira depreciated from N196.95/$ at end-June 2015 to N197/$ at
end-December 2015 representing a fall of 0.03 per cent in value of the naira currency
against US dollar during the review period. The South African rand depreciated by 21.51 per
cent at end-December 2015 as it moved from R12.15/$ at end-June 2015 to R15.48/$ at endDecember 2015. The Kenya shilling also depreciated by 2.98 per cent at the end of the
second half of 2015, as its exchange rate to the US dollar moved from 99.25 shillings in June
2015 to 102.3 shillings in December 2015. In the same trend, the Egyptian currency
depreciated by 2.55 per cent at end-December 2015, compared with end-June 2015. The
Ghanaian cedi appreciated largely at the end of second half of 2015 by14.17 per cent
compared with the value at end-June 2015 (Table1.6).

FINANCIAL STABILITY REPORT - DECEMBER 2015

Table 1.5: Exchange Rates of Selected Countries (Value in currency units to US$)


Currency

31-Dec-14
(a)
30-Jun-15
(b)
31-Dec-15
(c)
% 1st Half
Year 2015
Change
b/w a and
b
% 2nd Half
Year 2015
Change, b/w
b and c
AFRICA


Nigeria
Naira
169.68
196.95

-13.87
-0.03
South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH AMERICA


Canada
Dollar

Mexico
Peso

SOUTH AMERICA


Brazil
Real

Argentina
Peso

Colombia
Peso
2376.51

3174.5
-25.14
-17.91
EUROPE


UK
Pound

Euro Area
Euro

Russia
Ruble

ASIA


Japan
Yen

China
Yuan

India
Rupee


1.1.5
International Monetary Policy Rates
Monetary policy rates in most central banks were fairly stable in 2015. The Bank of Japan,
Bank of England, US Federal Reserve, Bank of Indonesia, Bank of Mexico, and the European
Central Bank held their rates constant for most of 2015, while those of South Korea, New
Zealand and Canada increased their respective rates during the second half of 2015. The
Bank of Colombia which maintained its rate at 4.5 per cent for the first eight months raised it
to 4.75 in September and further to 5.25 in November, closing the year with another increase
to 5.75 in December 2015(Table 1.6).


FINANCIAL STABILITY REPORT - DECEMBER 2015

Table 1.6: Summary of Policy Rates across Selected Countries, Jan 2015 – Dec 2015
Country
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Developed Economies
Japan

Europe

UK

US

Canada

South Korea

New Zealand

Australia

ASEAN


Indonesia

Malaysia

BRICS
Brazil

Russia

India

China

South Africa

Other Emerging Economies &South America
Mexico

Chile

Colombia

Africa


Egypt

Ghana

Nigeria


1.2
Domestic Developments
1.2.1
Output
Provisional data from the National Bureau of Statistics (NBS) indicated that output growth
was lower in the second half of 2015, compared with the level in the first half. Gross
Domestic Product (GDP), at 2010 constant basic prices, grew by 2.47 per cent in the review
period, compared with a growth of 3.14 per cent in the first half of 2015. The slower growth
recorded in second half of 2015 was due partly to the continued decline in the international
price of crude oil, which constitutes the major source of income for the government. Other
factors included shocks arising from domestic supply of refined petroleum products and the
adverse impact of the insurgency in the North East of the country on economic activities.

The non-oil sector recorded 3.10 per cent growth in real terms in the second half of 2015,
compared with 4.50 per cent growth in the first half of the year. However, owing to the
significant decline in oil prices, the contribution of the non-oil sector GDP increased by 0.98
FINANCIAL STABILITY REPORT - DECEMBER 2015

and 0.55 percentage points above the 89.88 and 90.31 per cent recorded in the preceding half
year and the corresponding period of 2014, respectively. With respect to sectoral contribution
in real terms, the services sector accounted for the largest share (36.13%), followed by the
agricultural sector (25.47%), trade (16.46%), manufacturing (9.25%) and construction
(3.40%).

Activities in the oil sector witnessed challenges arising from falling oil prices during the
second half of 2015.However, the average daily production of crude oil rose to 1.96 million
barrels per day (mb/d) in the second half of 2015, from 1.92 mb/d in the first half. Further
analysis also indicated that the contribution of the oil sector to the real GDP stood at 9.14 per
cent, indicating declines of 1.07 and 0.55 percentage points below the 10.12 and 9.69 per cent
recorded in the preceding half year and the corresponding period of 2014, respectively.

Figure 1.1: Gross Domestic Product by Sectors (N billion)

H2 2014
H1 2015
H2 2015
Nbillion
Agriculture
Crude Petroleum & Natural Gas and Solid Minerals
Manufacturing
Construction
Trade
Services

Table 1.7: Changes (per cent) in Real GDP by Sector over Corresponding Half Year

Sector
H2 2014
H1 2015
H2 2015
Manufacturing
3.6
-2.25
-0.70
Construction
5.8
8.67
-0.24
Services
10.4
5.56
3.50
Trade
6.9
5.77
4.55
Agriculture
40.5
4.07
3.47
Crude Petroleum, Natural Resources and Solid
Minerals
-2.9
-7.49
-3.34
FINANCIAL STABILITY REPORT - DECEMBER 2015

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

H2 2014
H1 2015
H2 2015
Oil
Non-oil


Figure 1.3: Sectoral Share in Total GDP (%)

H2 2014
H1 2015
H2 2015
Agriculture
Manufacturing
Building and Construction
Trade
Services
Percentages

1.2.2
Inflation
Domestic inflation trended upward during the review period. Data from the NBS showed that
the all-items composite Consumer Price Index (CPI) stood at 180.15 in December 2015,at
November 2009 constant prices, compared with 173.17 and 164.44 at end-June 2015 and
end-December 2014, respectively. Consequently, year-on-year headline inflation edged up by
0.33 percentage points to 9.55 per cent at end-December 2015, from 9.22 per cent at the end
of the first half 2015.

Food price inflation accelerated to 10.59 percent year-on-year at end-December 2015, from
10.04 and 9.15 percent at end-June, 2015 and end-December, 2014, respectively. Similarly,
core inflation rose to 8.73 per cent at end-December 2015, compared with 8.40 and 6.22 per
cent at end-June 2015 and end-December 2014, respectively (Figure 1.4).
FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure1.4: Inflationary Trend (Year-on-Year)

SECOND HALF 2014
FIRST HALF 2015
SECOND HALF 2015
Per cent
Headline (Y-o-Y)
Core (Y-o-Y)
Food (Y-o-Y)

1.2.3
Interest Rates
Interest rates in the second half of 2015 moved in tandem with the level of liquidity in the
economy. Although there were swings in the level of liquidity in the financial market owing
to the full implementation of the Treasury Single Account (TSA) and the subsequent
reduction in the Monetary Policy Rate (MPR), interest rates in the second half of 2015, on the
average, were lower than their levels in the first half of 2015. Savings deposit rate fell
marginally by 0.01 percentage point from 3.59 per cent in the first half, to 3.58 per cent in the
second half of 2015. Similarly, average deposit rates for 7-day, 3-month and 1-year tenors
fell from 4.28, 9.34 and 8.82 per cent in the first half of 2015 to 3.73, 8.96 and 8.54 per cent,
respectively in the second half of 2015.This trend was attributed to the reduction in the MPR
by 200 basis points to 11.0 per cent coupled with the lowering of the cash reserve
requirement to 20.0 per cent from 25.0 per cent in November 2015.

Figure 1.5: Lending and Deposit Rates


SECOND HALF 2014
FIRST HALF 2015
SECOND HALF 2015
percentage point
Per cent
Saving
Prime
Maximum
Avterm Dep.
Spread (Max-Avtrm) rhs

FINANCIAL STABILITY REPORT - DECEMBER 2015

The average inter-bank call and open-buy-back (OBB) rates stood at 9.00 and 8.76 per cent in
the second half of 2015, down from their respective levels of 13.14 and 16.42 per cent in the
preceding half year. The average prime and maximum lending rates, however, rose by 0.4
and 0.6 percentage points to 17.07 and 26.98 per cent, respectively. Consequently, the spread
between the average maximum lending and the average term deposit rates widened by 1.1
percentage points to19.3 per cent in the second half of 2015.

Figure 1.6: Money Market Interest Rates and MPR

SECOND HALF 2014
FIRST HALF 2015
SECOND HALF 2015
per cent
Call
OBB
MPR

The CBN relaxed its tight monetary policy stance in a bid to stimulate economic activities.
Although the Bank’s expansionary policy aim of sustaining liquidity in the financial system
in the aftermath of the TSA withdrawals was largely achieved; its goal of increasing lending
to the real sector of the economy remained a challenge.
1.2.4
Fiscal Operations
Federal Government retained revenue for the second half of 2015 increased to N1,863.20
billion, above the N1,565.64 billion recorded in the first half of the year, and also above the
budget estimate of N1,858.99 billion. Analysis of the retained revenue showed that the
Federal Government’s share of the Federation Account was N1,072.50 billion (57.56%); the
VAT Pool Account, N54.70 billion (2.94%); the Federal Government Independent Revenue,
N79.51 billion (4.27%); while others (including NNPC Refund and Exchange Gain)
accounted for the balance of N656.49 billion (35.23%).Similarly, Federal Government
expenditure grew by 2.48 per cent to N2,297.83 billion, above N2,242.12 billion in the first
half of 2015, compared with the budgeted expenditure of N2,379.50 billion for the second
half of the same year. Consequently, the fiscal operations of the Federal Government resulted
in an overall deficit ofN434.63 billion, as against the proportionate budget deficit of N520.50
billion for the second half of 2015 and the N676.48 billion recorded in the preceding half
year. The deficit was financed mostly from domestic sources (Figure 1.7).

FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure 1.7: Federal Government Fiscal Operations


-1,000
-500


Second Half 2014
First Half 2015
Second Half 2015
Revenue
Expenditure
Deficit
FINANCIAL STABILITY REPORT - DECEMBER 2015

2.0
DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.1
Monetary and Credit Developments2
Relative to the preceding December, broad money supply (M2) grew by 5.29 per cent to
N20,029.83 billion at end-December 2015 as against the decline of 0.54 per cent at end-June
2015. The development on the asset side was driven largely by increases of 12.13 and 1.08
per cent in domestic credit (net) and other assets (net) respectively, but was moderated by the
significant decline of 18.71 per cent in foreign assets (net) of the banking system.
Correspondingly, the growth in total monetary liabilities, M2, was driven by the significant
increase in narrow money (M1), which more than offset the decline in quasi-money.

Available data indicated that M1grew by 24.14 per cent at end-December 2015 to N8,571.70
billion, as against the 5.25 and 1.82 per cent decline at end-June 2015 and end-December
2014 respectively. The increase at the end of the second half of 2015 was attributed to
the30.15 and 1.30 per cent growth in demand deposits (DD) and currency outside banks
(COB)respectively.

Figure 2.1: Trend in Monetary Aggregates

COB, as a ratio of total monetary assets stood at 7.3 per cent, compared with the 6.3 and 7.6
per cent at the end of the first half of 2015 and the corresponding half of 2014 respectively.
This indicated an improvement in the intermediation efficiency3 of the banking industry over
the level in the corresponding half of 2014.
2.1.1
Aggregate Credit to the Economy
Relative to end-December 2014, net domestic credit (NDC) grew by 12.13 per cent to
N21,612.45 billion at end-December 2015,compared with N21,409.77 billion at the end of
the first half of 2015. The growth in NDC reflected a significant increase in net claims on the
Federal Government and the modest growth in private sector credit (Figure 2.2).In terms of
growth in M2, NDC of the banking system contributed 12.37 percentage points, compared
with 11.29 percentage points at the end of the first half of 2015.

2 The analysis is based on the revised January 2016 CBN Monetary Survey.
3 Intermediation efficiency is the ratio of COB to M2.


Second Half

First Half 2014
Second Half

First Half 2015
Second Half

Monetary Aggregates (N'B)
M1
M2
COB
FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure2.2: Credit to the Economy


2.1.1.1 Claims on the Federal Government

Net claims on the Federal Government increased by151.56 per cent to N2,893.19 billion at
end-December 2015, compared with the 118.45 per cent increase at the end of the first half of
2015. The development reflected arise in the banking system’s holdings of government
securities such as Nigerian Treasury Bills and FGN Bonds.Net claims on the Federal
Government contributed 9.22 percentage points to the growth rate of total monetary assets,
compared with 7.20 percentage points at the end of the preceding half year.

2.1.1.2 Claims on the Private Sector
Credit to the private sector, relative to end-December 2014, increased by 3.29 per cent to
N18,719.26 billion at end-December 2015,compared with the annualized growth rate of
8.54per cent recorded at the end of the first half of 2015. The growth in private sector credit
reflected, largely, the 3.12 per cent rise in claims on the core private sector4 (Table 2.1).

Table 2.1: Growth in Monetary Aggregates
% Change (Over preceding half
year)
Jun 13

Dec 13

Jun 14
revised
Dec 14
revised
Jun 15
revised
Dec 15

Domestic Credit (Net)

Claims on Federal Government (Net)

Claims on Private Sector

Foreign Assets (Net)

Other Assets (Net)

Total Monetary Assets (M2)

Quasi-Money

Money Supply (M1)

Currency Outside Banks

Demand Deposits

Total Monetary Assets (M2)


The growth in credit to the private sector, especially the core private sector, reflected the
impact of various policies of the Bank that enhanced the lending capacity of banks and

4Excludes the states and local governments.
-2,000
-1,000


Dec 13
Jun 14
Dec 14
Jun 15
Dec 15
N Billion
N Billion
Claims on Private Sector LHS)
Net Domestic Credit (LHS)
Claims on Federal Government (Net) (RHS)
FINANCIAL STABILITY REPORT - DECEMBER 2015

encouraged increased lending to the private sector vis-à-vis the government sector. The
contribution of claims on the private sector to the growth rate of total monetary assets stood
at 3.15 percentage points, compared with 4.09 percentage points at the end of the preceding
half year.

2.1.1.3 Consumer Credit
The volume of consumer credit granted by banks improved during the second half of 2015.
Available data indicated that aggregate outstanding consumer credit stood at N785.53 billion
at the end of the review period, compared with N767.69 billion at end-June 2015. This
reflected an increase of 2.32 per cent, compared with 3.49 per cent at the end of the first half
of 2015. Consumer credit constituted 4.34 per cent as a ratio of total credit to the core private
sector, compared with 4.18 per cent in the first half of 2015 (Figure 2.3).

Figure 2.3: Consumer Credit

2.1.2
Sectoral Distribution of Credits
Relative to the first half of 2015, the amount of credit extended to the various sectors by
banks during the review period showed a downward trend. Total credit to the various sectors
of the economy fell by 1.44 per cent to N13,328.7 billion in the second half of 2015,as
against the increase of7.07 and 16.62 per cent in the first half of 2015 and the second half of
2014 respectively.

Figure 2.2: Sectoral Distribution of Credit


Dec 13
Jun 14
Dec 14
Jun 15
Dec 15
Ratio (%)
N Billion
Consumer Credit
Ratio of claims on core private sector (rhs)


Jun-15
Dec-15
FINANCIAL STABILITY REPORT - DECEMBER 2015

The oil and gas sector continued to attract the highest share of total credit as it accounted for
24.82 per cent of the total credit, compared with 23.78 per cent in the first half of 2015. The
manufacturing sector accounted for 13.91 per cent of the total credit, compared with 13.98
per cent in the preceding half year. Agriculture, forestry and fishery accounted for 4.00 per
cent of the total credit, indicating a 0.13 percentage point decline below the 4.13 per cent
recorded in the preceding half year (Figure 2.2 and Table 2.1).

Table 2.1: Sectoral Distribution of Credit

June 2015
December 2015
Sector
N' Billion
Share of Total (%)
N 'Billion
Share of Total (%)
Oil and gas

Manufacturing

General: Household Consumer
Goods/Hospitality/Religious

Information and communication

General commerce

Governments

Real estate

Construction

Agriculture, forestry and fishery

Finance and insurance

Transportation and storage

Capital market

Power and energy

Professional, scientific and technical
activities

Education

Administrative and support service
activities

Human health and social work activities

Activities of extra-territorial
organizations and bodies

Mining and quarrying

Water supply, sewerage, waste mgt. &
remediation activities

Arts, entertainment and recreation

Public utilities

Total

Reserve Money
Reserve money (RM) stood at N6,073.09 billion at end-December 2015, indicating an
increase of 2.14 per cent, in contrast to a decline of 0.3 per cent at the end of the preceding
half year. This was lower than the indicative benchmark of N7,059.49 billion for the fourth
quarter of 2015.The growth in reserve money reflected largely the growth in net foreign
assets, which grew by 12.19 per cent. Similarly, the corresponding increase in the uses of
FINANCIAL STABILITY REPORT - DECEMBER 2015

reserves reflected the 18.90 per cent growth in currency-in-circulation, which more than
offset the 3.84 per cent decline in bank reserves.

2.1.4
Maturity Structure of Bank Deposits and Credit
The structure of bank credit in the second half of 2015 indicated the continued dominance of
loans and advances of short-term maturities. Credit maturing within one year accounted for
47.1 per cent, compared with 44.5 per cent at the end of the first half of 2015. The mediumterm5 and long-term6 maturities stood at 16.9 and 36.0 per cent, compared with 18.8 and 36.7
per cent, at end-June 2015respectively (Figure 2.3).

Figure 2.3: Distribution of Bank Loans and Advances by Maturity


Deposits of less than one-year maturity constituted 95.40 per cent (of which 71.7 per cent had
maturity of less than 30 days), compared with 95.49 per cent at end-June 2015. Further
analysis showed that medium and long-term deposits constituted 1.83 and 2.77 per cent
respectively, compared with 1.83 and 2.68 per cent at end-June 2015 (Figure 2.4).

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

H2, 2013
H1, 2013
H2, 2014
H1, 2014
H2, 2014
H1, 2015
H2, 2015
Per cent
Short term
Medium-term
Long-Term
FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure 2.4: Maturity Structure of Bank Deposits


The maturity mismatch remained a constraint to the ability of banks to create long-tenored
assets, thereby limiting lending to the real sector. However, continuous implementation of
various policies by the Bank to de-risk and encourage lending to the real sector is expected to
further improve medium to long-term lending.

2.1.5
Market Structure of the Banking Industry
On the basis of size of deposits and assets, available data showed the continued dominance of
the five largest banks in the industry during the review period. The market share of the largest
bank with respect to deposits and assets stood at 15.65 and 14.27 per cent in the second half
of 2015, respectively. The average market share of deposits and assets of the five largest
banks decreased to 52.99 and 52.94 per cent, from 54.49 and 59.98 per cent in the first half of
2015, respectively while the remaining 17 banks had market shares ranging from 0.29 to 7.19
per cent in deposits and 0.29 to 6.78 per cent in assets, reflecting low competition in the
market. This is supported by the Herfindahl-Hirschman Index (HHI) of the industry (on a
scale of 100 to 10,000) of 788.09 and 781.39 for deposits and assets, at end-December 2015,
compared with 817.05 and 778.09 at end-June 2015, respectively (Figure 2.5).
Notwithstanding the marginal improvement recorded relative to the first half of the year, the
structure of the banking industry in the second half of 2015, remained oligopolistic.


H2, 2012
H1, 2013
H2, 2013
H1, 2014
H2, 2014
H1, 2015
H2, 2015
Per cent
Per cent
Short term
Medium-term (rhs)
FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure 2.5: Concentration Ratios of the Banking Industry Assets and Deposits


2.2
Other Financial Institutions
The number of Other Financial Institutions (OFIs) increased to 3,905 at end-December 2015,
from 3,734 at end-June 2015. The increase was attributed to the licensing of 151 BDCs and21
MFBs. A primary mortgage bank converted to a commercial bank during the review period.
The breakdown of the OFIs is given in Table 2.2.


Table 2.2: Other Financial Institutions at end-December 2015

Institution-Type
Number
June 2015
Dec. 2015
Nigeria Mortgage Refinance Company

Development Finance Institutions

Primary Mortgage Banks

Finance Companies

Microfinance Banks

Bureaux-de-Change
2,688
2,839
Total
3,734
3,905

The provisional total assets of the sub-sector decreased by 2.52 per cent to N1,841.64 billion
at end-December 2015, from N1,889.21 billion at end-June 2015. Similarly, total loans and
advances decreased by 9.31 per cent to N1,078.81 billion at end-December 2015 from
N1,189.62 billion at end-June 2015. The decrease in loans and advances in the OFI subsector was attributable to the exit of one PMB. In addition, the licences of some MFBs and
FCs were revoked. Nevertheless, paid-up capital and total deposits increased by 0.56 per cent
to N443.71 billion and 76.47 per cent to N539.22 billion at end-December 2015 from
N441.22 billion andN305.56 billion at end-June 2015, respectively.

Dec 12
Jun 13
Dec 13
Jun '14
Dec 14
Jun 15
Dec 15
HHI
CR
CR5(Deposits)
CR5( Assets)
CR( Largest-Deposits)
CR (Largest-Assets)
HHI (Deposits) (rhs)
HHI (Assets) (rhs)
FINANCIAL STABILITY REPORT - DECEMBER 2015

2.2.1
Microfinance Banks
The provisional data for microfinance banks (MFBs) showed that total assets increased to
N361.04 billion at end-December2015, from N356.03 billion at end-June 2015, reflecting an
increase of 1.41 per cent. Paid-up capital increased by 2.73 per cent to N84.18 billion from
N81.94 billion at end-June 2015, while shareholders’ funds decreased by 1.72 per cent to
N95.36 billion at end-December 2015, from N97.03 billion, at end-June 2015. The decrease
in shareholders’ funds was attributed to increased loan loss provisioning and high operating
costs.

Table 2.3: Key MFB Financial Highlights7


December

(N’ billion)
June 2015
(N’ billion)
% Change
Total Assets
361.04
356.03
1.41
Paid-up Capital
84.18
81.94
2.73
Shareholders’ Funds
95.36
97.03
(1.72)
Deposit Liabilities
160.81
159.40
0.88
Loans and Advances
167.85
178.12
(5.77)

Total deposit liabilities increased by N0.88 billion from N159.40 billion at end-June 2015 to
N160.81 billion at end-December 2015. Net loans and advances decreased by N10.27 billion
to N167.85 billion, at end-December 2015, compared with N159.40 billion at end-June 2015.
Similarly, shareholders’ funds, decreased by N1.72 billion to N95.36 billion, at endDecember 2015, compared with N97.03 billion at end-June 2015.

2.2.1.1 Inauguration of Peer Review Sessions for Microfinance Banks
In order to enhance the stability of the microfinance sector, the CBN, in collaboration with
International Fund for Agricultural Development (IFAD) and Rural Finance Institutions
Building Programme (RUFIN), organized a maiden peer review forum in October 2015 for
microfinance banks mentored by RUFIN. The objective of the session was to benchmark
MFBs and develop a network for operators. The central areas of focus were
ownership/governance, micro credit, lending, management information system, deposit
products, rural penetration and other financial products. The forum afforded operators ample
exposure to share experiences with their peers and avail them the opportunity to learn from
each other, and thereby mitigate the risk of failure likely to arise from making the mistakes of
others and encourage replication of success.

The forum is expected to be held yearly with enhanced methodology, increased scope and
active network among microfinance practitioners, leading to a more robust microfinance
subsector and enhanced credit delivery to the active poor.

7 The financial highlights only cover the data for fully operational MFBs.
FINANCIAL STABILITY REPORT - DECEMBER 2015

2.2.2
Primary Mortgage Banks
The number of primary mortgage banks (PMBs) in operation decreased to 35 at endDecember 2015 from 36 at end-June 2015 following the conversion of one PMB to a
commercial bank. The 35 PMBs at end December 2015 comprised 10 national PMBs and 25
state PMBs.

The total assets of the PMBs decreased by 6.78 per cent to N389.73 billion at end-December
2015 from N418.1 billion at end-June 2015. Similarly, paid-up capital and deposit liabilities
decreased by 0.80 per cent and 16.74 per cent to N112.40 billion and N121.69 billion at endDecember 2015 from N113.31 billion and N146.16 billion at end-June 2015 respectively.
The decreases were due to the decline in the number of PMBs following the conversion of
one national PMB to a regional bank. In the same vein, total liquid assets decreased by 34.63
per cent to N64.72 billion at end-December 2015 from N99.01 billion at end-June 2015. This
notwithstanding, total loans and advances, aggregate reserves and shareholders’ funds
increased by 12.10, 16.43 and 2.09 percentage points to N168.96 billion, N26.51 billion and
N138.92 billion at end-December 2105 from N150.72 billion, N22.77 billion and N136.08
billion at end-June, 2015 respectively.
Table 2.4: Selected Financial Highlights of PMBs at end-December 2015

December 2015
(N’ billion)
June 2015
(N’ billion)
% Change
Total Assets
389.73
418.10
(6.79)
Paid up Capital
112.40
113.31
(0.80)
Shareholders’ Funds
138.92
136.08
2.84
Deposit Liabilities
121.69
146.16
(16.74)
Loans and Advances
168.96
150.72
12.10

2.2.2.1 Uniform Underwriting Standards
The uniform underwriting standards, developed by the Nigerian Mortgage Refinancing
Company (NMRC) in conjunction with the Mortgage Bankers Association of Nigeria
(MBAN) and adopted by the industry, became operational during the review period. The
Industry Working Group on the development of Uniform Underwriting Standards for the
Nigerian mortgage sub-sector had also developed modalities to enable the informal sector to
have access to loans from the PMBs and to make such loans eligible for refinancing by the
NMRC.
2.2.2.2 Nigeria Mortgage Refinance Company
The company commenced operations during the review period and refinanced mortgages
amounting to N1.66 billion, representing 20.76per cent of its N8.0 billion bonds and 5.53 per
cent of the eligible mortgage loans of N30.0 billion. The relatively low volume of mortgages
refinanced by the company was attributed largely to non-conformity of most legacy mortgage
loans of primary mortgage lenders to the newly established NMRC’s underwriting standards.
Since the company could only refinance mortgages originated by its shareholders, it had
FINANCIAL STABILITY REPORT - DECEMBER 2015

commenced the process of increasing its capital to enable more PMBs to have the opportunity
to invest in its equity and benefit from its services. The second round of capitalization is
expected to increase the pool of eligible mortgage loans for refinancing from the current level
of N30.0 billion to N100.0 billion.

2.2.3
Finance Companies
The number of Finance Companies (FCs) in operation remained 66 at end-December 2015,
the same as at end-June 2015. The provisional total assets/liabilities of FCs increased
marginally to N128.58 billion at end-December 2015 from N128.32 billion at end-June 2015,
reflecting an increase of 0.20 per cent. Similarly, paid-up capital increased by 0.58 per cent to
N17.27 billion from N17.17 billion at end-June 2015. Furthermore, borrowings increased by
0.48 per cent to N75.44 billion at end-December 2015 from N75.08 billion at end-June 2015.
However, loans and advances decreased by 0.16 per cent to N54.99 billion at end-December
2015 from N55.08 billion at end June 2015, while reserves decreased by 15.76 per cent to
N1.55 billion at end-December 2015 from N1.84 billion at end-June 2015.The decrease was
due mainly to the economic downturn in the Country and the restructuring of the operations
of the subsector in line with the new CBN guidelines. The CBN extended the deadline for
implementation of the N100 million minimum capital requirements for FCs from endSeptember 2015 to end-December 2015.

2.2.4
Bureaux de Change
The number of BDCs in operation increased from 2,688 at end-June 2015 to 2,839 at endDecember 2015following the licensing of 151 new BDCs. During the review period, the
Guidelines for Operation of Bureaux de Change8was being reviewed to strengthen their
operational modalities in line with international best practices. The Bank, in addition,
penalised72 BDCs found to have contravened foreign exchange rules and regulations, while
437 were penalised for non-rendition of prescribed returns.

2.2.5
Development Finance Institutions
The provisional total assets of the six (6) reporting Development Finance Institutions (DFIs)
decreased by 2.48 per cent to N962.3 billion at end-December 2015, compared with N986.8
billion at end-June 2015. Similarly, the net loans and advances of the institutions decreased
by 14.73 per cent to N687.02 billion at end-December 2015, from N805.70 billion at endJune 2015. These decreases were largely attributed to continued deterioration in their
financial performance.
2.3
Financial Inclusion
Pursuant to the implementation of the National Financial Inclusion Strategy (NFIS), the
following activities were executed during the review period:

8The Revised Guidelines for the Operation of Bureaux de Change can be found at

final%202015.pdf
FINANCIAL STABILITY REPORT - DECEMBER 2015

Nation-wide Sensitization Campaign
The Financial Inclusion Secretariat embarked on monitoring visits to states in the country
with lower financial inclusion in the country to assess the progress made on NFIS
implementation within the year.
Nation-wide sensitization activities took place in Imo, Ebonyi, Katsina and Kaduna States to
enlighten the public on financial inclusion. The Bank also conducted a financial literacy
campaign tagged “CBN Fair” in Oyo, Ondo, Plateau, Bauchi, Kwara and Osun States.
Geospatial Mapping of Financial Access
The second edition of the Geospatial Mapping of Financial Access Points exercise, in
collaboration with the Bill & Melinda Gates Foundation, was completed. An engagement
meeting with the Federal Ministry of Finance on the Digital Financial Services project aimed
at providing a roadmap for digitizing payments across the country was also organized in the
review period. At the end of the Geo-spatial survey, a total of 50,838 financial access points
were identified. Further work to be done include leveraging on the outcome of 2014
Geospatial mapping survey to develop a business case for service providers on expanding
access points to unbanked and under-served areas.

Digital Finance Project
During the review period, the Financial Inclusion Secretariat hosted the Inaugural Digital
Financial Inclusion Project meeting as per the Letter of Understanding executed by the
Federal Ministry of Finance, the Central Bank of Nigeria and the Bill & Melinda Gates
Foundation. The focus of the project is to increase the level of financial inclusion in Nigeria
and to support the achievement of the 70 per cent payments target by the year 2020.

The Financial Inclusion Secretariat has been working with McKinsey & Co on a proof-ofconcept (POC) to assess deployment of E-Wallets to farmers. A pilot POC kicked off with 68
Babban Gona farmers at a Local Government Area in the North-West region. Payments to
these farmers were made electronically, with the project providing an opportunity for
enrollment of farmers on the BVN platform. The lessons learnt are being expanded to guide
the development of the detailed project implementation plan as mandated by the Project
Steering Committee.

Financial Inclusion Product Launch for People Living with Disabilities
The Financial Inclusion Secretariat provided technical support towards the launch of a
microfinance product for people living with disabilities (PLWD). The Secretariat also drafted
and released terms of reference for three research studies on National Savings Mobilization,
Scaling up Agent Banking Adoption and Financial Inclusion of PLWD. The selection
process was being finalized at the end of the period.

Engagement with Stakeholders
The Financial Inclusion Secretariat in collaboration with EFInA organized a 4-day capacity
building workshop for stakeholders focused on Financial Inclusion Eco-system, Consumer
FINANCIAL STABILITY REPORT - DECEMBER 2015

Insights, Agent Banking, Data Measurement and Impact Analysis.During the period also, the
statutory technical committee meeting for the last quarter of the year was held to review the
progress made by all stakeholders towards implementation of the NFIS and to plot the
roadmap for 2016 financial inclusion activities.The Bank also participated in the
Microfinance Conference in Dakar, Senegal on the theme "Accelerating Innovative Rural
Finance in Africa" and the 2015 AFI Global Policy Forum in Maputo, Mozambique. The
Maputo Accord was pronounced at the forum to elicit national commitment to target setting
for SME growth.
2.3.1
Financial Literacy Activities
a.
MoU for the Development of Financial Literacy Curriculum for Schools in Nigeria
As part of the effort towards the development and infusion of financial literacy content into
the school curricula at the basic and senior secondary levels, the Bank and the Nigerian
Education Research and Development Council (NERDC) signed an MoU for developing a
financial literacy curriculum for schools.

b. Workshop on Development of Child-Friendly Financial Products
The Bank, in collaboration with the Child and Youth Finance International (CYFI), organized
a workshop to build the capacity of banks in developing friendly financial products for
children and youths in Nigeria. The workshop was attended by participants from 16 banks.
c. 2015 World Savings Day
The CBN commemorated the 2015 World Savings Day by conducting a school mentoring
programme in 14 states across the six (6) geopolitical zones of the Country. The objective of
the mentoring programme was to introduce the concept and importance of savings,
investments and other financial management issues to students in public schools.

2.4
Financial Markets

2.4.1
The Money Market
The CBN relaxed its tight monetary policy stance in the second half of 2015 in a bid to
stimulate the economy. In the pursuit of that objective the Bank adjusted the Monetary Policy
Rate (MPR) from 13 to 11 per cent moved and from a symmetric corridor of +/-200 basis
points around the MPR to an asymmetric corridor of +200 basis points and -700 basis points
for lending and deposits, respectively. Cash Reserve Requirement (CRR) on deposits was
reduced from 31.00 to 25.00 per cent in September 2015 and further to 20.00 per cent in
November 2015. The additional 5 per cent reduction in CRR was to be accessed by banks for
on-lending to the real sector at single-digit interest rate.

Activities in the money market reflected the huge liquidity surfeit in the banking system and
movements in the money market rates. Consequently, money market rates declined and
trended flat towards the end of the second half of 2015, as the overnight call and open buy
back (OBB) rates traded significantly below the MPR corridor. The monthly weighted
FINANCIAL STABILITY REPORT - DECEMBER 2015

average OBB and inter-bank call rates closed at 0.77 and 0.87 per cent in December 2015,
compared with 12.32 and 11.72 per cent recorded in June 2015, respectively. The OBB rate
ranged from 0.77 to 31.07 per cent, while the inter-bank call rate ranged from 0.87 to 28.10
per cent.
Figure 2.6: Money Market Rates Movements, January – December 2015

2.5.1.1 Nigerian Treasury Bills
Nigerian Treasury Bills (NTBs) for 91-, 182- and 364-day tenors totaling N1,611.52 billion
were issued and allotted during the review period. This represented a decrease of 27.86 per
cent, compared with the N2,233.80 billion recorded in the first half of 2015. Total
subscriptions stood at N4,089.11 billion in the second half of 2015, indicating a decrease of
21.56 per cent when compared with N5,213.20 billion in the preceding period. This decrease
was attributed to the reduced number of foreign investors in the market as a result of the
delisting of Nigeria from JP Morgan’s index (GBI-EM) and the unattractive returns on the
NTBs.

The holding structure of investments in NTBs in the review period indicated that banks and
discount houses took up N1,160.52 billion, representing 72.01 per cent of total NTBs issued,
while non-bank investors took up the balance of N451.00 billion. Investment in NTBs by
banks and discount houses at end-December 2015 accounted for 37.75 per cent of the NTBs
outstanding; the non-bank investors accounted for 53.85 per cent, while mandate customers9
took up the balance of 8.40 per cent. Average marginal rates ranged from 3.6250 to 10.5000

9 These are institutions that are statutorily required to invest a portion of their funds in NTBs.
January
February
March
April
May
June
July
August
September
October
November
December
Inter-bank

OBB

SDF

MPR

SLF


Inter-bank, OBB, SDF, MPR and SLF Rates (%)
FINANCIAL STABILITY REPORT - DECEMBER 2015

per cent for the 91-day, 6.1900 to 13.5000 per cent for the 182-day, and 7.4500 to 14.7118
per cent for the 364-day tenors.
2.4.2
The Foreign Exchange Market
The Bank’s effort at maintaining a stable foreign exchange rate regime was sustained in the
second half of 2015. However, the normalization policy of the US led to foreign portfolio
investment reversals and pressure on the naira. Furthermore, dwindling receipts from crude
oil earnings constrained the Bank’s ability to meet the foreign exchange demand, resulting in
the depreciation of the naira in other segments of the market. Consequently, the average
exchange rate at the interbank and BDC segments depreciated from its level at end-June 2015
by 0.04 and 15.22 per cent to close at N196.9865/US$ and N258.3000/US$ at end-December
2015, respectively.

Figure 2.7: Inter-bank and BDC Rates, January - December 2015

2.4.3
The Capital Market
The Nigerian Stock Exchange (NSE) activities remained bearish during the review period as
both the All Share Index (ASI) and Market Capitalisation (MC) declined. The decline was
due to a combination of factors, including the generally unimpressive performance of listed
companies, global and domestic macroeconomic uncertainties, slump in commodity prices,
and the contagion effects of equities sell-off from investors in developed and emerging
markets.

Jan
Feb
March
April
May
June
Jul
Aug
Sep
Oct
Nov
Dec
Inter-Bank

BDC


Exchange Rate (N/US $)
FINANCIAL STABILITY REPORT - DECEMBER 2015

2.4.3.1 The Bond Market
Total bonds outstanding at end-December 2015 stood at N6,901.94 billion, of which FGN,
agency, sub-national and corporate bonds constituted N5,936.44 billion (86.01%), N1.50
billion (0.02%), N456.45 billion (6.61%) and N507.55 billion (7.35%), respectively. The
total bonds outstanding at end-December 2015 reflected 19.78 per cent increase over the endJune 2015figure of N5,762.41 billion, comprising FGN, agency, sub-national and corporate
bonds valued at N4,838.17 billion (83.96%), N297.52 billion (5.16%), N448.65 billion
(7.79%) and N178.07 billion (3.09%), respectively.

Table 2.5: Outstanding Bonds


June 2015
(N’ Billion)
December 2015
(N’ Billion)
% Change
Proportion of
Total
FGN

Agency

Sub-National

Corporate

Total
5,762.41
6,901.94
19.78

FGN Bonds
New issues and re-openings of FGN Bonds series 1, 2 and 3 were auctioned during the
review period. The total value of FGN Bonds offered for sale was N385.00 billion, while
public subscriptions and sales stood at N879.85 billion and N339.00 billion, respectively. The
over-subscription was attributed to the increased level of liquidity in the banking system and
investor appetite for fixed income assets as against equities.

The price of FGN Bonds at the secondary market increased as a result of increased liquidity
in the banking system. Secondly, weakening global economic fundamentals arising from
unstable external sector and concern over declining commodity prices and uncertainties in
corporate performance drove investors to safe haven assets. Consequently, fixed income
assets became more attractive to investors as against equities. Yields on FGN Bonds at endDecember 2015 decreased considerably, compared with the position six months earlier
(Figure 2.8).
FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure 2.8: Yield Curves for Nigeria

Source: FMDQ-OTC Plc
Agency Bonds
During the review period, no agency bond was issued. Federal Mortgage Bank of Nigeria
(FMBN) bonds valued N0.60 billion were redeemed, while Local Contractors Receivable
Management (LCRM) bonds valued N295.42 billion were re-classified as corporate bonds.
Consequently, total outstanding agency bonds as at end-December 2015, stood at N1.50
billion.

Sub-National Bonds
In the second half of 2015, six (6) state governments issued new sub-national bonds valued
N61.51 billion, as against none in the preceding period. A total amount of N32.27 billion was
amortised by twelve (12) states as against N12.49 billion amortised by nine (9) states in the
first half of 2015, while N21.44 billion was redeemed by three (3) states. The total
outstanding bonds held by seventeen (17) state governments stood at N456.45 billion.

Corporate Bonds
Three (3) corporate bonds valued N47.94 billion were issued in the review period compared
with two (2) corporate bonds worth N56.50 billion issued in the preceding period. Bonds
valued N2.00 billion were amortised by ten (10) companies, while bonds worth N11.88
billion were redeemed by two (2) companies. The outstanding corporate bonds held by
fourteen (14) companies at end-December 2015, stood at N507.55 billion.


Yield %
Time to Maturity (Years)
Dec-2015
Jun-2015
Dec-2014
FINANCIAL STABILITY REPORT - DECEMBER 2015

Table: 2.6: Corporate Bonds issued in the second half of 2015
Company

Description
Value
(N’ Billion)
Fidelity
16.48 Fidelity 13-May – 2022

Transcorp Hotels Plc
16.00 Transcorp 26-Oct-2022

NMRC
14.90 NMRC 29 – Jul – 2030

7.94
Total


47.94

2.4.3.2 The Equities Market
At end-December 2015, the NSE ASI closed at 28,642.25, reflecting a decrease of 14.39 per
cent below 33,456.83 at end-June 2015. Market capitalization closed at N9,850.61 billion,
reflecting a decrease of 13.75 per cent below the N11,421.02 billion recorded at the end of
the preceding period. The decline in the market indicators was attributable to slowdown in
global economic activities, the effects of equities sell-off in other emerging markets and
increased foreign portfolio outflow. Foreign portfolio investments in the market were
valuedN185.43 billion, while divestments stood atN250.65 billion, reflecting a net outflow of
N65.22 billion at end-December 2015. Overall, total foreign portfolio transactions (inflow
and outflow) accounted for 55.09 per cent of the total equity transactions during the review
period.

Table 2.6: Market Liquidity (Value Traded/Market Capitalization) (%)

Market Cap
(N’ Billion)
Value Traded
(Billion)
Market Liquidity
(%)
1stQtr
16,251.81
279.21
1.72
2ndQtr
17,017.37
278.15
1.63
3rdQtr
17,006.90
223.23
1.31
4thQtr
17,003.39
172.81
1.02


During the second half of 2015, six (6) new equities comprising three (3) Exchange Traded
Funds and three (3) on Main Board were listed, while four (4) companies were delisted from
the exchange for not complying with post-listing requirements. Thirteen (13) supplementary
listings were also recorded on account of additional public offers, bonuses, rights issues and
share conversion.
In its efforts to deepen the Nigerian capital market, the Securities and Exchange Commission
(SEC) took the following initiatives:
The Capital Market Committee (CMC) implemented Direct Cash Settlement (DCS)
system. This is a process whereby cash proceeds from trades executed by brokers on
the exchange settles directly into investors’ bank accounts. The DCS was aimed at
improving transparency, entrenching investor confidence, reducing market infractions
FINANCIAL STABILITY REPORT - DECEMBER 2015

and improving trading velocity. Consequently, on 31st December, 2015, the CMC
mandated all operators to comply with the directives with effect from January 4,
2016.

The recapitalization of capital market operators (CMOs) which was initiated in 2014
was concluded in September 2015. The upward review was aimed at enhancing the
ability of the operators to improve service delivery, acquire appropriate equipment
and technology, hire the right calibre of support personnel and focus on corporate
objectives without compromising standards. The overall level of compliance stood at
72 per cent and the non-compliant CMOs were suspended. The review of claims and
appeals from non-compliant CMOs was in progress during the review period.

A feasibility study was carried out on the introduction of derivatives with a view to
determining the preparedness of market operators, infrastructure and other
requirements.

2.5
The Insurance Sector
The National Insurance Commission (NAICOM) signed a multilateral Memorandum of
Understanding (MoU) with other regulators in the sub-region to form the West African
Insurance Supervisors Association in September 2015. In addition, the Anglophone West
African countries executed an MoU to foster information sharing and cooperation in the area
of insurance supervision.
The Market Conduct Guidelines, which contained directives on claims management aimed at
ensuring prompt payment, were issued to strengthen the existing brokers.
The Commission dissolved the Board of one insurance company as a result of corporate
governance breaches and an Interim Management Committee was appointed to oversee the
affairs of the company. Also, insurance brokers whose licences had lapsed for more than
three years were delisted.
2.6
The Pension Sector
The National Pension Commission (PenCom),in collaboration with the World Pension
Summit, the Netherlands, hosted the second World Pension Summit in October 2015in
Abuja. The Summit discussed opportunities and challenges in the pension sector as well as
global best practices.
The Commission organized the third Annual Compliance Officers Forum with compliance
officers of licensed pension fund operators in 2015.The objective of the Forum was to
strengthen the capacity of compliance officers to implement guidelines, rules and processes
in their operational activities. This was to entrench high ethical standards and transparency,
and create effective communication between the compliance officers and the Commission.
FINANCIAL STABILITY REPORT - DECEMBER 2015

At end-December 2015, the number of licensed pension operators under the supervision of
the Commission stood at 32, comprising four (4) Pension Fund Custodians (PFCs), 21
Pension Fund Administrators (PFAs) and seven (7) Closed Pension Fund Administrators
(CPFAs).
Since the commencement of the Contributory Pension Scheme in Nigeria, 25 states had
joined the scheme, while 11 were yet to. Ten states had fully implemented the provisions of
their pension laws.
The Pension Reform Act 2014 empowers a Retirement Savings Account (RSA) holder to
utilize part of retirement savings for approved mortgage purposes. A draft guideline to that
effect had been exposed to stakeholders for comments.
PenCom amended the Investment Guidelines to ensure that a part of the pension funds were
utilized for investment in infrastructure. Non-interest capital market products have also been
addressed by the Guidelines.
The pension assets in the Country at end-December 2015 stood at N5.2trillion and RSA
holders had grown to 6.5 million.

2.7
Real Sector Interventions
During the period under review, the CBN sustained its various intervention programmes in
the real sector. The interventions were directed at bridging the observed gap in the impact of
monetary policy on economic development. This resulted in the review of some of the
existing programmes and the introduction of new initiatives as follows:

2.7.1
Risk Mitigation and Insurance Schemes

2.7.1.1 The Nigeria Incentive-based Risk Sharing System for Agricultural Lending
As part of its function to de-risk lending to the agricultural value chain in Nigeria, the Nigeria
Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), during the period,
approved 189 Credit Risk Guarantees (CRGs) valued N357.49 million as against 6 CRGs
valued N700.46million in the first half of 2015. This indicated an increase in number, but a
decrease in value of 183 CRGs and N342.97 million (48.96%), respectively, under the
regular NIRSAL framework. The cumulative CRGs for 255 projects amounted to N21.685
billion. NIRSAL also paid Interest Draw Back (IDB) claims valued N37.30 million in the
review period. This brought the cumulative IDB claims under NIRSAL to N332.52 million in
respect of30 projects.

Under the NIRSAL Growth Enhancement Scheme (GES),a cumulative sum of N39.49 billion
had been approved as CRGs for 207 projects. It had also paid the sum of N90.26 million as
IDB for 18 projects under the GES/NIRSAL framework. The cumulative GES IDB stood at
N439.08 million.

FINANCIAL STABILITY REPORT - DECEMBER 2015

A total of 1,800 cotton and 1,600 rice farmers were trained by the Bankers’ Committee in
collaboration with the German Society for International Cooperation (GIZ) during the review
period.

2.7.1.2 The Agricultural Credit Guarantee Scheme Fund
The Fund, in the second half of 2015, guaranteed 40,734 loans valued N5.99 billion granted
by five (5) commercial and 46 microfinance banks as against 28,702 loans valued N5.44
billion, granted by five (5) commercial and 85 microfinance banks in the first half of 2015.
This represented an increase of 41.92and 10.11 per cent in number and value of loans,
respectively. Cumulatively, 1.001 million loans valued at N95.91 billion were guaranteed
from inception to December, 2015. Furthermore, a survey was conducted during the review
period to ascertain the reasons for low participation under the Scheme by banks.

2.7.1.3 National Collateral Registry
The CBN, in collaboration with the International Finance Corporation (IFC), setup the
National Collateral Registry (NCR) as a financial infrastructure to deepen credit delivery to
the Micro, Small and Medium Enterprises (MSMEs). A baseline survey on the level of
awareness of the NCR in Nigeria was conducted, while first-level User Acceptance Tests
(UAT) and streams of focal group discussions were carried out.

2.7.2
Credit Support Schemes

2.7.2.1 The Commercial Agriculture Credit Scheme
During the period under review, the sum of N48.91 billion was disbursed to 8 banks for 49
projects compared to the sum of N24.47 billion disbursed to 10 banks for 26 projects in the
first half of 2015. This reflected an increase of N24.44 billion (99.86%) and 23 projects
(88.46%) in value and number, respectively. The cumulative amount disbursed to the real
sector under Commercial Agriculture Credit Scheme (CACS) from inception to December
31, 2015 stood at N336.40 billion to 420 projects, of which 31 were state government
projects. Six of the 389 private projects financed under CACS were owned and managed by
women. The total repayments stood at N47.99 billion by 17 banksfor189 projects, bringing
the cumulative repayments to N177.56 billion at end-December 2015.

Additional 632 jobs were created (190 skilled and 442 unskilled) owing to CACS
intervention. This brought the cumulative number of jobs created to 1.13 million from
inception to December 2015.

FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure 2.9: Analysis of Funds released to projects, 2015 (N’000)


2.7.2.2 The SME Restructuring and Refinancing Fund
The N235 billion Small and Medium Enterprises-Refinancing and Restructuring Facility
(SME-RRF), established in March 2010 with a terminal date of 2025 was discontinued in
December 2014 and replaced with the Real Sector Support Facility (RSSF). However, at endDecember 2015, BOI had disbursed the sum of N17.48 billion, which brought cumulative
disbursements to the participating banks to N381.99 billion for 604 projects. The repayment
proceeds at end-December 2015 stood at N141.54 billion out of which N138.31 billion had
been re-disbursed to participating banks. Total jobs created under the scheme stood at 29,642.

2.7.2.3 Real Sector Support Facility
Under the Real Sector Support Facility (RSSF), established by the CBN to close the
financing gap for manufacturers, SME, and start-ups, the Bank, at its MPC Meeting held in
November 2015, earmarked the CRR difference of 500 basis points for funding of projects in
the real sector. In addition a total of 47 applications were received during the review period
bringing the cumulative number of applications to 266, valued N1,178.95 billion.
2.7.2.4 Micro, Small and Medium Enterprises Development Fund
During the review period, activities carried out by the CBN under the Micro, Small and
Medium Enterprises Development Fund (MSMEDF) included:

(a) Issuance of the revised MSMEDF Guidelines in December 2015;
(b) Launch of the Anchor Borrowers’ Programme (ABP) and flag-off of the 2015 dry
season farming; and
(c) Setting aside of N40 billion from the N220 billion Micro, Small and Medium
Enterprises Development Fund for the ABP at a single-digit interest rate of 9 per cent.
As part of efforts to improve outreach to MSMEs and increase liquidity to fund providers
nationwide, an additional sum of N10.41 billion was released. Specifically, 2,471 male and
8,074 female micro enterprise owners as well as 148 SMEs benefitted from the Fund during
the review period.


Jun. 2015
Dec. 2015
FINANCIAL STABILITY REPORT - DECEMBER 2015

2.7.2.5 Power and Aviation Intervention Fund
Total disbursement under this Fund remained N249.61 billion at end-December 2015.
However, the sum of ₦11.10 billion was repaid by 45 obligors through BOI during the
review period (Table 2.8).

Table 2.7: Loans Repayment as at 31st December, 2015
Type
Airline
Power
Total
No. of projects

Amount received by CBN as PAIF
repayment in July - December 2015
(₦’billions)
4.98
6.12
11.10
Cumulative as at June, 2015
(₦’billions)
29.32
23.78
53.10
Cumulative from Inception to Dec.
2015(₦’billions)
34.30
29.90
64.20

PAIF interventions have contributed to the reduction in the cost of funds and operations to
beneficiaries owing to the concessionary interest rate of 7 per cent and tenor of 10 – 15 years
on the loans. It also provided the much needed life-line to the domestic airline industry. The
power projects financed by PAIF increased total generating capacity by 865.7 MW at endDecember 2015.

2.7.2.5 Nigeria Electricity Market Stabilization Facility
The CBN invested N213.00 billion in a special purpose vehicle - NESI Stabilization Strategy
Ltd - to provide refinance for the NEMSF. Although there was no disbursement of funds
during the review period, the sum of N64.76 billion has so far been disbursed to 18
participants since inception.

2.7.2.6 Entrepreneurship Development Centres
The Bank, at end-December 2015, had five (5) entrepreneurship development centres (EDCs)
operating in North-West (Kano); North-East (Maiduguri); North-Central (Makurdi); SouthWest (Ibadan); South-South (Calabar); and one (1) Outreach Centre for the North-Central
(Minna). In addition, the CBN approved Umuahia to be the centre for the South-East CBNEDC.

The number of participants trained by the EDCs during the review period was 5,927,
representing 118.54 per cent of the target of 5,000, as against a total of 5,830 participants
trained in the first half of 2015. A total of 2,228 (37.6%) of the participants were female and
3,699 (62.4%) were male. In the review period, 4,440 jobs were created; 2,511 participants’
accessed loans, while the sum of N306.67 million was accessed by the graduates.
FINANCIAL STABILITY REPORT - DECEMBER 2015

2.8
External Reserves
The Bank continued to implement foreign exchange management measures which began in
the first half of 2015 in response to the macroeconomic developments. These measures
impacted positively on the external reserves as net foreign exchange inflow during the review
period stood at US$190 million. Foreign exchange inflow increased by 24.41 percent to
US$19.01 billion, compared with US$15.28 billion at end-June 2015. Foreign exchange
outflow, on the other hand, decreased by 10.68 per cent to US$18.82 billion, compared with
US$21.07 billion in the first half of 2015.
Notwithstanding the net foreign exchange inflow of US$190 million, a notional currency
translation adjustment of US$232.17 million resulted in a US$43.14 million decrease in the
level of external reserves from US$28.33 billion at end-June 2015 to US$28.29 billion at endDecember 2015.


FINANCIAL STABILITY REPORT - DECEMBER 2015

3.0
REGULATORY AND SUPERVISORY ACTIVITIES
3.1
Financial Soundness Indicators
3.1.1
Asset-Based Indicators
There was a marginal decline in the quality of assets in the Nigerian banking industry in the
second half of 2015, compared with the position at end-June 2015. The ratio of NPLs to gross
loans increased by 0.21 percentage point to 4.86 per cent at end December 2015. The decline
in asset quality was attributed to the unfavourable macroeconomic environment in the review
period. The ratio of core liquid assets to total assets decreased by 2.2 percentage points to
16.3 per cent at end-December 2015 from 18.5 per cent at end-June 2015. Similarly, the ratio
of core liquid assets to short-term liabilities decreased by 2.1 percentage points to 25.0 per
cent at end-December 2015 compared with 27.1per cent at end-June 2015.
Figure 3.1: Banking Industry Gross Loans to Non-Performing Loans (%)


Figure 3.2: Banking Industry Liquidity Indicators


End-Dec 2014
End-Jun 2015
End-Dec 2015
Per cent


27.1

End-Dec 2014
End-Jun 2014
End-Dec 2015
Per cent
Liquid assets (core) to total assets
Liquid assets (core) to short-term liabilities
FINANCIAL STABILITY REPORT - DECEMBER 2015

3.1.2
Capital-Based Indicators
Most indicators of capital adequacy weakened during the period. The ratio of regulatory
capital to risk weighted assets stood at 17.5 per cent at end-December 2015, showing a
marginal increase of 0.1 percentage point below the level at end-June 2015. Similarly, the
ratio of tier 1 capital to risk weighted assets which stood at 17.4 per cent at end-December
2015 was 2.2 percentage points below the level achieved at end-June 2015. This decline was
attributable to the fall in the level of banks’ general reserves in the second half of 2015
(Figure 3.3).
The industry ratio of non-performing loans (net of provisions) to capital increased to 7.4per
cent at end-December 2015 from 5.5per cent at end-June 2015.
Figure 3.3: Banking Industry Capital Adequacy Indicators


Table 3.1: Selected Financial Soundness Indicators (%) of the Nigerian Banking Industry

2015*
Indicators
End
June
End
Dec
End
June
End
Dec
End
June
End
Dec
End
June
End
Dec
End
June
End
Dec
1. Asset Based
Nonperforming loans to total
gross loans

Liquid assets (core) to total
assets

Liquid assets (core) to shortterm liabilities

2. Capital Based Indicators
Regulatory capital to riskweighted assets

Regulatory Tier 1 capital to
risk-weighted assets

End-Dec 2014
End-Jun 2015
End-Dec 2015
Per cent
Regulatory capital to risk-weighted assets
Regulatory Tier 1 capital to risk-weighted assets
FINANCIAL STABILITY REPORT - DECEMBER 2015

Nonperforming loans net of
provisions to capital

3. Income and Expense Based Indicators
Interest margin to gross
income

Noninterest expenses to gross
income

Personnel expenses to
noninterest expenses

* Provisional

3.2
Banking Industry Stress Tests
3.2.1
Baseline (Pre-shock) Position
At end-December 2015, the baseline (pre-shock) capital adequacy ratio (CAR) for the
banking industry, large, medium and small banks stood at 17.66, 18.48, 15.61 and 17.61 per
cent, respectively. These reflected 0.28, -0.08, 1.06 and 3.53 percentage points changes over
the June 2015 positions (Figure 3.2).

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


The pre-shock return on assets (ROA) of the banking industry, large, medium and small
banks were0.11, 0.17, -0.10 and 0.11 per cent, respectively. On the other hand, the return on
equity (ROE) of the banking industry, large, medium and small banks were1.11, 1.53, -1.22
and 0.31 per cent in December 2015, respectively (Figure 3.3).

Dec-2015 CAR
Jun-2015 CAR
Banking Industry
Large Banks
Medium Banks
Small Banks
FINANCIAL STABILITY REPORT - DECEMBER 2015

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


3.2.2 Solvency Stress Test
The December 2015 solvency stress test captured the idiosyncratic nature of individual bank's
balance sheet and macro-prudential concerns using the bottom-up and top-down approaches.
The exercise covered the 23 Commercial and Merchant banks using the following risk
elements: credit, liquidity, interest, foreign exchange rates and foreign exchange trading risks.

For systemic and peer assessment, the banks were classified into three groups based on their
asset size as follows: large banks are banks with assets greater than or equal to N1.0 trillion,
medium banks have assets greater than or equal to N500 billion but less than N1.0 trillion and
small banks have assets of less than N500 billion.

3.2.2.1 Analysis of Results

Credit Risk
The banking industry and large banks’ resilience to credit risk was robust. A simulated severe
shock of a 200 per cent rise in NPLs resulted in CARs of12.77 and 16.52 per cent for banking
industry and large banks, respectively, which were above the 10 per cent required regulatory
minimum. However, medium and small bank groups showed vulnerabilities to severe shocks
of 200 per cent rise in NPLs as their CARs fell to 7.16and 6.85 per cent respectively.

Table 3.2: General Credit Risk Shocks


Dec-2015 ROA
Dec-2015 ROE
Banking Industry
Large Banks
Medium Banks
Small Banks
Single Factor Shocks
Solvency Ratio After Shocks
All Banks
Large Banks
Medium
Small
Base line CAR

Shock 1av-50% NPLs increase

Shock 1avi-100% NPLs increase

Shock 1avii-200% NPLs
increase

FINANCIAL STABILITY REPORT - DECEMBER 2015

The banking industry and all peered banks showed resilience to credit concentration risk as
their CARs remained above 10 per cent under the scenario; “five biggest credit facilities
shifting from pass-through to sub-standard (10% provision)”, and “five biggest credit
facilities shifting from sub-standard to doubtful (50% provision)”. However, under the
scenario, "five biggest corporate facilities shifting from doubtful to lost", CARs of the
banking industry, large, medium and small banks deteriorated to 7.79, 8.73, 5.75 and 6.80 per
cent, respectively, from the baseline. Therefore, under this scenario, none of the peered banks
maintained a CAR up to 10 per cent (Table 3.3).

Table 3.3: Credit Concentration Risk

Figure 3.6: Credit Concentration Risk


Interest Rate Risk
The results of the stress tests on the net positions of interest sensitive instruments relative to
ROA and ROE revealed that the banking industry and peered banks weakened in interest rate
risk as their pre-shock positions (in terms of capital impairment, ROA and ROE) decreased.

Baseline
Five biggest corporate obligor credit facilities
shifted from Doubtful to Lost (100%)
All banks (23)
Large banks (8)
Medium-sized banks(5)
Small banks (10)

All Banks
Large Banks
Medium
Small
Baseline CAR

Single Factor Credit Concentration Shocks
Solvency Ratio After Shocks
All Banks
Large Banks
Medium
Small
2bi - Five biggest credit facilities shifted from pass-through to
sub-standard (10%)

2bii- Five biggest credit facilities shifted from sub-standard to
Doubtful (50%)

2biii - Five biggest credit facilities shifted from Doubtful to
Lost (100%)

FINANCIAL STABILITY REPORT - DECEMBER 2015

In addition, when the most strained shocks of 1000bps downward or upward parallel shift in
the yield curvewas applied, no peered banks withstood the shocks (Figure 3.5).

Figure 3.7: CAR Under Severe Interest Rate Shock Scenario


Figure 3.8: ROA and ROE Under Severe Interest Rate Shock Scenario


Table 3.4: Impact of Selected Shocks on CAR, ROA and ROE
Most Severe Shocks (500bps to 1000bps)
Banking
Industry
Large
Banks
Medium
Banks
Small
Banks
Baseline ROA

Baseline ROE

Interest Rate Volatility (Impact on CAR)
Shock 5biii (500bps downward parallel shift in yield curve)

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


Impact of Parallel Shift in Yield Curve Shocks on ROA
Interest Rate Volatility


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

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

Baseline CAR
Impact of 1000bps downward parallel shift in yield
curve on CAR
All banks (23)
Large banks (8)
Medium-sized banks(5)
Small banks (10)


Baseline ROA
Baseline ROE
Impact of 1000bps downward
shift in yield curve on ROA
Impact of 1000bps downward
parallel in yield curve on ROE
All banks (23)
Large banks (8)
Medium-sized banks(5)
Small banks (10)
FINANCIAL STABILITY REPORT - DECEMBER 2015

Impact of Parallel Shift in Yield Curve Shocks on ROE
Interest Rate Volatility


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

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


Exchange Rate Risk
The banking industry and all peered banks showed resilience to foreign exchange rate risk as
their capital only experienced slight deterioration after the impact of a 50 per cent exchange
rate appreciation shock was induced on their net foreign assets.

Table 3.5: CAR Under Exchange Rate Risk Shocks

Foreign Exchange Trading Risk
The results of the tests showed that the banking industry was stable to foreign exchange (FX)
trading risk. The banks’ pre-shock positions, in terms of impact on both ROA and ROE,
changed marginally even after an induced 100 per cent decline in FX trading income. This
was mainly due to the low contribution of FX trading income to gross income.

Table 3.6: Impact of FX Trading Shocks on ROA
Banks
Impact of FX Trading Shocks on ROA
Industry
Large
Medium
Small
Baseline ROA

FX Trading Income Volatility


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

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

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

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


Table 3.7: Impact of FX Trading Shocks on ROE

Banks

Industry
Large
Medium
Small
Baseline ROE

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

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

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

Single Factor Shocks
Solvency Ratios After Shocks
All Banks
Large Banks
Medium
Small
Base line CAR

Shock 4bi (10% appreciation in favour of
Naira)

Shock 4bii (20% appreciation in favour of
Naira)

Shock 4biii (50% appreciation in favour of
Naira)

FINANCIAL STABILITY REPORT - DECEMBER 2015

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


Generally, the solvency stress tests suggested that the banking industry remained relatively
resilient. Although some banks were sensitive to credit concentration and interest rate risks,
these did not pose systemic threats to the industry.
3.2.3
Liquidity Stress Test
The result of the test revealed that after a one-day run, the liquidity ratio for the industry
would decline to 33.4 per cent from the 48.57 per cent pre-shock position, and to 10.24 per
cent after a cumulative 30-day run. A 5-day and cumulative 30-daysrun on the banking
industry would result in a liquidity shortfall of N1.79 trillion and N1.93 trillion, respectively.
The test further revealed that 17 and 20 banks would record liquidity ratios below the
prudential threshold of 30.0 per cent, following the 5-day and cumulative 30-day runs,
respectively (Table 3.8).

Figure 3.9: Banking Sector Liquidity Ratio after Period 1-5 and cumulative 30-day shocks
(%)


The result revealed that the industry liquidity ratio would decline to 12.41 and 10.24 per cent,
from 48.57 per cent baseline position after the 5-day and cumulative 30-day shocks,
respectively (Table 3.8). The result also indicated vulnerability to liquidity risk in the event
that these scenarios crystallized.


-5

Pre-Shock
After Day 1
After Day 2
After Day 3
After Day 4
After Day 5
After cum 30 days
Dec-14
Jun-15
Dec-15
FINANCIAL STABILITY REPORT - DECEMBER 2015

Table 3.8: Liquidity Stress Test Results

Scenarios
Number of Banks with < 30%
liquidity ratios
Dec 2015
June 2015
(22 DMBs)
Dec 2015
(21
DMBs)
System
LR (%)
Liquidity
Shortfall to
30% LR (N’
billion)
Test 1.1: Implied Cash Flow Test ( 5 Days

Day 1

33.40
NIL
Day 2

28.98
153.12
Day 3

24.09
698.43
Day 4

18.27
1,274.06
Day 5

12.41
1,786.46
Test 1.2: Implied
Cash Flow Test (30
Days)

10.24
1,927.64

Figure 3.10: Industry Pre-shock Positions and after 5 day Shocks


-20
-10

Pre-shock
Day 5
FINANCIAL STABILITY REPORT - DECEMBER 2015

Figure 3.11: Individual Bank Pre shock Positions and Cumulative 30-day Shocks

N.B: Bank 21 was excluded from Figure 3.3 because of its outlier effect.

3.2.4
Maturity Mismatch
At end-December2015, the industry pre-shock position revealed that the shorter end of the
market (≤30 day and 31-90 day buckets) were adequately funded. In the ≤30 day bucket,
three (3) banks were not adequately funded, while in the 31-90 day bucket, nine (9) banks
had funding gaps. The cumulative position for the industry showed an excess of N3.4 trillion
assets over liabilities.

Table 3.9: Maturity Profile of Assets and Liabilities at end-December2015

Liabilities
Assets
Mismatch
Cumulative
N Billion
≤30 days

31-90 days

91-180 days

181-365 days

1-3 years

Above 3 years

Total
19,069.49
22,469.50


-10

After 30 days
Pre Shock
FINANCIAL STABILITY REPORT - DECEMBER 2015

There was a slight improvement in the post-shock result for Descriptive Maturity Mismatch
test (Test 2a) arising from the assumption of availability of funds from the CBN and intragroup. Although the 91-180 day bucket, which was adequately funded under Test 2a, showed
a mismatch of over N892billion under Test 2b and 2c,the position deteriorated in the Static
Rollover Analysis (Test 2b) and the Dynamic Risk Rollover Tests (Test 2c) (Table 3.10).

Table 3.10: Test Results for System-wide Maturity Mismatch

Test 2a-Descriptive
Maturity Mismatch
Test 2b- Static Rollover risk
Analysis
Test 2c- Dynamic Rollover
risk test

N’ billion
No of
banks
with
mismatch
N’ billion
No of
banks with
mismatch
N’ billion
No of banks
with mismatch
≤30 days
6,611.67

4,061.17

337.77

31-90 days
3,632.37

603.51

(71.08)

91-180days
1,660.81

(707.17)

(185.26)

181-365days
1,252.42

(1,194.84)

(423.55)

1-3 years
228.75

(2,167.87)

(837.48)

Above 3 years
(3,579.66)

(5,770.29)

(4,492.10)

Total
9,806.36

(5,175.49)

(5,671.70)


Figure 3.12: Maturity Mismatch Positions (Pre- & Post-Shocks)

Less than 30
days
(N'billion)
31-90 days
(N'billion)
91 -180days
(N'billion)
181 360days
(N'billion)
1-3 years
(N'billion)
above 3 years
(N'billion)
Pre-shock

Test 2a

Test 2b

Test 2c


FINANCIAL STABILITY REPORT - DECEMBER 2015

3.2.5
Contagion Risk Analysis through Interbank Exposures
During the review period, the analysis conducted on banks with unsecured interbank
exposures revealed that two (2) banks were central in the network, as they were exposed to
more than two counterparties in the system. A review of secured interbank exposures showed
that three (3) banks were central in the network as they had three or more bilateral exposures.
Overall, there was high contagion risk through unsecured interbank exposure as one bank’s
CAR was below the benchmark before the shock while two banks would fail to meet the
CAR benchmark after the shock (Table 3.11).
Table 3.11: Result of Net Interbank Unsecured Exposures
Lending Banks
Bank 4
Bank 6
Bank 13
Bank 14
Bank 17
Bank 18
Industry
Pre-Test CAR

Post-Test CAR(%)

Net Placement (N’ Billion)


Figure 3.13: Tiered Structure of Unsecured Placements at end-December2015

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


3.3
Supervision of Banks
3.3.1
Routine Examination
The CBN/NDIC conducted joint risk based examinations of 22 banks and three (3) financial
holding companies in the second half of 2015.The reports of these examinations have been
issued to the banks. Majority of the banks maintained their previous composite risk ratings.
FINANCIAL STABILITY REPORT - DECEMBER 2015

During the second half of the year, a consolidated supervision report was prepared for one of
the three (3) financial holding companies using examination reports from other regulators of
the subsidiaries in the holding company. The objectives of the consolidated supervisory
exercise were, among others, to assess the group’s safety and soundness and its compliance
with statutory requirements as well as rules and regulations issued by regulators.
3.3.2
Foreign Exchange Examination
As part of the efforts to ascertain the level of compliance of authorized dealers with
subsisting foreign exchange rules and regulations, the Bank conducted a routine foreign
exchange examination covering the foreign exchange operations of banks for the period, 1st
April to 30th September, 2015. The examination revealed some foreign exchange related
infractions. In line with the regulatory procedure, responses were sought from the affected
banks on the observations and appropriate sanctions were imposed where necessary in
accordance with extant laws and regulations.
3.3.3
Spot Checks/Special Investigations
During the second half of the year, special spot checks and investigations were conducted.
These included spot checks on banks’ foreign exchange forward transactions, holdings of
foreign currency cash and vault movements, and foreign currency cash deposits into
customers’ domiciliary accounts. Spot checks were also carried out on non-performing loans
(NPLs) of selected banks and banks’ investment and utilization of Eurobonds proceeds, onlending foreign loans and other foreign loans received by banks in Nigeria, and collection and
remittance of statutory government revenue to the Federation Account by banks (pre- and
post-implementation of the Treasury Single Account).

3.3.4
Cross-Border Supervision
3.3.4.1 Risk Based Foreign Subsidiaries Examination
The risk based examination of eight foreign subsidiaries was carried out in the second half of
the year. Four of the examinations were done jointly with the host countries and four were solo
examinations. The solo examinations revealed that, three subsidiaries had improvement in their
rating to “moderate” while one improved to “above average”. The joint examination Reports
were being awaited from the host countries.
3.3.4.2 Supervisory Collaboration
The College of Supervisors of WAMZ (CS-WAMZ) held meetings during the review period
to discuss key cross-border supervision issues within the Zone. The second meeting of the
College of Supervisors of UBA Group also took place in August 2015 with eight (8)
supervisors in attendance. During the meeting, members exchanged information on the
soundness and performance of the UBA Group.

3.3.5
The Asset Management Corporation of Nigeria
Net eligible bank assets (EBAs) under AMCON fell to N1.525 trillion as at December 31,
2015 from N1.817 trillion as at June 30, 2015 as a result of impairments in the Corporation’s
loan portfolio.
FINANCIAL STABILITY REPORT - DECEMBER 2015

The AMCON Amendment Act 2015 was signed into law. The amended Act removed certain
ambiguities that had impeded the operations of the Corporation in carrying out the mandate
of managing its acquired assets. The Act also established a Banking Sector Resolution Cost
Trust Fund (BSRCTF) into which banks and the CBN make annual contributions to meet any
shortfalls in the funding of the resolution costs for the 2008/2009 banking crisis.

The Corporation’s total recoveries during the second half of 2015 amounted to N25.94
billion, comprising cash recoveries of N23.63 billion and asset forfeitures of N2.31 billion.
Total recoveries for 2015 amounted to N88.98 billion, comprising cash recoveries of N55.23
billion and asset forfeitures of N31.76 billion. BSRCTF generated N176.99 billion during the
year. The internal recoveries generated by AMCON as well as the contributions to the
BSRCTF were utilized to repay the Corporation’s debt obligations that fell due for payment
on December 31, 2015.
3.3.6
Basel II Implementation and Measures to Build Adequate Reserves in the Nigerian
Banking Sector
Banks continued to render report in accordance with the Basel II capital standard during the
review period. The Nigerian banking sector remained sound, maintaining capital levels well
in excess of the minimum prudential requirements.
The collapse of crude oil prices and the resultant impact on government revenues and foreign
reserves portended risks to banking system stability through increase in default rates,
reduction in solvency levels and volatility in exchange rates. Consequently, the CBN
increased the requirement for general provisioning on performing facilities from 1 per cent to
2 per cent with effect from November 11, 2015 and banks were also required to maintain
capital buffers above their minimum prudential requirements.
3.3.7
Update on Implementation of IFRS 9
IFRS 9 significantly broadens the information set that an entity is required to consider when
determining its expectations of credit losses. Specifically, reporting entities are required to
incorporate information from past events, current conditions, as well as reasonable and
supportable forecasts in their measurement of expected credit losses.

IFRS 9 would address supervisory concerns related to build-ups of loss overhangs and the
overstatement of regulatory capital in boom periods by requiring earlier and larger loan loss
allowances which limit the possibility of distributing overstated profits in the form of
dividends and bonuses. Through these channels IFRS 9 would eliminate the amplifying effect
of the incurred loss approach of IAS 39 on pro-cyclicality and reduce capital inadequacy
concerns during a crisis.

In view of the significant impact that the implementation of IFRS 9 is expected to have on the
Nigerian banking sector, the CBN during the period commenced engagement with
stakeholders on implementation modalities ahead of the January 1, 2018 mandatory effective
date for the new standard.

FINANCIAL STABILITY REPORT - DECEMBER 2015

3.3.8
Approved Persons Regime
In the review period, the CBN revised the Assessment Criteria for Approved Persons’
Regime10for financial institutions. Broadly, the revision enhanced the fitness criteria for
Board and top management positions; raised fitness requirements for DFIs by subjecting
them to the same requirements as banks; and expanded the scope and coverage of the
Approved Persons’ Regime to include all financial institutions under the regulatory purview
of the CBN.

The revised Regime allowed candidates that fail the fitness test a period of two years to
undergo training in order to remedy the deficiency. Also it removed company secretaries and
chief legal officers from the top management staff covered by the regime as they are
management functions that could have been covered elsewhere in the regime.
3.3.9
Credit Risk Management System
The CBN continued to ensure that banks complied with the provisions of the Credit Risk
Management System (CRMS) Guidelines. The CRMS continued to provide a useful platform
for credit information in the banking industry.

During the period under review, the CBN deployed an upgraded CRMS stop-gap template to
address gaps in the older version. Meanwhile, anew enhanced CRMS template was being
developed to accommodate unique identifier codes, including the Bank Verification Number
(BVN) and Taxpayer Identification Number (TIN) to improve efficiency in credit risk
management in the industry.

At end-December 2015, the number of borrowers registered in the CRMS database stood at
157,501, indicating an increase of 25.63 per cent over the number recorded in the preceding
year. Similarly, the number of borrowers with outstanding facilities rose by 26.09 per cent to
61,580 at end-December 2015 from 48,837 at end-December 2014 and the number of credit
facilities in the database rose significantly by 54.13 per cent to 120,750 at end-December
2015 from 78,341 at end-December 2014, owing to increased compliance by banks.

Table 3.12: Borrowers from the Banking Sector11
Description

Change
% Change
Total No. of Borrowers

No. of Borrowers with
outstanding credits

No. of Credit/facilities


10The Revised Assessment Criteria for Approved Persons’ Regime can be found at

11Based on submission by commercial and merchant banks for amounts ofN1m and above.

FINANCIAL STABILITY REPORT - DECEMBER 2015

3.4
Supervision of Other Financial Institutions

3.4.1
Microfinance Banks
During the review period, 406 microfinance banks (MFBs) were examined. The exercise
comprised RBS examination of 236 MFBs, spot checks on five (5) others that applied for
voluntary winding up, existence checks on 30 institutions that defaulted in rendering returns
consecutively over a period of six (6) months, and target examination for capital verification
of 135 MFBs earlier issued regulatory directive to beef up their capital bases. Results of the
examinations revealed that 27, 83 and 126 MFBs had “Moderate”, “Above Average” and
“High” composite risk ratings, respectively.

3.4.2
Finance Companies
Examination of finance companies (FCs) was deferred to February 2016 to ascertain the
number of FCs that met the new N100 million capital requirements owing to the extension of
the deadline for recapitalization from end-September 2015 to end-December 2015.
3.4.3
Bureaux de Change
During the review period, special investigations on the activities of some BDC operators
were conducted, including their accounts with six (6) DMBs. The result of the investigations
revealed cases of non-rendition of Suspicious Transaction Reports and failure to observe
proper Customer Due Diligence amongst others. The erring banks and BDCs were penalised
appropriately. Target examinations were also carried out on 33 BDCs for multiple ownership
and contravention of extant foreign exchange laws and regulations, in line with the revised
requirements for the operations of bureaux de change in Nigeria. The report of the exercise
was being finalized.

3.4.4
Development Finance Institutions
During the period under review, the capital ratings for six (6) Development Finance
Institutions (DFIs) were “weak” for two (2), “needs improvement” for one (1) and
“acceptable” for three (3).Meanwhile, the composite risk rating remained “high” for two (2)
of the institutions, “above average” for another two (2) and “moderate” for the remaining two
(2).The prudential and soundness analysis of three (3) of the DFIs revealed continued
deterioration in their financial performance owing to inadequate capital, poor asset quality,
continuous stream of operating losses and weak Board oversight. The poor performance of
these institutions was attributed largely to instability of the Board of directors owing to the
frequency of their dissolution and reconstitution. The long period of absence of effective
Boards in the affected DFIs denied them of strategic direction and effective oversight.

3.4.4.1 Development Finance Institutions Stakeholder Forum
During the period under review, the Bank in collaboration with the stakeholders, established
the bi-annual consultative forum for stakeholders of DFIs in Nigeria. The forum will serve as
a platform to discuss issues and challenges affecting the sub-sector and proffer solutions on
the way forward.
FINANCIAL STABILITY REPORT - DECEMBER 2015

3.4.4.2 Guidelines for Development Finance Institutions
Sequel to the release of the Regulatory and Supervisory Guidelines for Development Finance
Institutions in Nigeria, which required all DFIs to obtain CBN operating licenses,
applications were received from three (3) of the six (6) existing DFIs during the review
period.
3.4.5
Non-Interest (Islamic) Banking
In line with international practices, the CBN issued Guidelines on the Governance of the
Financial Regulatory Advisory Council of Experts (FRACE) 12 otherwise known as the
Shari’ah Advisory Council. The FRACE was constituted as a body to advise CBN on matters
of Islamic commercial jurisprudence as they relate to the operations of non-interest (Islamic)
financial institutions in Nigeria. The FRACE could also serve as advisory body to any other
regulatory agencies in the financial sector that refer matters on the principles of Islamic
commercial jurisprudence to it.
The Guidelines:
•
Set forth the minimum composition of the FRACE and the qualification of its
members;
•
Define the duties and responsibilities of the Council and its members;
•
Define the relationship and working arrangement between the Council and the
individual Advisory Committee of Experts of Non-Interest Financial Institutions
(NIFIs);
•
Outline a code of conduct for members of the Council.

In the review period, the following regulations were also issued to enhance governance and
operation of non-interest (Islamic) banks:
Guideline on the Governance of Advisory Committees of Experts for Non-interest
(Islamic) Financial Institutions in Nigeria (NIFIs)13; and
Circular on the Treatment of Hamish Al Jiddiya (Earnest Deposit)14.

3.5
Financial Services Regulation Coordinating Committee
The Financial Services Regulation Coordinating Committee (FSRCC) conducted
consolidated examination of one out of the three financial holding companies during the
second half of 2015. All the financial holding companies would henceforth be examined
annually, with CBN as the lead regulator.

12 The Guidelines on the Governance of the Financial Regulatory Advisory Council of Expertscan be found at

13Guideline on the Governance of Advisory Committees of Experts for Non-interest (Islamic) Financial
Institutions in Nigeria (NIFIs) can be found at
14Guideline on the Governance of Advisory Committees of Experts for Non-interest (Islamic) Financial
Institutions in Nigeria (NIFIs)can be found at

FINANCIAL STABILITY REPORT - DECEMBER 2015

3.6
Enhanced Supervision of Domestic Systemically Important Banks
The second half of the year 2015 heralded the full implementation of the Framework for the
Regulation and Supervision of Domestic Systemically Important Banks (D-SIBs) which was
issued by the CBN in September 2014.

The CBN adopted the indicator-based measurement approach as recommended by the Basel
Committee on Banking Supervision (BCBS) and utilized the following indices in identifying
banks which were systemically important to the Nigeria Financial system:
Size - represented by total assets;
Interconnectedness - represented by net interbank placements;
Substitutability - represented by total credits and total deposits; and
Complexity - represented by total number of branches and foreign subsidiaries.

Eight (8) deposit money banks (DMBs) were designated D-SIBs. At end-December 2015, DSIBs accounted for 68.9 per cent (N18.15trillion) of the industry total asset of N26.4trillion.
Similarly, the D-SIBs accounted for 71.3 per cent (N11.9trillion) of total industry deposit of
N16.73 trillion.The D-SIBs also accounted for a significant portion of the loans and advances
to the economy as at December 2015 with N9.54 trillion (71.45%) of the total N13.35trillion
from the industry.

3.5.5.1 Recovery and Resolution Plans
A core aspect of the enhanced supervision of D-SIBs is the planning for either a recovery of a
distressed bank or ensuring its orderly resolution. In achieving this objective, and working
with the designated banks in the second half of 2015, the D-SIBs were required to submit
recovery and resolution plans (RRP) on or before January 1, 2016.The recovery plan in the
RRP is expected to include detailed information outlining credible recovery options that
could be implemented in the event of severe stress conditions, which would restore the DSIBs to a stable and sustainable condition. The resolution plan, on the other hand, is expected
to ensure that in the event of the failure of a D-SIB, it would be feasible to resolve the bank
without severe systemic disruption.

3.7
Consumer Protection
3.7.1
Complaints Management Activities
During the review period, a total of 1,010 complaints were received against banks and other
financial institutions (OFIs), of which, 657, representing about 65 percent, were
resolved/closed. The total claims by complainants against Deposit Money Banks (DMBs) and
Other Financial Institutions (OFIs) amounted to N12.17 billion and US$9.60 million, while
total refunds amounted to N4.42 billion and US$9.60 million (Table 3.13).

FINANCIAL STABILITY REPORT - DECEMBER 2015

Table 3.13: Summary of Complaints Management Activities from July to Dec. 2015
S/No
Description
July
August
September
October
November
December
Total
A
Number of Complaints received within the month
A1
Number of
Complaints
received
against banks

A2
Number of
Complaints
received
against OFIs

A1 + A2

B
Amount refunded by Banks and OFIs
B1
(N)

B2
(USD)

B3
(€)

B4
(£)

C
Monthly Claims by Petitioners
C1
(N’ million)

C2
(USD)

D
Complaints
Resolved per
Month

402.00
E
Complaints
Closed per
Month

255.00

Complaints
Resolved/Clo
sed

F
Regulatory
Directives
Issued per
month

G
Warning
letters issued
per month

1.00
H
Penalty
Imposed Per
month

1.00
I
Mediation
meetings held

FINANCIAL STABILITY REPORT - DECEMBER 2015

Table 3.14: Comparative Analysis of Key Consumer Complaints Indicators
S/No
Description
1st Half 2015
2nd Half 2015
Difference
%

Number of Complaints received

1,010

35.21

Number of Complaints
resolved/closed

36.59

Amount claimed (N’ billion)


Amount refunded (N’ billion)


Amount claimed (US$ Million)


Amount refunded (US$ Million)


Mediation meetings held

28.57


Compared to the first half of 2015, the number of complaints received increased by 263 or
35.21 percent. Also, the number of resolved/closed complaints increased by 176 or 35.59 per
cent in the second half of 2015.
Claims by complainants increased by N4.08 billion or 50.45 per cent in the second half of
2015, while refunds by banks and OFIs increased by N2.55 billion or 136.35 per cent during
the period.
3.7.2
Compliance Examination
The Bank conducted consumer compliance examination on all banks. The findings have been
communicated to the affected banks for corrective actions. The Bank adopted the use of
Consumer Complaint Management System (CCMS) in the management of complaints
received against DMBs and OFIs.

3.8
Key Risks to the Financial System

3.8.1
Credit Risk
Risk Rating


Non-performing loans, in the period under review, rose by 3.36 per cent to N649.63 billion at
end-December 2015, from N628.54 billion at end-June 2015. This reflected a 78.8 per cent
increase from the N363.31 billion recorded at end-December 2014. The NPL ratio rose to
4.86 per cent from 4.65 per cent. Although the NPL ratio remained within the prudential
ceiling of 5.0 per cent, it trended closer to the upper limit. A few banks had NPL ratio above
the regulatory maximum limit of 5.0 per cent; however this posed no significant risks to the
industry.

FINANCIAL STABILITY REPORT - DECEMBER 2015

The increase in the NPL ratio was attributed largely to the continued fall in oil prices during
the review period. For instance, the price of Nigeria’s reference crude, Bonny Light, fell by
about 60 per cent to US$38.22 at end-December 2015fromUS$62.01at end-June 2015, and
this reduced Government revenue and strained fiscal positions. Also, at end-December 2015,
loans to the oil and gas sector constituted 25 per cent of the gross loan portfolio of the
banking system while credit to the sector rose marginally by 2.8 per cent to N3,307.87 billion
at end-December 2015 compared to the position at end-June 2015. Loans to state
governments rose by 33.9 per cent to N1,053.97 billion from N 696.87 billion at end-June
2015.The CBN disbursed N338 billion to 27 states under a special intervention scheme to
refinance states’ debts.

It is expected that credit risk will increase due to threats of further rise in NPLs in the oil and
gas sector. The CBN will continue to require banks to strengthen their contingency plans and
conduct regular stress tests to mitigate the impact of the crash in oil prices on their balance
sheets. The CBN has also mandated banks to publish on quarterly basis, in national
newspapers, the list of bad debtors in their books to deter delinquent borrowers.

Figure 3. 1: Non-Performing Loans


3.8.2
Liquidity Risk

Risk Rating


The liquidity ratio for the industry increased by 9.31 percentage points to 48.63 per cent at
end-December 2015, from 39.32 per cent in the preceding half of the year, exceeding the
prudential limit of 30 per cent. The anticipated impact of the implementation of the Treasury
Single Account was compensated by the expansionary monetary policy of the Bank. The

Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
FINANCIAL STABILITY REPORT - DECEMBER 2015

Bank will continue to monitor the direction of liquidity in the system, using appropriate
monetary policy tools.
3.8.3 Market Risk
Risk Rating


Notwithstanding the spike in interbank and OBB rates in August 2015, there was an overall
downward trend in the movement of interest rates during the second half of 2015. Rates fell
significantly by end-December 2015 as 91-day NTB rates fell by over 5 percentage points
from 10 per cent in July 2015 to 4.57 per cent, reflecting high level of liquidity in the system.
Total deposit growth rate, also rose from -1.36 per cent as at end-June, 2015 to 19.62 per cent
as at end-December 2015.

In an effort to conserve foreign exchange, the Bank released additional administrative
policies during 2015. Towards the end of the first half of 2015, the cumulative annual
transaction limit on naira debit cards outside Nigeria was reduced from $150,000 to $50,000,
while daily cash withdrawal was pegged at $300. The Bank Verification Number (BVN) was
also introduced as a requirement for foreign exchange transactions. The operating guidelines
for bureaux de change (BDC) institutions was revised, including the stipulation of the
mandatory submission of BVNs by directors of BDCs, in order to improve their operational
efficiency.

Although the exchange rate remained stable at the interbank segment at N196.99/US$, it
fluctuated significantly in the BDC segment, rising from N196.92/US$ to N196.99/US$ in
the interbank segment and from N218.98/US$ to N258.30/US$ in the BDC segment between
the first and second half of 2015. Furthermore, the removal of Nigeria from JP Morgan index
contributed to the exchange rate demand pressures.

3.8.4
Operational Risk
Risk Rating


Operational risk events reported during the period included the incidence of frauds and
forgeries and insecurity in some parts of the Country. Cases of fraud and forgeries increased
to 7,183 at end-December, 2015 from 5,917 reported at end-June 2015. The total amount
involved in the cases, however, decreased to N5.76 billion at end-December 2015, from
N11.98 billion recorded at end-June 2015. Similarly, actual losses decreased to N1.41 billion
at end-December 2015 from N1.89 billion in the first half of 2015. Returns from banks
showed that frauds and forgeries were perpetrated through suppression and conversion of
customers’ deposits, illegal fund transfers, pilfering and fraudulent ATM withdrawals.
FINANCIAL STABILITY REPORT - DECEMBER 2015

In order to ensure a reduction in frauds and other criminal activities, banks had been directed
to establish fraud desks to sensitize customers on e-fraud; manage/resolve all intra-bank fraud
issues using an enterprise fraud management system, and submit reports to the Nigeria InterBank Settlement System Plc on fraud information for subsequent actions. The Bank
constituted a Working Group of Nigeria electronic Fraud Forum (NeFF) which facilitated the
establishment of a dedicated Electronic Payment and Card Crime Unit in the Nigeria Police.
The domestic implementation of the BVN exercise was concluded during the review period.
All bank customers who were yet to register were availed the opportunity to do so but they
would continue to experience restrictions on their accounts until they registered. Registration
for Nigerian bank customers in diaspora had been extended to June 30, 2016.


FINANCIAL STABILITY REPORT - DECEMBER 2015

4.0
PAYMENTS SYSTEM
4.1
Developments in the Payments System

In furtherance of its effort in the development of a safe, reliable and efficient payments
system in Nigeria, the CBN undertook some major initiatives during the review period as
highlighted below.
4.1.1
Implementation of the Bank Verification Number Scheme

The implementation of Bank Verification Number (BVN) Scheme to address the absence of
unique identifier across the Nigerian banking industry continued during the review period.
The CBN stipulated that by October 31, 2015, all bank customers should have the BVN, and
any bank customer without the BVN would be deemed not to have met complete KYC
requirements. Consequently, the following measures were implemented:

a. Nigeria residents’ bank accounts without the BVN would be operated as “no customer
initiated debit” account, until the account holder obtains and attaches a BVN to the
account.
b. Nigeria residents’ bank accounts without the BVN would continue to receive credit
inflows (cash and electronic) only but would not be deactivated.
c. BVN enrolment for Nigerian bank customers in diaspora was extended to 30th June
2016.
d. Concession was granted to security personnel on special assignments to have full
access to their accounts with or without BVN till 31st January 2016.

The implementation of the project resulted in the registration of 23,030,269customers at endDecember 2015, while 28,303,332 out of 55,316,040 accounts had been linked with the
BVN. The implementation of BVN is expected to increase the effectiveness of the payments
system, among other benefits.

4.1.2
Deployment of Anti-Fraud Solution
The Bank in collaboration with key stakeholders deployed an anti-fraud solution that has the
capability to flag suspicious card transactions based on predefined rules set on the system.
Once a transaction is flagged as suspicious, the operator of the system sends a request to the
card issuer to confirm the authenticity of the transaction or otherwise. The deployment of the
anti-fraud solution will reduce fraud and increase the safety of the Nigerian payments system.

4.1.3
Global Mobile Payments Monitoring & Regulation System
The Bank implemented a monitoring solution for effective surveillance of Mobile Money
Operators and their transactions. The System, managed by NIBSS, accepts and processes
daily transactions data of all licensed Mobile Money Operators. The solution is expected to
aid fraud management and customer complaints resolution, among others.
FINANCIAL STABILITY REPORT - DECEMBER 2015

4.1.4
e-Dividend Mandate Management Portal
The CBN and SEC, in collaboration with relevant stakeholders, leveraged the NIBSS
Document Management System to develop a common portal for uploading completed edividend mandate forms, detailing relevant bank account and shareholder information. The
new system is expected to reduce the volume of unclaimed dividends and ensure faster, safer
and more convenient dividend payment. Furthermore, the system will reduce fraud associated
with diversion of dividend warrants, thus increasing the confidence of investors in the capital
market.

4.1.5
NIBSS Automated Payment Services
NIBSS Automated Payment Services (NAPS) was introduced as an integrated multi-bank ePayment, e-Collection and Payroll & Bulk payment Platform. It is designed for the instant
processing of payroll, pension, personnel records and execution of funds transfer, direct debit,
collections, schedule delivery and payment instructions. It was an enhancement on NIBSS
Electronic Funds Transfer (NEFT) to enable settlement of transactions within 15 minutes.
The system is expected to reduce float, settlement delay and settlement risk.

4.1.6
Treasury Single Account Implementation
In furtherance of the implementation of the Treasury Single Account in Nigeria, the Federal
Government directed all Federal Ministries, Departments and Agencies (MDAs) to transfer
their funds to their accounts with the CBN, not later than September 15, 2015. This initiative
reduced the cost of government borrowing, facilitated better management of cash resources
and harmonized fragmented government receipts and payments accounts, among other
significant benefits.

4.1.7
Accreditation of Cheque Printers for 2015
In line with the provision of the Nigeria Cheque Printers’ Accreditation Scheme (NICPAS),
the Bank, in collaboration with the Bankers Committee, conducted the accreditation of the
cheque printers in Nigeria for 2015. At the end of the exercise, four (4) of the existing cheque
printers were re-accredited while one new company was added, bringing the total number of
accredited cheque printers to five (5), at end-December 2015. The Cheque Printers’
Accreditation Scheme ensures that the printers comply with the Nigerian Cheque Standards,
reduces risks associated with paper-based payment instruments as well as MICR-reject rate.
Thus, it increases public confidence in the system.

4.1.8
Licensing of Payment System Operators
During the review period, two (2) mobile money operators were licensed, bringing the total
of mobile money operators to 21 at end-December 2015. As at 31st December 2015, there
were three (3) Card Schemes, three (3) Payment Solution Service Providers, 14 Payment
Terminal Service Providers, six (6) switches and two (2) third party processors in operation
in Nigeria.

FINANCIAL STABILITY REPORT - DECEMBER 2015

Table 4.1: Licensed Payment System Operators
Licence -Type
Number
June

Dec

Card Schemes

Mobile Money Operators

Payment Solution Service Providers

Payment Terminal Service Providers

Switches

Third Party Processors

Total

4.2
Payments System Vision 2020
In furtherance of the implementation of the Payments System Vision 2020, the Payment
Systems Strategy Board, responsible for the governance, management and operation of the
Nigeria Payments System reviewed the draft Payments System Management Bill for
enactment by the National Assembly. The Bank joined the BIS International Directory in its
bid to strengthen the position of Nigeria in the global financial system and to play a more
active role in the Bank for International Settlement/Committee on Payment System and
Market Infrastructure (BIS/CPMI).

4.3
Large Value Payments
The volume of inter-bank transfers through the CBN RTGS System increased to 566,852 at
end-December 2015 from 368,519 at end-June 2015, while the value decreased to
N185,868.00 billion at end-December 2015 from N188,348.46 billion at end-June 2015,
reflecting an increase of 53.82 per cent in volume and a decline of 1.32 per cent in value.
4.4
Retail Payments
4.4.1
Cheque Clearing
The volume of cheques cleared increased to 7,058,954 at end-December 2015 from 6,407,507
at end-June 2015, while the value decreased to N3,000.72 billion at end-December 2015 from
N3,194.74 billion at end-June 2015, reflecting an increase of 10.17 per cent and a decrease of
6.07 per cent, in volume and value respectively.

4.4.2
Instant Payment
Instant payments remained attractive to users during the review period. NIBSS Instant
Payment (NIP) transaction volume increased to 41,678,698 in the second half of 2015 from
29,964,468 in the first half of 2015 and the value increased to N13,593.72 billion in the
second half of 2015 from N12,055.34 billion in the first half of 2015. These changes reflected
39.09 and 12.76 per cent increases in volume and value respectively.

FINANCIAL STABILITY REPORT - DECEMBER 2015

4.4.3
NIBSS Electronic Fund Transfer
The volume of NEFT transactions increased to 14,933,051 at end-December 2015 from
14,002,554 at end-June 2015, while the value decreased to N6,315.51 billion at endDecember 2015 from N6,771.57 billion, at end-June2015. These reflected a 6.65 per cent
increase in volume but a decrease of 6.74 per cent in value. The decrease was due to
preference for NIP as an instant payment platform.
4.4.4
Electronic Card Transactions
Electronic card (e-card) transactions volume rose to 275,592,061 in the second half of 2015
from 243,631,218 in the first half of 2015, while the value increased to N2,619.57 billion in
the second half of 2015 from N2,333.12 billion in the first half of 2015 (Table 4.1).

Table 4.1: Electronic Card Transactions


Payment
Channel
Number of Terminals
Number of Transactions
%
Change
(Volume)
Value of Transactions
(N Billion)
%
Change
(Value)
June 2015
Dec

June 2015
Dec 2015
June 2015
Dec 2015
ATMs

POS

Mobile

Internet
(Web)

Total


243,631,218
275,592,061

2,333.12
2,619.57

FINANCIAL STABILITY REPORT - DECEMBER 2015

5.0
OUTLOOK

Global output is projected at 3.4 per cent in 2016, indicating a more than gradual pickup in
economic activity, especially in emerging markets and developing economies. The prospects
of rising interest rates in the US and economic slowdown in China are expected to further
fuel uncertainties. This could weaken global output. Also, growth in global trade which
slowed considerably in 2015 could, with further declines in raw material prices, pose
problems for commodity exporting countries. Overall, these developments could produce
disappointing and uneven results on global output growth in 2016.

In Nigeria, the NBS projects output growth at 3.78 per cent for 2016. Economic activities
are expected to pick up as the effects of government reform measures gradually impact the
real sector. However, such development would have implications for money supply in the
system and could exacerbate inflationary pressures. Consequently, there would be a need for
enhanced fiscal and monetary policy coordination. Meanwhile, it is envisaged that the recent
foreign exchange management policies of the CBN, coupled with fiscal/monetary policy
complementarity, would stabilize the exchange rate.

Money market rates are expected to move in tandem with the level of liquidity in the banking
system. Consequently, OBB and inter-bank rates are expected to remain low in the first half
of 2016.In the foreign exchange market, the spread between the interbank and BDC rates is
expected to narrow, as stability is restored in the market.

Mixed performance is expected in the capital market in the first half of 2016in the face of not
only uncertainties and market contagion effects from volatility in global markets but also ongoing domestic efforts to induce economic recovery. On the one hand, global macroeconomic
uncertainties may adversely impact earnings and push asset prices further down while both
global and domestic uncertainties in the capital market might likely shift investor preference
to fixed income securities. On the other hand, measures being taken to stabilise the Naira,
rebuild infrastructure, enhance capital spending, and stimulate economic growth are
expected to improve corporate performance, restore investor confidence and impact the
capital market positively.

To enhance financial system stability, the CBN would continue to encourage the
development of effective crisis management and resolution plan by banks. In the first half of
2016, the initial draft recovery and resolution plan (RRP) documents submitted by the banks
would be reviewed in conjunction with the management teams of the designated banks. This
would enable regulators to formulate strategies for individual banks in line with the unique
risks and challenges each pose to the overall financial system.

The payments system transformation initiatives of the Bank are expected to further enhance
efficiency and security of transactions in the financial system.

FINANCIAL STABILITY REPORT - DECEMBER 2015

ACKNOWLEDGEMENTS

List of Major Contributors
S/N
Name
Department

I. R. Yusuf
Financial Policy and Regulation Department

H. Mahmud (Dr.)
Ditto

M. W. Muazu-Lere
Ditto

C. Efobi
Ditto

M. C. Akuka
Ditto

M. A. Baba
Ditto

P. N. Wondi
Ditto

C. O. Ugwueze
Ditto

M. M. Maadan (Mrs.)
Ditto

U. I. Babale
Ditto

Y. Babade (Mrs.)
Ditto

I.S. Udom
Statistics Department

M. Y. Dogo
Monetary Policy Department

J. O. Tawose
Ditto

U. Kama
Research Department

C. P. Nwosu (Mrs.)

M. A. Adigun
Ditto

U. F. N. Onuoha
Development Finance Department

Y. Izzatu (Mrs.)
Ditto

B. Hassan
Banking Supervision Department

M. O. Okafor
Ditto

A. Shebe
Ditto

C. D. Nwaegerue
Ditto

E. O. Shonibare
Risk Management Department

G. Adegbite
Financial Markets Department

C. Osagie
Ditto

UcheUko
Other Financial Institutions Supervision Department

M. Farouk
Reserve Management Department

P. Oluikpe (Dr.)
Strategy Management Department

M. O. Nwedi
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