L
A
R
T
N
E
C

L
A
R
T
N
E
C
K
N

A
B
K
N

A
B
O
F
O
F
N
IG
ER
I
A
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013


Global Economic and Financial Developments ...
...
...

Output


Inflation


Oil prices


Monetary Policy Rates ...


Domestic Developments


Output


Inflation


Interest Rates


Fiscal Operations


Money and Credit


Aggregate Credit to the Economy
...
...
...

Claims on the Federal Government
...
...

Claims on the Private Sector
...
...
...

Consumer Credit


Sectoral Classification of Private Sector Credit
...
...

Reserve Money ...


Maturity Structure of Bank Deposits and Credits ...
...

Market Structure of the Banking Industry
...
...

Implementation of the 2010 Banking Model
...
...
...

Non-Interest (Islamic) Banking ...


Cross-border Collaboration


Memoranda of Understanding (MoUs)
...
...
...

Colleges of Supervisors ...


Cross-border Examination


Nigerian Sustainable Banking Principles...
...
...

Other Financial Institutions (OFIs)


Development Finance Institutions (DFIs)
...
...

Primary Mortgage Banks


Page
List of Tables

v
List of Figures ...

vi
Box

vii
List of Abbreviations

viii
Financial Stability

x
Governor’s Statement

xi
Executive Summary

xii

MACROECONOMIC DEVELOPMENTS AND FINANCIAL SYSTEM
STABILITY


DEVELOPMENTS IN THE FINANCIAL SYSTEM ...
...
...


CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
iii
Guidelines on Mortgage Brokerage
...
...

Microfinance Banks


Finance Companies


Financial Inclusion


Financial Literacy


Financial Markets


The Money Market


The Foreign Exchange Market
...
...
...

The Capital Market


The Ten-Year Blueprint Committees
...
...

Minimum Capital Requirements for Capital Market
Operators


Financial Markets Dealers Quotations
Over-the-Counter Plc


The Bond Market


The Equities Market


Real Sector Intervention...


The Nigerian Incentive-based Risk Sharing System for
Agricultural Lending (NIRSAL) Plc.
...
...
...

The Commercial Agriculture Credit Scheme
...
...

The Agricultural Credit Guarantee Scheme
...
...

The Small and Medium Enterprises Credit Guarantee
Scheme...


The Power and Aviation Intervention Fund
...
...

The SME Restructuring and Refinancing Fund
...
...

Entrepreneurship Development Centres ...
...
...

The External Sector


The Insurance Sector


Airtel Nigeria Life Insurance


MTN Nigeria Life Assurance Service
...
...
...

Macro-Prudential Supervision


Financial Soundness Indicators ...
...
...
...

Asset and Liquidity-based Indicators
...
...

Capital-based Indicators
...
...
...

Income and Expense-based Indicators
...
...

Banking Industry Stress Tests


Liquidity Stress Test


Contagion Risk Analysis through Inter Bank Exposures 39
Solvency Stress Test


Supervision of Banks and Other Financial Institutions
...
...

Banks and Discount Houses


REGULATORY AND SUPERVISORY ACTIVITIES...
...
...


Mortgage Refinancing
...
...
...

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
iv
Discount Houses


Other Financial Institutions


Microfinance Banks


Primary Mortgage Banks (PMBs)
...
...

Finance Companies (FCs)
...
...
...

Bureaux de Change


Compliance with International Standards
...
...
...

Anti-Money Laundering/Combating the Financing of
Terrorism


Implementation of Basel II/III
...
...
...

International Financial Reporting Standards
...
...

The Assets Management Corporation of Nigeria ...
...
...

Key Risks in the Financial System


Credit Risk


Liquidity Risk ...


Market Risk


Operational Risk


Reputational Risk


Credit Bureaux ...


CBN’s Credit Risk Management System...
...
...

Private Credit Bureaux ...


The Financial Services Regulation Coordinating Committee
...

Consumer Protection


Customer Complaints


The Payments System Vision 2020


The Real-Time Gross Settlement System...
...
...
...

NIBSS Instant Payment ...


NIBSS Electronic Fund Transfer...


Cheque Clearing


Electronic Cards


ATM Transactions


Mobile Payments


Point of Sale Terminal Transactions
...
...
...


THE PAYMENTS SYSTEM


OUTLOOK


Banks ...


CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
v
Page
Real GDP Growth of Selected Countries and Regions
...
...

Global Inflation (Consumer Prices)


Inflation Rates for Selected Countries


Summary of Policy Rates Across Selected Countries
(Jan 2013 – Dec 2013)


Percentage Changes in Real GDP by Sector
...
...
...

Consumer Credit by Sector


Distribution of Off-shore Subsidiaries of Nigerian Banks
...

Matured FGN Bonds, July - Dec 2013


New Sub-national Bonds Issued During the Review Period
...

New Corporate Bonds Issued in the Second Half of 2013
...

Activities of NIRSAL, July - Dec 2013
...
...
...

Selected Financial Soundness Indicators of the Nigerian Banking
Industry


Assets Un-encumbered ...


Implied Cash Flow Analysis


Baseline CARs and LRs


Stress Test Results – Credit Risk


Credit Concentration Risk


Stress Test Results - Liquidity Risk


Stress Test Results - Interest Rate Risk


Stress Test Result - Exchange Rate Risk
...
...
...

Stress Test Result - FX Trading Risk


Table 1.1:
Table 1.2:
Table 1.3:
Table 1.4:
Table 1.5:
Table 2.1:
Table 2.2:
Table 2.3:
Table 2.4:
Table 2.5:
Table 2.6:
Table 3.1:
Table 3.2:
Table 3.3:
Table 3.4:
Table 3.5:
Table 3.6:
Table 3.7:
Table 3.8:
Table 3.9:
Table 3.10:
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
vi
Page
Gross Domestic Product


Shares of Oil and Non-oil Sectors in Real GDP ...
...
...

Share in Total GDP (%)


Inflationary Trend (Year-on-Year)


Money Market Interest Rates and MPR ...
...
...
...

Lending and Deposit Rates


Federal Government Fiscal Operations


Trend in Monetary Aggregate


Credit to the Economy ...


Consumer Credit


Sectoral Allocation of Credit


Distribution of Bank Loans and Advances by Maturity
...
...

Distribution of Banks' Deposit Structure
...
...
...

Market Concentration Ratios of Banks (Assets and Deposits)
...

Inter-bank Rates Movements


WDAS, Inter-bank and BDC Rates, 2013
...
...
...

Yield Curves for Nigeria


Breakdown of External Reserves


Banking Industry NPLs to Total Gross Loans
...
...
...

Banking Industry Liquidity Indicators


Banking Industry Capital Adequacy Indicators
...
...
...

Industry and Individual Bank Pre-Shock Liquidity Ratio Positions

Industry Position after 1-5 day and Cumulative 30- day Shocks
...

Individual Bank Positions after 5-day and Cumulative 30-day Shocks

Roll-over Risk, Pre- and Post-shock


Total Bilateral Exposure


Banks in Each Bucket of CAR


Banks in Each Bucket of LR


Baseline CARs and LRs (%)


Baseline ROAs and ROEs (%)


Credit Concentration Risk


Trend of Banking Industry NPLs, 2010 - 2013
...
...
...

Figure 1.1:
Figure 1.2:
Figure 1.3:
Figure 1.4:
Figure 1.5:
Figure 1.6:
Figure 1.7:
Figure 2.1:
Figure 2.2:
Figure 2.3:
Figure 2.4:
Figure 2.5:
Figure 2.6:
Figure 2.7:
Figure 2.8:
Figure 2.9:
Figure 2.10:
Figure 2. 11:
Figure 3.1:
Figure 3.2:
Figure 3.3:
Figure 3.4:
Figure 3.5:
Figure 3.6:
Figure 3.7:
Figure 3.8:
Figure 3.9:
Figure 3.10:
Figure 3.11:
Figure 3.12:
Figure 3.13:
Figure 3.14:
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
vii
Figure 4.1:
Figure 4.2:
Figure 4.3:
Figure 4.4:
Figure 4.5:
Figure 4.6:
Figure 4.7:
Figure 4.8:
Figure 4.9:
Figure 4.10:
Figure 4.11:
Figure 4.12:
Figure 4.13:
Figure 4.14:
Box
Box 1:
Volume of NIP Transactions, July to December 2013
...
...

Value (N Billion) of NIP Transactions, July to December 2013
...

Volume of NEFT Transactions, July to December 2013
...
...

Value (N Billion) of NEFT Transactions, July to December 2013 ...

Volume of Cheques Cleared, July to December 2013
...
...

Value (N Billion) of Cheques Cleared, July to December 2013
...

Volume of Electronic Card Transactions, July to December 2013 ...

Value of Electronic Card Transactions, July to Dec 2013 ...
...

Volume of ATM Transactions, July - Dec 2013
...
...
...

Value (N Billion) of ATM Transactions, July - Dec 2013 ...
...

Volume of Mobile Payments, July - Dec 2013
...
...
...

Value (N Billion) of Mobile Payments, July - Dec 2013 ...
...

Volume of PoS Transactions, July - Dec 2013
...
...
...

Value (N Billion) of PoS Transactions, July - Dec 2013
...
...

Guidance Note on Regulatory Capital


CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
AIPs
Approvals-in-Principle
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


EBAs
Eligible Bank Assets
EDC
Enterprise Development Centre
eFASS
Electronic Financial Analysis and Surveillance System
FATF
Financial Action Task Force
FCs
Finance Houses
FCT
Federal Capital Territory
FGN
Federal Government of Nigeria
BCEAO
Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank of
West African States)
BDCs
Bureaux de Change
BOA
Bank of Agriculture
BOFIA
Banks and Other Financial Institutions Act 1991 (as amended)
BOI
Bank of Industry
BRICS
Brazil, Russia, India, China, and South Africa
CACS
Commercial Agricultural Credit Scheme
CAR
Capital Adequacy Ratio

CBN
Central Bank of Nigeria

CIBN
Chartered Institute of Bankers of Nigeria

CIFTS
CBN Inter-bank Fund Transfer System

CR6
Concentration Ratio (of the six largest banks)

CRMS
Credit Risk Management System

DFIs
Development Finance Institutions

DMBs
Delivery versus Payment


FMBN
Federal Mortgage Bank of Nigeria

FMF
Federal Ministry of Finance

FSIs
Financial Soundness Indicators

FSRCC
Financial Services Regulation Coordinating Committee
GDP
Gross Domestic Product
GIZ
Deutsche Gesellschaft fur InternationaleZusammenarbeit (German
Society for International Cooperation)
HHI
Herfindahl-Hirschman Index
ICFA
Implied Cash Flow Analysis
IFRS
International Financial Reporting Standards
IFSB
Islamic Financial Services Board
IMF
International Monetary Fund
viii
DvP
Deposit Money Banks
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
KYC
Know Your Customer
L/C
Letter of Credit
M1
Narrow Money Supply
M2
Broad Money Supply
MCP
Microfinance Certification Programme
MENA
Middle East and North African Countries
MFBs
Microfinance Banks
ML/FT
Money Laundering and Financing of Terrorism
MoUs
Memoranda of Understanding
MPR
Monetary Policy Rate
NAICOM
National Insurance Commission
NDIC
Nigeria Deposit Insurance Corporation
NERFUND
National Economic Reconstruction Fund
NEXIM
Nigerian Export-Import Bank
NFIU
Nigerian Financial Intelligence Unit

NGAAP
Nigerian Generally Accepted Accounting Principles
NIBSS
Nigeria 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
Nigerian Stock Exchange
OBB
Open Buy Back
OFIs
Other Financial Institutions
PAIF
Power and Aviation Infrastructure Fund
PCBs
Private Credit Bureaux
PENCOM
National Pension Commission
PFAs
Pension Fund Administrators

PFCs
Pension Fund Custodians

PMBs
Primary Mortgage Banks
PoS
Point of Sale
PSV 2020
Payments System Vision 2020
RDAS
Retail Dutch Auction System
ROA
Return on Asset
ROE
Return on Equity
RTGS
Real-Time Gross Settlement System
SEC
Securities and Exchange Commission
SMEs
Small and Medium Enterprises
SMECGS
Small and Medium Enterprises Credit Guarantee Scheme
WAMZ
West African Monetary Zone
WDAS
Wholesale Dutch Auction System
WEO
World Economic Outlook
ix
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
‘Financial stability’ is the resilience of the financial system to unanticipated adverse
shocks, while enabling the continued smooth functioning of the financial system's
intermediation process. A stable financial system contributes to broader economic
growth and rising living standards. The financial system performs one of the most
important functions in the welfare of citizens by supporting the ability of households and
firms to hold or transfer financial assets with confidence. Thus, the stability of the
financial system and its adequate analysis and reporting are important policy goals of the
CBN.
x
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
During the second half of 2013, while the global economy sustained its recovery, fiscal
and monetary authorities focused on measures that would further enhance growth and
curb unemployment. In the emerging economies, a decline in commodity prices
contributed to the dampening of the significant growth in GDP experienced in recent
years. In Nigeria, the efforts to diversify the economy achieved results, as the real GDP
growth was mainly driven by growth in the non-oil sectors of the economy.
With respect to monetary policy, rates remained low in most advanced economies. In
Nigeria, the policy thrust was to rein in inflation. Thus, the monetary policy rate was
retained at 12.0 per cent throughout the review period. Inflationary pressure was,
therefore, contained as year-on-year inflation rate was 8.0 per cent at end-December
2013. Money markets and foreign exchange rates were relatively stable. In the near
term, we expect to continue the tight monetary policy stance in order to maintain price
stability.
For the Central Bank of Nigeria, it was critical to ensure that the shocks noted in the
global environment did not threaten the stability of the domestic banking system.
Regulatory actions were, therefore, focused on ensuring that the banks maintained
healthy loan portfolios by creating high quality assets that would ensure sustainable
growth. Meanwhile, the proactive actions taken to resolve the distress situation in the
system have achieved the desired results and contributed to the overall stability of the
financial system.
Following the successes recorded in the pilot scheme of the cash-less policy, its
implementation was extended to five additional states and the Federal Capital Territory
in the second half of 2013. The expected reduction in the cost of cash handling in the
country was already being achieved. The implementation of the policy has also
contributed to the achievement of the Bank's financial inclusion targets. We believe that
the inclusion of the economically active but poor people into the formal financial system
would enhance the ability of the financial system to contribute to economic growth and
development.
With the Federal Government's continued commitment to implementing measures to
address security challenges and tackle the disruption in crude oil production, it is
expected that the success achieved in these efforts would enhance both economic
growth and government's revenue base.
Sanusi Lamido Sanusi (CON)
Governor, Central Bank of Nigeria
xi
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Global output was estimated to have grown by 3.0 per cent in 2013, compared with the
3.1 per cent achieved in 2012. However, in the second half of the year, growth achieved
was higher than the 2.9 per cent projected for the half year, driven mainly by growth in
advanced economies. In Nigeria, real GDP growth was estimated at 6.7 per cent in 2013,
compared to 6.6 per cent in 2012. In advanced economies, inflation decreased in 2013
owing to declining commodity prices caused by improved supply and reduced demand
from major consuming nations, such as China. In Nigeria, headline inflation decelerated
to 8.0 per cent at end-December 2013, from 8.4 per cent at end-June 2013.
In 2013, most advanced economies maintained a stable monetary policy stance. Among
the BRICS, only Brazil and India reviewed their policy rates upwards.
The CBN maintained its policy rate at 12.0 per cent in the review period. However,
lending rates in the banking industry trended upwards. On the fiscal side, the Federal
Government operated at a deficit of 6.3 per cent of GDP, which was financed through
domestic borrowings and privatization proceeds.
The CBN examined 21 banks and 14 foreign subsidiaries of Nigerian banks. The results
showed that most banks had a stable outlook in their composite risk rating and
improvements in their internal audit and financial analysis functions. In addition, the
stress test conducted, based on their end-December 2013 call reports indicated that the
banking industry was stable and resilient.The key challenges in the industry, however,
remained corporate governance and risk management practices.
The Other Financial Institutions sub-sector witnessed several developments, including
the establishment of the Nigeria Mortgage Refinancing Company Plc to provide
liquidity in the mortgage market and promote availability and affordability of housing in
Nigeria.
The Bank continued to promote financial inclusion during the review period in line with
its Financial Inclusion Strategy.The geo-spatial mapping of financial services' access
points and the Micro Small and Medium Enterprises Development Fund were launched.
The Bank also commenced financial literacy/enlightenment programmes through
public workshops, secondary schools' outreach, road shows and engagement of the
media.
Meanwhile, matured AMCON bonds, as at December 2013 were redeemed in line with
the terms of the indenture.
The cash-less policy, earlier launched in Lagos, was extended to five additional States
and the FCT.
The Nigerian economy is projected to remain strong, driven largely by increased growth
xii
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
in agriculture, trade and services, while activities in the oil sector are projected to
recover in 2014. Although inflation is projected to decline, the 2015 electioneering
activities would pose some threat.
This edition of the FSR is divided into five sections. Section one reviews global and
domestic economic and financial developments, highlighting key stability issues.
Section two chronicles developments in the domestic economy, while section three
covers regulatory and supervisory activities. Key developments in the payments system
are highlighted in section four. Finally, section five provides the outlook for financial
stability.
xiii
was expected to partly offset the drag
from the consumption tax increase in
early 2014.
Real GDP growth of the Euro area
improved to negative 0.4 per cent in
2013, compared with the negative 0.7 per
cent recorded in 2012, and is projected to
strengthen to 1.0 per cent in 2014 in spite
of the uneven recovery within the area.
High private and public debts and
financial fragmentation were expected to
hold back domestic demand, while
exports were projected to further
contribute to growth, with the
improvement in growth being more
modest in economies under stress.
The emerging market and developing
economies were estimated to grow by 4.7
per cent in 2013, compared with the 4.9
per cent achieved in 2012. The marginal
decline in 2013 was attributed to low
commodity prices and weak internal and
external demand. Growth was projected
to strengthen to 5.1 per cent in SubSaharan Africa in 2013. Growth in the
BRICS countries (Brazil, Russia, India,
China, and South Africa) was mixed in
2013. While Brazil improved from a
growth rate of 1.0 per cent in 2012 to 2.3
per cent in 2013, Russia slowed down
from 3.4 per cent in 2012 to 1.5 per cent in

2013. India grew by 4.4 per cent in 2013,
compared with the 3.2 per cent recorded
in 2012. China grew by 7.7 per cent in
2013, the same as in 2012, and South
Africa recorded a growth of 1.8 per cent
in 2013, down from the 2.5 per cent
achieved in 2012.
1.1
Global Economic and
Financial Developments
1.1.1
Output
Global output was estimated to have
grown by 3.0 per cent in 2013, compared

with the 3.1 per cent achieved in 2012 .
The lower growth rate was attributed to
the continued fragility and persistent
downside risks in some economies. The
growth in the second half of 2013 was
stronger than the 2.9 per cent projected in
the October 2013 World Economic
Outlook (WEO). The stronger growth
during the second half of 2013 was due to
improved macroeconomic and financial
conditions in most economies. Global
output in 2013 was driven mainly by
growth in advanced economies as growth
in emerging markets and developing
economies slowed down.
Output in advanced economies was
projected to improve to 2.2 per cent in
2014, due to higher inventory demand
aimed at filling the large output gaps.
The US economy was estimated to have
grown by 1.9 per cent in 2013, due to
upward surprises to inventories in the
second half of 2013. This was expected to
improve to 2.8 per cent in 2014, given the
carryover effects of final domestic
demand supported by reduction in the
fiscal drag following the recent
agreement on the budget. Japan's growth
was estimated at 1.7 per cent in 2013, up
from the 1.4 per cent achieved in 2012. It
was projected to remain unchanged at 1.7
per cent as the temporary fiscal stimulus
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
1 World Economic Outlook (WEO) January 2014 Update
2 For India, the IMF WEO Report noted that, “all data and forecast are presented on a fiscal year basis in the July 2013 WEO, whereas data were
presented on a calendar year basis in the April 2013 WEO.” It added that the difference between the April 2013 WEO and the July 2013 WEO
Update was adjusted to a fiscal year basis.

Output growth in Sub-Saharan Africa
strengthened from 4.8 per cent in 2012 to
5.1 per cent in 2013, and was projected to
rise to 6.1 per cent in 2014. The increase
in growth in 2013 was supported by
domestic demand. In Nigeria, real GDP
grew by 6.9 per cent in 2013, higher than
the 6.6 per cent achieved in 2012 and is

projected to grow by 6.7 per cent in 2014 .
Real GDP growth in Latin America and
the Caribbean slowed down from 3.0 per
cent in 2012 to 2.6 per cent in 2013.
Growth in Mexico declined to 1.2 per
cent in 2013 from the 3.7 per cent
recorded in 2012. In the Middle East and
North Africa (MENA) region, growth
slumped to 2.4 per cent in 2013, from 4.0
per cent in 2012, due mainly to social and
political instability.
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 1.1: Real GDP Growth of Selected Countries and Regions

(Est.)

(Proj.)

(Proj.)
World
Output

Advanced
Economies

United States

Euro Area

Germany

France
0.0

0.2

0.9
1.5
Italy
-2.5

-1.8

0.6
1.1
Spain
-1.6

-1.2

0.6
1.1
Japan
1.4

1.7

1.7
1.0
United
Kingdom
0.3

1.7

2.4
2.2
Emerging
and
Developing
Economies
4.9

4.7

5.1
5.4
Sub-Sahara
Africa

China

India

Brazil

Mexico

MENA

Source: IMF World Economic Outlook, January Update 2014
3World Bank: Global Economic Prospects January 2014

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
capacity constraints, weakening
exchange rates as well as strong domestic
demand pressures in some of the
countries, led to a marginal rise in prices
relative to 2012.
1.1.2 Inflation
A downward trend was observed in the
inflation figures of advanced economies
in 2013 due to declining commodity
prices, amid improved supply and lower
demand growth from key emerging

market economies, especially China . In
addition, weak economic growth in the
Euro area, alongside a downward
pressure on wages in the periphery,
worked together to reduce inflation
within the region. However, in emerging
market economies, despite a drop in
commodity prices, the presence of
Table 1.2: Global Inflation (Consumer Prices)
Consumer prices

(proj.)
Advanced Economies

2.0

1.4
1.7
Emerging and
Developing Economies
6.0
6.1
5.6
increased to 0.30, 6.21, 6.78, and 5.76 per
cent in 2013, from -0.04, 5.41, 5.07, and
5.65 per cent in 2012, respectively (Table
1.3).
Overall, inflationary pressures in
advanced economies were contained
around 1.4 per cent in 2013, down from
2.0 per cent in 2012; on the other hand,
emerging and developing countries
witnessed a marginal rise in inflation to
6.1 per cent in 2013, from 6.0 per cent in
2012 (Table 1.2).
Inflation declined in France, Germany
and USA to 0.99, 1.60 and 1.48 per cent in
2013, from 2.23, 2.14 and 2.08 per cent in
2012, respectively. However, inflation in
Japan, Brazil, Russia and South Africa
4
Table 1.3: Inflation Rates for Selected Countries
Country/ Region


Africa
Nigeria
12.24
8.00
8.80
South Africa
5.65
5.76
5.70
Egypt
8.60
6.91
9.90
Ghana
9.16
11.65
9.90
North America
United States
2.08
1.48
1.60
Canada
1.52

1.00*
1.50

1.1.4
Monetary Policy Rates
Monetary policy rates remained low in
most advanced economies for the greater
part of 2013. The U.S. Federal Reserve,
the Bank of Japan, the Bank of England
and the Bank of Canada maintained their
rates at 0.25, 0.10, 0.50, and 1.00 per cent,
respectively, while the European Central
Bank maintained its rate between 0.25
and 0.75 per cent. The Reserve Bank of
Australia reduced its policy rate from
2.75 per cent at end-July 2013 to 2.50 per
cent by December 2013.
In the BRICS countries, monetary policy
rates remained unchanged, except in
Brazil and India where the rates were
reviewed upward at end-July 2013 to
10.00 and 6.75 per cent, from 8.50 and
6.25 per cent, respectively (Table 1.4).
1.1.3
Oil prices
Average crude oil prices declined
marginally to US$104.10 in 2013, from
US$105.00 in 2012. The decline was
attributed to increased supply from new
oil discoveries in China and the U.S. as
well as the return to the market by Libya
and Iran. Furthermore, increasing U.S.
production arising from innovations in
shale oil technology placed her as the
largest non-OPEC producer of liquid
hydrocarbons.
Global demand for crude oil was
projected to grow at less than 1.5 per cent
annually, with the growth coming from
non-OECD countries. OECD oil
consumption was expected to remain
subdued in the light of sluggish economic
growth and sustained general energy
efficiency.
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Latin America
Brazil
5.41
6.21
5.80
Argentina
10.03
10.61
12.15
Mexico
4.11
3.81
3.70
Colombia
3.17
2.02
2.90
Europe
United Kingdom
2.84
2.57
2.10
France
2.23
0.99
1.20
Germany
2.14
1.60
1.50
Russia
5.07
6.78
5.40
Asia
Japan
-0.04
0.30*
2.40
China
2.65
2.63
3.10
India
11.44
9.01
8.84
·Sources: All figures were sourced from Bloomberg except those for India which were from the IMF, World Economic Outlook (WEO) October
2013 and January 2014 update;
·(*) Bloomberg estimates

and the corresponding quarter of 2012,
respectively. The growth in the non-oil
sector was driven by activities in the
telecommunications and postal services
(26.73%), building and construction
(14.96%), solid minerals (13.61%),
hotels and restaurants (13.48%),
wholesale and retail trade (11.33%), real
estate and business services (11.02%),
manufacturing (8.81%), and agriculture
(4.29%) (Table 1.5).
The oil sector recorded a real growth rate
of 0.30 per cent and contributed 11.73 per
cent to GDP in the fourth quarter of 2013,
in contrast to the negative growth of 1.15
and 0.53 per cent recorded in the second
and third quarters of 2013, respectively.
Its contribution to GDP was, however,
1.2
Domestic Developments
1.2.1
Output
Despite the slowdown in some emerging
market economies, including the BRICS,
the Nigerian domestic economy
remained strong in the second half of
2013 as growth in output rose by 1.2
percentage points above its level of 6.5
per cent in the preceding period. The
development was attributed to the
increase in the contribution of the non-oil
sector, reinforced by the relative stability
in monetary and fiscal policies. The nonoil sector, in the fourth quarter, recorded a
growth of 8.73 per cent, in real terms, and
contributed 88.27 per cent to real GDP,
compared with the growth of 7.95 and
8.21 per cent in the third quarter of 2013
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 1.4: Summary of Policy Rates Across Selected Countries (Jan 2013 – Dec 2013)

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

Hong Kong Base

South Africa

Other Emerging Economies & South America
Mexico

Chile

Colombia

Africa
Egypt

Ghana
15.00 15.00 15.00 15.00 16.00 16.00 16.00 16.00
16.00 16.00 16.00 16.00
Monthly Policy Rate
Source: Bloomberg
growth rate of the oil sector was
attributed to improved production levels.
lower than the 12.50 per cent recorded in
the second quarter of 2013.The rise in the
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 1.1: Gross Domestic Product

Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
N billion
Crop Production
Crude Petroleum and Nat res.
Building & Const
wholesale and Retail Trade
Telecommunications
Real Estate & Business Serv.
Table 1.5: Percentage Changes in Real GDP by Sector
Sector
Q4 12
Q1 13
Q2 13
Q3 13
Q4 13
Telecommunication and Postal Services

Building and Construction

Solid Minerals
13.59


Hotels and Restaurants
-3.12


Wholesale and Retail Trade
11.19


Real Estate and Business Services

Manufacturing

Agriculture

Crude Petroleum & Natural Gas

Figure 1.2 : Shares of Oil and Non-oil Sectors in Real GDP

Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
OIL GDP/GDP
NON-OILGDP/GDP
Per cent

at end-June 2013, and a decline of 4.0
percentage points from the level in
December 2012. Furthermore, core and
food inflation declined to 7.9 and 9.3 per
cent at end-December 2013, from their
respective levels of 13.7 and 10.2 per cent
in December 2012.

Rates generally trended upwards with the
exception of the Inter-bank Call and the
Open-Buy-Back (OBB) rates. The
1.2.3
Interest Rates
1.2.2
Inflation
Inflation was generally mild in the
second half of 2013, due largely to price
moderation in both food and non-food
commodities classification. Year-on-year
headline inflation stood at 8.0 per cent in
December 2013, down from 8.4 per cent
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 1.3: Share in Total GDP (%)

Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Agriculture
Crude Petroleum, Nat. Res. and Solid Min.
Manufacturing
Building and Construction
Wholesale and Retail Trade
Telecommunication
Real Estate
Other Services
Per cent
Figure 1.4: Inflationary Trend (Year-on-Year)

SECOND HALF 2012
FIRST HALF 2013
SECOND HALF 2013
Per cent
Head line (Y-o-Y)
Core (Y-o-Y)
Food (Y-o-Y)
Similarly, rates for other deposits with
various maturities rose to a range of 1.71 -
7.92 per cent in the second half of 2013,
from a range of 1.34 - 7.72 per cent in the
first half of 2013.
However, the average Inter-bank Call and
Open-Buy-Back (OBB) rates stood at
11.02 and 11.07 per cent in the second
half of 2013, down from 11.69 and 11.27
per cent in the first half of 2013,
respectively. The prime and maximum

development was largely attributed to the
continued monetary tightening stance of
the CBN. During the review period, the
Bank maintained its policy rate at 12.00
per cent. Consequently, the average term
deposit rate rose to 6.64 per cent, from
6.58 per cent in the first half of 2013.

savings, remained a major challenge to
capital accumulation and the ability of
banks to build a sustainable long-term
lending rates rose by 0.47 and 0.37
percentage points, respectively, to 17.09
and 24.93 per cent in the review period.
Thus, the spread between the maximum
lending and the average term deposit
rates stood at 18.30 percentage points, a
0.32 percentage point over the level in the
first half of 2013. With the inflation rate at
8.0 per cent in December 2013, all
deposit rates were negative in real terms,
while lending rates were positive in real
terms. The negative real rate of return on
deposits, which has been a disincentive to
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

SECOND HALF 2012
FIRST HALF 2013
SECOND HALF 2013
Per cent
Call
OBB
MPR
Figure 1.5: Money Market Interest Rates and MPR
Figure 1.6: Lending and Deposit Rates

SECOND HALF 2012
FIRST HALF 2013
SECOND HALF 2013
percentage point
Per cent
Savings
Prime
Maximum
Avterm Dep.
Spread (Max-Avtrm) rhs
second half of 2013, against the
proportionate budget estimate of
N2,452.68 billion, while expenditure was
loanable funds base.
As part of efforts to improve the savings
culture, the CBN continued to initiate and
encourage banks to implement customerfriendly policies. Specifically, the
recently revised Guide to Bank Charges
specifies the minimum interest rate
payable on savings accounts at 30 per
cent of the ruling MPR.
The Federal Government's retained
revenue stood at N1,817.49 billion in the
1.2.4
Fiscal Operations

budget deficit of N443.53 billion for the
first half of 2013 and N278.55 billion for
the corresponding period of 2012. The
deficit was financed through domestic
borrowings and privatization proceeds.
estimated at N2,561.77 billion, compared
with N2,896.22 billion budgeted for the
second half of 2013. Thus, the fiscal
operations of Government resulted in a
deficit of N744.28 billion or 6.3 per cent
of GDP, as against the proportionate
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 1.7: Federal Government Fiscal Operations
-1000
-500

H2 2012
H1 2013
H2 2013
N Billion
Retained Revenue
Total Expenditure
Budget Balance

credit, which more than offset the
respective 26.0 and 5.9 per cent decline in
other assets (net) and foreign assets (net)
of the banking system.
Narrow money supply (M ) rose by 1.1

per cent at end-December 2013, in

2.1
Money and Credit
Growth in money supply remained
sluggish at the end of the second half of
2013. Relative to the level at end-June
2013, broad money supply (M ) grew by

0.5 per cent to N15,668.95 billion at the
end of the second half of 2013. The
increase in money supply relative to the
position during the preceding half year
reflected, largely, the respective 14.4 and
17.3 per cent rise in net domestic credit
and other assets (net) which more than
offset the 7.1 per cent decline in net
foreign assets of the banking system.
Over the level at end-December 2012, M

rose by1.2 per cent, due largely, to the
18.5 per cent increase in net domestic
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2 .1: Trend in Monetary Aggregate


SECOND HALF 2012
FIRST HALF 2013
SECOND HALF 2013
M2
M1
COB
NBillion
5The analysis is based on the revised CBN Monetary Survey.
at end-June 2013. This reflected the 42.2,
17.3 and 5.2 per cent growth in claims on
the Federal Government, and other assets
(net) and claims on the private sector,
respectively.
contrast to the 6.5 per cent decline at the
end of the first half of 2013.The increase
relative to the position in the preceding
half year was attributed, largely, to the
28.3 per cent rise in currency outside
banks (COB). As a ratio of total monetary
assets, COB stood at 9.2 per cent,
compared with the 7.2 per cent recorded
at the end of the preceding half year.
Net domestic credit (NDC) to the
economy grew by 7.3 per cent to
N15,040.7 billion at end-December
2013, compared with N13,149.4 billion
2.1.1
Aggregate Credit to the
Economy

change in claims on the private sector to
the total monetary assets stood at 5.2 per
cent, compared with the 3.5 per cent
recorded at the end of the first half of
2013.
Consumer credit grew by 24.5 per cent to
N782.6 billion in the review period,
compared with the marginal growth of
0.8 per cent in the first half of 2013. As a
ratio of credit to the core private sector,
consumer credit constituted 5.0 per cent,
compared with 4.2 per cent at end-June
2013.
2.1.1.3
Consumer Credit
2.1.1.1
Claims on the Federal
Government
2.1.1.2
Claims on the Private
Sector
Net claims on the Federal Government
rose by 42.2 per cent at end-December
2013, compared with the growth of 3.6
per cent at end-June 2013. The
development reflected, mainly the
increase in the banking system holdings
of government securities. This increase in
net claims on the Federal Government
tended to “crowd out” private sector
credit. However, the Federal Government
remained a net lender in the system, a
situation that mitigated the apparent
“crowding out” effect.
Credit to the private sector increased by
5.2 per cent at end-December 2013,
compared with the growth rate of 3.6 per
cent at end-June 2013. The growth in
private sector credit reflected, largely, the
4.5 per cent rise in claims on the core
private sector. The contribution of the
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.2: Credit to the Economy

-5000

10000
15000
20000
H2 2012
H1 2013
H2 2013
NDC
CP
NCG
N Billion

with a share of 24.4 per cent, followed by
manufacturing (12.9 per cent) and the
general sector (11.6 per cent). The share
of the agricultural sector declined to 3.7
per cent, from 4.0 per cent in the first half
of 2013 (Table 2.1).
2.1.2
Sectoral Classification of
Private Sector Credit
Total bank loans and advances to the
various sectors of the economy grew by
13.9 per cent to N10,042.71 billion at
end-December 2013. The oil and gas
sector recorded the highest growth rate,
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.3: Consumer Credit


SECOND HALF 2012
FIRST HALF 2013
SECOND HALF 2013
Consumer Credits
Growth over end-Dec
Ratio of Credit to Core private sector
NBillion
percent
Table 2.1: Consumer Credit by Sector

Sector
N'Billion
Per cent
N'Billion
Per cent
Oil and Gas

Manufacturing

General

Information and Communication

General Commerce

Governments

Real Estate Activities

Construction

Agriculture, Forestry and Fishing

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 Extraterritorial Organizations and Bodies

Mining and Quarrying

Water Supply Sewerage, Waste Management and Remediation
Activities

Arts, Entertainment and Recreation

Public Utilities

Total

Jun. 2013
Dec. 2013
second half of 2013. On the average,
credits maturing within one year
accounted for 52.6 per cent, compared
with 57.1 per cent in the first half of 2013.
The medium-term (≥1yr and < 3yrs) and
long-term (3yrs and above) maturities
stood at 19.1 and 28.3 per cent in the
review period, compared with 19.7 and
23.2 per cent, respectively, in the first half
of 2013.
Similarly, deposits of below one-year
maturity constituted 97.1 per cent of total
deposits (out of which 76.7 per cent had
maturity of less than 30 days), compared
with 96.9 per cent at end-June 2013. The
medium and long-term deposits
constituted 2.8 and 0.003 per cent in the
review period, compared with 3.1 and
0.05 per cent recorded in the first half of
2.1.3
Reserve Money
2.1.4
Maturity Structure of Bank
Deposits and Credits
Reserve money (RM) increased at the
end of the second half of 2013 and was
higher than the indicative benchmark for
2013. It rose by 71.8 per cent to N5,558.9
billion at end-December 2013, in contrast
to the decline of 12.6 per cent recorded at
the end of the first half of 2013. This
development reflected the 108.9 and 24.6
per cent increases in bank deposit with
the Bank and currency-in-circulation,
respectively. The corresponding rise in
the sources of reserve money, relative to
the first half of 2013, was attributed to
increases in net domestic credit and other
assets (net) of the Bank.
Short-term maturities remained
dominant in the credit market in the
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.4: Sectoral Allocation of Credit

Oil&Gas
MANUFACTURING
GENERAL
INFORMATION & COMMUNICATION
GENERAL COMMERCE
GOVERNMENTS
REAL ESTATE ACTIVITIES
CONSTRUCTION
AGRICULTURE, FORESTRY AND FISHING


FINANCE AND INSURANCE

TRANSPORTATION AND STORAGE


CAPITAL MARKET

POWER AND ENERGY


PROFESSIONAL, SCIENTIFIC AND...

EDUCATION
ADMINISTRATIVE AND SUPPORT SERVICE...

HUMAN HEALTH AND SOCIAL WORK...
ACTIVITIES OF EXTRATERRITORIAL...
MINING AND QUARRYING
WATER SUPPLY SEWERAGE, WASTE MGT. &...
ARTS, ENTERTAINMENT AND RECREATION
PUBLIC UTILITIES
Jun. 2013
Dec. 2013

for longer loan maturities. Thus, the
observed mismatch portends refinancing
and re-pricing risks for the system.
The banking industry was dominated by a
few banks as the average market share of
2.1.5
Market Structure of the
Banking Industry
2013, respectively. The continued
dominance of short-term deposits
constrained the ability of banks to lend
long term loans and especially to the real
sector which typically has a preference
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.5: Distribution of Bank Loans and Advances by Maturity

SECOND HALF 1012
FIRST HALF 2013
SECOND HALF 2013
Per cent
Short term
Medium term
Long term
Figure 2.6: Distribution of Banks' Deposit Structure


SECOND HALF 2012
FIRST HALF 2013
SECOND HALF 2013
Short term
Medium term
Per cent
Per cent
assets and deposits, stood at 13.71 and
15.14 per cent, respectively, compared
with 13.57 and 15.17 per cent at end-June
2013. However, the banking industry
remained competitive in both deposits
and assets as revealed by the respective
Herfindahl-Hirschman Index (HHI) of
798.08 and 750.16 for total deposits and
assets and deposits of the six largest
banks (concentration ratio–CR ) stood at

50.68 and 52.23 per cent, respectively.
During the review period, the market
share of the largest bank, in terms of

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.7: Market Concentration Ratios of Banks (Assets and Deposits)

SECOND HALF 2012
FIRST HALF 2013
SECOND HALF 2013
HHI
CR
CR( Assets)
CR(Deposits)
HHI (Deposits) rhs
HHI (Assets)rhs
during the review period.
A new unit was created in the CBN to
formulate policies on Islamic finance and
serve as a secretariat for the Financial
Regulation Advisory Council of Experts
(FRACE).The roles and responsibilities
of the Unit include the following:
·
Develop policies on the NonInterest Financial Institutions
(NIFIs) under the purview of the
CBN;
·
Process requests for the
establishment of NIFIs;
·
Develop guidelines for the
operations of NIFIs;
·
Arrange and co-ordinate the
meetings of FRACE;
·
Receive requests and queries
directed to the Council from
NIFIs and other regulatory
authorities; and
·
Develop parameters for noninterest products and instruments
issued by the NIFIs.
Nigerian banks continued to expand their
operations outside the country with the
2.4
Cross-border Collaboration
2.2
Implementation of the 2010
Banking Model
2.3
Non-Interest (Islamic)
Banking
The deadline for the implementation of
the prescribed banking model introduced
in October 2010 expired on June 30,
2013. At end-December 2013, most of
the banks had complied with the
Regulation on the Scope of Banking
Activities and Ancillary Matters by
divesting from their non-banking
activities.
As part of efforts to promote non-interest
banking (NIB) in Nigeria, the CBN
intensified collaboration with
international agencies, such as the
Islamic Financial Services Board (IFSB)
and the International Islamic Liquidity
Management Corporation (IILM) in the
review period.
As evidence of growing interest in NIB
products and services in Nigeria, one
bank was granted approval to operate a
non-interest banking window, while an

assets, compared with 797.36 and 748.55,
respectively, in the preceding period.
(Figure 2.7)
Approval-in-Principle (AIP) was issued
to a micro-finance bank (MFB) to
establish a state-wide non-interest MFB
host regulators. The MoUs facilitated
information sharing, consolidated
supervision and joint examinations
across jurisdictions. In the review period,
opening of seven subsidiaries across the
African continent during the review
period, bringing the total to 64 at endDecember 2013 (Table 2.2). The increase
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 2.2: Distribution of Off-shore Subsidiaries of Nigerian Banks


s
es
&
Region
Subsidiaries
Representative Office
Branch
Jan-Jun

Jul-Dec

Jan-Jun

Jul-Dec

West Africa

-
-
The Rest of Africa

Europe, N/ America
& Asia

the CBN also initiated the process of
signing an MoU with the Bank of
Mauritius, while collaborative
discussions on the MoUs with the Central
Bank of Sudan and the Banque Central du
Congo continued.
During the review period, agreements
were reached on the establishment of a
College of Supervisors for the banking
subsidiaries of Ecobank Transnational
Incorporated (ETI) led by the Central
Bank of West African States (BCEAO),
and a College of Supervisors for the
United Bank of Africa, led by the CBN.
In order to ascertain the health of foreign
subsidiaries of Nigerian banks, the CBN
examined 14 of them in the review
period. Of this number, eight (8) were
jointly conducted with host supervisors,
while six (6) were solely carried out by
the CBN. Six (6) examination reports
were issued during the period, which
indicated that three (3) of the subsidiaries
2.4.2
Colleges of Supervisors
2.4.3
Cross-border Examination
in foreign subsidiaries was as a result of
four acquisitions in West Africa and three
in East Africa, while one bank divested
from a subsidiary in West Africa.
The cross-border expansion of Nigerian
banks has continued to be motivated by
several factors which include profit
maximization, risk diversification, the
demand pull from corporate clients, and
increasing business opportunities.
However, the expansion exposes the
Nigerian financial system to regional
contagion risk.
The major thrust in managing the
contagion risk is the timely exchange of
information amongst home and host
regulatory authorities. This is facilitated
through the execution of MoUs, the
activities of the College of Supervisors,
and cross-border examination.
At end-December 2013, 15 MoUs had
been executed between the CBN and the
2.4.1
Memoranda of Understanding
(MoUs)

sector is divided by institution-type:
Development Finance Institutions
(DFIs), Primary Mortgage Banks
(PMBs), Microfinance Banks (MFBs),
Finance Companies (FCs), and Bureaux
de Change (BDCs). In terms of total
number of OFIs in operation, the figure
rose to 3,858 at end-December 2013,
representing an increase of 9.95 per cent
over the 3,509 recorded at end-June
2013. The number comprised 6
Development Finance Institutions
(DFIs), 82 Primary Mortgage Banks
(PMBs), 820 Microfinance Banks
(MFBs), 61 Finance Companies (FCs)
and 2,889 Bureaux de Change (BDCs).
The increase was accounted for by
approvals to resume operations/licences
granted to 456 operators (1 DFI, 4 MFBs
and 451 BDCs) and the exit of 107 OFIs
(83 MFBs, 4 FCs and 20 BDCs) during
the review period. Total assets of the subsector similarly increased by 39.00 per
cent to N1,565.65 billion at endDecember 2013, from N1,126.40 billion
at end-June 2013. Paid-up capital and net
loans/advances also increased by 156.10
and 43.75 per cent to N532.31 billion and
N673.95 billion, respectively, at endDecember 2013. Total deposit liabilities
followed the same pattern, increasing by
10.73 per cent to N457.56 billion at endDecember 2013, from N413.22 billion at
end-June 2013.
The specific developments analyzed
under each segment/OFI-type were as
follows:
At end-December 31, 2013, the number
of DFIs under the supervisory purview of
the CBN was six (6), compared with five
(5) at end-June 2013. The increase
resulted from the re-emergence, in
October 2013, of the National Economic
Reconstruction Fund (NERFUND).
2.5.1
Development Finance
Institutions (DFIs)
had a “Moderate” composite risk rating
while three (3) other subsidiaries had a
risk rating of “Above Average”.
The CBN and the entire banking industry
have adopted the Nigerian Sustainable
Banking Principles. This is to ensure that
financial institutions get committed to
economic growth that is environmentally
responsible and socially relevant. The
Nigerian Sustainable Banking Principles
consist of the following nine overarching
commitments:
·
Managing environmental and
social risks;
·
Managing each bank's own
environmental and social
footprints;
·
Safeguarding human rights;
·
Promoting women's economic
participation and empowerment;
·
Promoting financial inclusion;
·
Ensuring good governance,
transparency and accountability;
·
Supporting capacity building in
the sector;
·
Promoting collaborative
partnership to accelerate sector
progress; and
·
Reporting to take stock of
progress.
During the review period, the Bank
issued guidelines on sustainable bank
lending to the power, aviation as well as
the oil and gas sectors. A reporting
template was also developed to
standardize reporting by financial
institutions.
During the review period, significant
developments were recorded in each of
the five segments into which the sub2.4.4
Nigerian Sustainable Banking
Principles
2.5 Other Financial Institutions
(OFIs)
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

minimum of N2.5 billion (for state
licence) and N5 billion (for national
licence), 40 PMBs met the new capital
requirement. Further analysis of the
existing 82 PMBs indicated that: seven
(7) emerged as National PMBs; 33 as
State PMBs; four (4) were subsumed in
merger and acquisition arrangements; 13
applied for conversion to OFI-types, with
lower capital requirements; and 25 were
unable to meet the re-capitalization
deadline.
Analysis of PMBs' financial information
showed that their total assets increased by
32.77 per cent to N484.01 billion at endDecember 2013, from N364.54 billion at
end-June 2013. Paid-up capital and
shareholders' funds also increased by
117.97 and 88.33 per cent to N150.25
billion and N144.58 billion, respectively,
at end-December 2013, from N68.93
billion and N76.77 billion respectively at
end-June 2013. The growth was
attributed to the effort of PMBs to comply
with the new capital requirements under
the mortgage/housing finance sector
reforms. Similarly, loans/advances and
deposits increased by 21.05 and 0.12 per
cent to N157.40 billion and N164.69
billion, respectively, at end-December
2013, from N130.03 billion and N164.50
billion, respectively, at end-June 2013,
respectively.
The Nigeria Mortgage Re-finance
Company Plc (NMRC) was incorporated
in the second half of 2013 as a secondtier, mono-line institution to promote the
availability and affordability of housing
to Nigerians by providing liquidity in the
mortgage market through financial
institutions. The NMRC is expected to
address the mismatch between the shortterm tenor of deposit liabilities and the
long-term nature of mortgage assets. This
2.5.2.1 Mortgage Refinancing
Following the appointment of a new
management team, the process of
restructuring and recapitalizing the Fund,
as well as the recovery of loans,
commenced.
Provisional data showed that the total
assets of the 6 DFIs increased by 31.26
per cent to N586.66 billion at endDecember 2013, from N446.94 billion at
end-June 2012.The increase in aggregate
assets was due to the improved financial
performance of the Bank of Industry
(BOI), Bank of Agriculture (BOA), and
The Infrastructure Bank (TIB), while the
data showed that the financial
performance of FMBN and NEXIM
declined marginally during the review
period. The paid-up capital and net
loans/advances of the institutions
increased by 227.44 and 57.86 per cent to
N230.94 billion and N358.21 billion,
respectively, as at December 31, 2013.
Also, total deposit liabilities increased by
56.22 per cent to N171.81 billion at endDecember 2013. A disaggregation of the
total assets showed that BOA, FMBN,
NEXIM, TIB, BOI and NERFUND
accounted for 8.85, 24.03, 9.13, 5.22,
50.49 and 2.28 per cent, respectively,
while their respective shares of the total
loans and advances were 7.22, 31.59,
8.55, 3.93, 45.57 and 3.13 per cent.
In the area of corporate governance, the
review period also witnessed the
reconstitution of the Boards of Directors
of BOA and NEXIM. Those of FMBN
and the privatized TIB were already in
place while BOI and NERFUND were
still being governed by a Shareholders'
and Interim Management Committees,
respectively.
At the expiration of the December 31,
2013 deadline for operators of PMBs to
increase their capital to the prescribed
2.5.2
Primary Mortgage Banks
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

December 2013, from N278.93 billion at
end-June 2013. The paid-up share capital
and net loans/advances also decreased by
2.54 and 8.92 per cent to N67.40 billion
and N129.03 billion, respectively, at endDecember 2013, from N69.16 billion and
N141.67 billion, respectively, at endJune 2013. Similarly, aggregate reserves
decreased to N5.56 billion at endDecember 2013, compared with N5.76
billion at end-June 2013, reflecting a
decline of 3.47 per cent. The decrease
was attributed, largely, to the revocation
of the licenses of 83 MFBs.
In 2013, the Microfinance Certification
Programme (MCP), which was
introduced to bridge the observed skills
gap in the microfinance industry,
concluded its second phase and with it,
the withdrawal of the subsidy to it by the
CBN and the NDIC. The subsidy,
designed to nurture the fledgling
programme, had entailed the payment of
60 per cent of the total cost of training.
The CBN will, however, continue to coordinate the Programme and accredit the
Microfinance Training Service Providers
(MTSPs). During the first four years of
the Programme, a total of 9,352 operators
of microfinance banks were trained in the
12 runs organized for the two approved
levels of training as against the set target
of 6,000, representing a 156 per cent
performance rate. Of the 9,352 trained
MFB operators, 2,202 have been certified
by the Chartered Institute of Bankers of
Nigeria and are spread over 632 MFBs.
The Programme was also extended to
non-executive directors of MFBs and
other stakeholders, with a total of 1,406
non-executive directors and 223
regulators having been trained in 2012
and 2013.

The number of operating finance
companies (FCs) fell to 61 at end2.5.4
Finance Companies
would be achieved by raising long-term
funds from the capital market and other
sources of debt capital to re-finance
eligible mortgages originated by the
financial institutions. To ensure a smooth
take-off of the NMRC, the Federal
Government of Nigeria secured a 40-year
term loan of US$ 300 million from the
World Bank, on International
Development Association (IDA) terms.
Of the total loan, US$250 million was for
the NMRC, US$25 million for financing
micro-housing”, and US$25 million for a
mortgage-guarantee programme to
enable low income borrowers to access
mortgage loans.
Following the CBN's “No Objection”
approval in 2012 for the registration of
mortgage brokers in Nigeria, the
Mortgage Banking Association of
Nigeria (MBAN), in July 2013, released
the guidelines for mortgage brokerage
companies/operators in Nigeria. The
guidelines created a new class of
operators in the system - Licensed
Professional Mortgage Brokers - who are
authorized to solicit for borrowers;
negotiate, find and place mortgages; as
well as provide related advisory services
- for a fee.
The number of licensed microfinance
banks (MFBs) fell to 820 at endDecember 2013 from 899 at end-June
2013. The fall was due to the revocation
of the licenses of 83 institutions that were
confirmed to have either closed shop or
ceased to carry on microfinance business,
while four new MFBs were licensed. Of
the existing 820 MFBs four (4) operated
as National, 69 as State, and 753 as Unit
MFBs. Available data indicated that the
total assets of MFBs decreased by 2.88
per cent to N270.90 billion at end2.5.2.2 Guidelines on Mortgage
Brokerage
2.5.3
Microfinance Banks
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

dedicated to enterprises promoted by
women. The Financial Inclusion
Secretariat was also established in the
review period to co-ordinate the financial
inclusion programmes in the country.
Following the adoption of the tieredKYC and the need to mitigate the
associated risk, CBN's Anti Money
Laundering/Combating the Financing of
Terrorism Regulation 77 (1)-(8) was
amended to require financial institutions
to:
·
Allow third parties with acceptable
means of identification, such as
clergymen, village/clan heads and
headmasters, to identify the
financially excluded persons, for
account opening purposes;
·
Formulate policies on financially
disadvantaged customers and
prescribe the type of documents to
be provided by third-party
identifiers;
·
Adopt a risk-based approach on the
operation of this category of
customers; and
·
Enhance the monitoring of such
accounts, customers and third party
identifiers and render monthly
returns to the CBN and the NFIU
on their operations.
It is expected that full implementation of
these measures will improve access to
formal financial services.
T h e B a n k c o m m e n c e d t h e
implementation of its Financial Literacy
Awareness/Enlightenment initiative, in
line with its financial inclusion strategy,
through public workshops, road shows, a
secondary schools programme, and the
2.6.1
Financial Literacy
December 2013, from 65 at end-June
2013. This was due to the voluntary
liquidation of two (2) FCs and
discontinuation of finance company
business by two (2) others, while one (1)
was sealed up and is being investigated
by the Economic and Financial Crimes
Commission. One (1) new FC was
licensed in the period.
Total assets of FCs increased to N103.05
billion at end-December 2013, from
N82.13 billion at end-June 2013,
reflecting a growth of 25.47 per cent.
Similarly, paid-up capital increased by
3.23 per cent to N14.69 billion at endDecember 2013, from N14.23 billion at
end-June 2013. Aggregate reserves rose
to N3.59 billion at end-December 2013,
from N0.07 billion at end-June 2013. Net
loans/advances and borrowings also
increased by 68.58 and 20.64 per cent to
N46.68 billion and N59.22 billion,
respectively, at end-December 2013,
from N27.69 billion and N49.09 billion,
respectively, at end-June 2013.
As part of efforts to implement the
national financial inclusion strategy, the
geo-spatial mapping of financial services
access points was launched in July
2013.The mapping exercise was aimed at
providing consumer information by
indicating the geographic distribution of
financial access points across the country,
including banks, other financial
institutions, non-governmental
organisations, ATMs, and Nigeria Postal
Service offices.
The N220 billion Micro Small and
Medium Enterprises Development Fund
(MSMEDF) was launched on August 15,
2013 to provide wholesale funding to
MFBs/MFIs, as well as enhance access to
financial services by women. Towards
this end, 60 per cent of the Fund was
2.6 Financial Inclusion
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

2.7 Financial Markets
2.7.1
The Money Market
The Bank maintained its tight monetary
policy stance in 2013. Money market
rates were relatively stable during the
review period, due to the responsiveness
of the Bank to developments in the
market through effective liquidity
management. Rates at the inter-bank
funds market moved upward in August
and September 2013, due to tight
liquidity in the banking system. The
movement followed the implementation
of the increase in CRR on public sector
deposits, as the DMBs had to borrow at a
higher cost to rebalance their portfolio
positions and comply with prudential
requirements. Rates, however,
moderated to their pre-August levels in
the last quarter of the year, as overall
liquidity in the banking system improved
and inter-bank funds intermediation
slowed down.
The weighted average monthly OBB and
Inter-bank Call rates closed at 11.16 and
10.86 per cent, respectively, at endDecember 2013, compared with 11.66
engagement of the media.
The secondary schools programme was
designed by the Bank to teach school
children the rudiments of banking and the
need to imbibe the culture of savings,
budgeting and investment.
In addition, the Bank developed and
c i r c u l a t e d
p u b l i c
enlightenment/educational materials on:
'How to Lodge Complaints', 'Consumer
Bill of Rights' and '101 Ways to Save
Money in Nigeria'.
During the review period, the Financial
Literacy Steering Committee (FLSC),
comprising all heads of financial sector
regulatory institutions, representatives of
the Federal Ministries of Education,
F i n a n c e , I n f o r m a t i o n a n d
Communication Technology, was
inaugurated by the CBN Governor. The
Committee was established to ensure
implementation of the Financial Literacy
Framework, through policy formulation
and oversight of the implementation arm
of the Committee.
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.8: Inter-bank Rates Movements
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(%)
-

restriction on importation of foreign
currency, subject to CBN approval;
payment of receipts of the proceeds of
international money transfers in naira;
and an increase in the amount spendable
on naira debit and credit cards to
US$150,000 from US$40,000 per
annum.
The WDAS operated in the third quarter
until October 2, 2013 when they were
replaced by the RDAS in a bid to check
the persistent demand pressures in the
foreign exchange markets and curb the
huge movement of cash without the
required documentation and reporting to
the monetary authorities. The reintroduction of the RDAS was aimed at
monitoring the utilisation of funds in
order to curtail round tripping and ensure
exchange rate stability.
The average foreign exchange rate at the
RDAS and Inter-bank segments
appreciated by 0.02 and 0.60 per cent to
N157.2742/$ and N159.0505/$,
and 12.05 per cent at end-June 2013.
The Scripless Securities Settlement
System (S4) was deployed in December
2013 to provide a straight-through
process for securities trading and
settlement. The S4 is geared towards
facilitating electronic management of
securities by easing transfer and
settlement of OBB transactions, thereby
boosting activities in the segment. It is
also aimed at facilitating delivery versus
payment (DvP) settlements and reducing
settlement risks, thus encouraging
trading in Federal Government debt
instruments.
During the review period, the CBN
introduced a number of policies to
address inherent risks to exchange rate
stability and check money laundering.
These included: the re-introduction of the
Retail Dutch Auction System (RDAS);
the pegging of purchases from DMBs to
US$250,000 by each BDC per week;
2.7.2
The Foreign Exchange Market
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.9: WDAS, Inter-bank and BDC Rates, 2013
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
W/DAS-SPT (incl. 1% comm.)

Inter-Bank

BDC


Inter-bank/ OBB Volume (N'B)

respectively, while the average rate at the
BDC segment depreciated by 6.08 per
cent to close at N171.4000/$ at endDecember 2013.
Transactions on the Nigerian Stock
Exchange (NSE) were bullish during the
review period as both the All Share Index
(ASI) and Market Capitalization (MC)
trended upwards. The development was
attributed to improved corporate earnings
by blue chip companies and increased
p o r t f o l i o i n v e s t m e n t . T h e
implementation of the Transformation
Agenda of the Federal Government, such
as privatization of the power sector and
the Subsidy Re-investment and
Empowerment Programme (SURE-P)
bolstered capital investment. Salient
institutional developments were also
contributory factors.
The Ten-Year Master Plan Committees,
which the Securities and Exchange
Commission (SEC) set up to articulate
modalities for moving the market
forward, presented their interim reports
rd
during the 3 Annual Capital Market
Committee Retreat in November 2013.
The Committees are:
I.
Capital Market Master Plan
Committee;
ii.
Capital Market Literacy Master
Plan Committee; and
iii. Non-interest Capital Market
P r o d u c t s M a s t e r P l a n
Committee.
The Committees were expected to submit
their final reports by March 2014.
2.7.3
The Capital Market
2.7.3.1 The Ten-Year Blueprint
Committees
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
2.7.3.2
M i n i m u m C a p i t a l
Requirements for Capital Market
Operators
2.7.3.3
Financial Markets Dealers
Quotations Over-theCounter Plc
In September 2013, the Board of the SEC
approved a review of the minimum
capital requirements for registered
market operators as follows:
I.
Brokers/Dealers
N300 million
ii.
Trustees
N300 million
iii.
Brokers
N200 million
iv.
Issuing Houses
N200 million
v.
Underwriters
N200 million
vi.
Registrars
N150 million
vii. Rating Agency
N150 million
viii. Fund/Portfolio
Manager
N150 million
ix.
Dealer
N100 million
x.
Corporate Investment
Adviser
N5 million
xi.
Individual Investment
Adviser
N2 million
The Financial Markets Dealers
Quotations Over the Counter (FMDQOTC) Plc was inaugurated on November
7, 2013 as a SEC-licensed OTC market
securities exchange and self-regulatory
organization with a focus on the money
market and government securities. The
functions of the FMDQ-OTC include
market governance, compliance and
development, as well as data services to
ensure market integrity, liquidity,
transparency and reliability. It has also
improved quoting on the Nigeria Inter
Bank Offered Rate; the Nigeria InterBank Foreign Exchange Fixing; and
yields on NTBs, FGN bonds, subnational and corporate bonds. The
FMDQ-OTC publishes these rates on its
electronic platform daily.

2.7.3.4 The Bond Market
FGN Bonds
Total bonds outstanding at endDecember 2013 stood at N5,038.04
billion, of which FGN, sub-national and
corporate bonds constituted N4,222.03
billion (83.80%), N597.50 billion
(11.86%) and N218.51 billion (4.34%),
respectively. This level reflected an
increase over end-June 2013 figures of
N4,745.90 billion, comprising FGN, sub
-national and corporate bonds valued
N4,032.90 billion (84.98%), N498.00
billion (10.49%) and N215.00 billion
(4.53%), respectively.
Demand for FGN Bonds at the secondary
market increased as evidenced by the
decline in yields, compared with the
position at end-June 2013.This was
attributed to the high level of liquidity in
the banking system and the establishment
of the Financial Markets Dealers
Quotations Over-the-Counter Plc.
(FMDQ-OTC Plc) platform. The FMDQCBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 2.3: Matured FGN Bonds, July - Dec 2013
NEW
NOMENCLATURE
INTEREST.
RATE
ISSUE
DATE
ISSUE
AMOUNT (N)
REDEMPTION
DATE
INTEREST PAY
DATES
3.75%+NTB RATE
FGN SEP 2013
3.75% + NTB
RATE
27-10-2003
599,454,000
30-09-2013
31 MAR & 30
SEP.
12.74% FGN OCT

12.74%
27/10/2006

10,000,000,000

27/10/2013
27 APR & 27
OCT
10.98% FGN NOV

10.98%
24/11/2006

10,000,000,000

24/11/2013
24 MAY & 24
NOV
11.99% FGN DEC


22 JUN & 22
DEC.
10.50% FGN NOV


28 MAY & 28
NOV.
OTC Plc platform standardized OTC
transactions.
Five (5) bonds matured and were
redeemed by the Federal Government
during the review period. These were the
3.75%+NTB Rate FGN September 2013,
the 12.74% FGN October 2013, the
10.98% FGN November 2013, the
11.99% FGN December 2013 and the
10.50% FGN November 2013 (Table
2.3).
With headline inflation at single digit,
FGN bonds remained attractive to
investors. The yield curve reflected
investors' expectations of future
monetary policy tightening. Therefore,
they demanded higher compensation on
the long-dated assets. Another reason
was that investors were swapping long-
for short-term assets, thus pushing down
long-term asset prices and raising their
yield.

valued N130.00 billion in the first half of
2013. Total outstanding bonds held by 14
state governments stood at N597.50
billion.
Sub-National Bonds
Two state governments issued bonds
valued N99.50 billion, compared with
three state governments that issued bonds
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.10: Yield Curves for Nigeria


Yield
Time to Maturity
Dec-2013
Dec-2012
Jun-2013
Source: Financial Markets Dealers Quotations
Table 2.4: New Sub-national Bonds Issued During the Review Period
State
Government
Bond Features
Value
(N Billion)
Issue Date
Niger
14% Fixed Rate 5-Year Amortiz ing
Bond (Tranche 1)

12.0
Nov-13
Lagos
13.50% Fixed Rate 7-Year Bullet
Payment Bond (Tranche 4)

87.5
Nov-13
Total
99.5
N12.94 billion in the first half of 2013.
Corporate Bonds
Three corporate bonds were issued,
valued N10.60 billion, compared with

investors invested N203.60 billion in the
equities market while total sales
amounted to N255.80 billion, compared
with N327.66 billion and N254.98 billion
invested and sold by foreign investors,
respectively, in the first half of 2013. The
development reflected a decline in
foreign portfolio investments in the
review period. As a result of risks posed
to the stability of the market by the
continued decline in foreign portfolio
investment, the Bank will continue to
monitor movements in portfolio funds to
ensure system stability.
During the review period, NIRSAL Plc
accomplished the following:
·
Issued four (4) Credit Risk
Guarantees (CRGs) valued
N3.051 billion to four (4)
counterparties, compared with 22
CRGs valued N6.653 billion
issued in the first half of 2013;
·
Paid the sum of N67.52 million to
18 customers from eleven (11)
2.8
Real Sector Intervention
2.8.1
The Nigerian Incentive-based
Risk Sharing System for
Agricultural Lending
(NIRSAL) Plc.
2.7.3.5
The Equities Market
In the review period, several initiatives
were taken to enhance the performance of
the equities market. Specifically, the
NSE:
·
Launched the electronic issuers
portal, called X-Issuer, to
enhance efficiency, compliance
and integrity in the market;
·
Partnered with Standard &
Poor's, Dow Jones, and Morgan
Stanley Capital International for
the generation of key market data;
·
Migrated to a new trading
platform (X-Gen); and
·
Established an OTC market
platform in un-listed equities by
the National Association of
Securities Dealers to standardize
operations and promote liquidity,
efficiency and reliability in the
market.
These initiatives resulted in increased
trading activities on the floor of the NSE
and led to a significant rise in market
indices, as the ASI and MC attained new
heights since May 2008. The NSE ASI
closed at 39,858.23 at end-December
2013, from 36,164.31 at end-June 2013.
During the review period, foreign
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 2.5: New Corporate Bonds Issued in the Second Half of 2013
Company
Description
Value
(Nbillion)
Issue Date
Lacasera Company
Plc
15.75% Fixed Rate 5
-Year
Amortising Bond

3.0
Oct-13
FSDH SPV Plc
14.25% Fixed Rate 3
-Year
Amortising Bond

5.5
Oct-13
NAHCO
15.25% Fixed Rate 7
-Year
Bullet Payment Bond
2.1
Dec-13
Total
10.6

and 62.6 per cent in number and value of
loans, respectively.
The increases in the second half of 2013
were attributed to a number of factors,
among which are the:
·
Intensity of farming activities in
the northern part of the country
that peaked with the rains in the
second half of the year;
·
Increase in the number of
participating microfinance banks;
and
·
Prompt processing and payment
of interest drawback claims.
2.8.2
The Commercial Agriculture
Credit Scheme
The Bank continued to finance large
projects in the agricultural value chain
through the Commercial Agriculture
Credit Scheme (CACS) established in
2009. In the review period, N9.90 billion
was disbursed to sixteen (16) projects
through nine (9) banks in the second half
of 2013, compared with N16.26 billion
disbursed to 19 projects in the first half of
2013. This reflected decreases of 15.79
and 39.12 per cent, respectively, in
number and value. Analysis of the value
of funds disbursed also showed that
marketing, storage, production and
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 2.6: Activities of NIRSAL, July - Dec 2013

counterparties as interest
drawback;
·
Guaranteed N8.891 billion
accessed by 59 agro-dealers and
paid N7.781 million as interest
drawback to two (2) borrowers
under the Growth Enhancement
Scheme of the Federal Ministry of
A g r i c u l t u r e a n d R u r a l
Development;
·
Trained 15,000 cocoa farmers, in
collaboration with GIZ/Farmers
Business School; and
·
Guaranteed N164.0 million to
West African Cotton Company
Ltd's contract farmers.
processing, accounted for 38.0, 24.0, 24.0
and 14.0 per cent, respectively, of the
total funds disbursed. The recoveries
from the projects for January to June
2013 stood at N6.68 billion, while the
figure for July – December stood at N6.92
billion.
A total of 33,667 loans, valued N5.84
billion granted by five (5) commercial
and 50 microfinance banks were
guaranteed in the review period. When
compared with 22,610 loans valued
N3.59 billion guaranteed in the first half
of 2013, the performance in the second
half of 2013 reflected increases of 48.9
2.8.3
The Agricultural Credit
Guarantee Scheme
S/N
Focus Area
Number of
Projects
Amount (N)
(%)

Poultry Production

1,050,683,592
34.44

Oil Palm Processing

1,000,000,000
32.78

Cotton Production

1,000,000,000
32.78
Total

3,050,683,592

power generated increased by 30.85 per
cent over the level of 647.6MW
generated in 2012.
The Fund was established to fast-track
the development of the manufacturing
sector of the Nigerian economy by
facilitating access to credit by
manufacturers, improve the financial
position of DMBs, generate employment
and increase foreign exchange earnings,
among others.
Some of the repayments were ploughed
back to finance new SMEs, resulting in
the disbursement of N28.98 billion to
fund thirty two (32) projects.
Consequently, direct employment
created by the benefiting SMEs increased
by 22.3 per cent, and turnover increased
by 24.9 per cent during the review period.
During the review period, a total of 2,806
participants were trained by the new
entrepreneurship development centres
located in North-East (Maiduguri),
North-Central (Makurdi) and SouthSouth (Calabar). A total of 1,018 start-up
businesses were thereby created, while
317 graduates, representing 11.3 per cent
of the total trained participants accessed
loans valued N22.4 million to start or
expand their businesses.
The process of transferring ownership of
the first phase EDCs located in Kano
(North-West), Lagos (South-West) and
Onitsha (South-East) to the host states
had commenced, in line with the policy
establishing the Scheme.
The level of gross external reserves
decreased to US$42.85 billion at end2.8.6
The SME Restructuring and
Refinancing Fund
2.8.7
Entrepreneurship
Development Centres
2.9
The External Sector
2.8.4
The Small and Medium
Enterprises Credit Guarantee
Scheme
2.8.5
The Power and Aviation
Intervention Fund
The Scheme, established to fast track the
development of the Nigerian economy by
guaranteeing bank credits to small and
medium enterprises (SMEs), continued
to play a critical role in facilitating
funding for start-ups. The number of
facilities guaranteed increased by 112.5
per cent to 17, valued N896.78 million, in
the second half of 2013, from 8 facilities
valued N279.22 million that were
guaranteed in the first half of 2013.
The Fund, established to stimulate and
sustain investment in the power and
aviation sectors of the economy through
the provision of long-term credits
suitable for infrastructure projects,
contributed to enhancing the quality of
credits in the banking industry. Other
impacts of the Fund included:
·
Improvement in the liquidity of
banks and the balance sheet
positions of the beneficiaries;
·
Reduction of the cost of doing
business;
·
Resuscitation of some nonperforming projects; and
·
Increase in capacity utilization of
benefiting projects.
During the review period, N11.628
billion was disbursed to five (5) power
projects, compared with N39.61 billion
disbursed to the same number of projects
in the first half of 2013. The power
projects financed through the scheme had
a combined generating capacity of
847.4MW of power, out of which
440.1MW was utilized by the companies
to guarantee stable and reliable power for
their manufacturing processes. The
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

indicated that the CBN, the FGN and the
Federation holdings were US$36.94
billion, US$2.62 billion and US$3.29
billion, respectively, at end-December
2013, compared with US$36.68 billion,
US$1.30 billion and US$6.98billion,
respectively at end-June 2013. Further
analysis showed that 83.88 per cent of the
reserves was held in US Dollars, 5.90 per
cent in Euro, 2.09 per cent in Renminbi,
2.08 per cent in Pound Sterling, and 6.02
per cent in SDR at end-December 2013.
Total foreign exchange inflow during the
second half of 2013 was US$21.32
billion, compared with US$19.75 billion
recorded in the first half of 2013,
December 2013, from US$44.96 billion
at end-June 2013, representing a decline
of US$2.11 billion or 4.69 per cent. The
decrease in reserves, when compared
with the level at the end of first half 2013,
reflected an increase in demand and sale
to authorized dealers.
A breakdown of the external reserves
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 2.11: Breakdown of External Reserves

External
Reserves
CBN Portion
FGN Portion
Federation
Portion
US$Billion
Jun-13
Dec-13
2013.
Similarly, total outflow rose to US$23.46
billion in the review period, from
US$18.86 billion in the first half of 2013,
reflecting an increase of US$4.60 billion
or 24.39 per cent. Foreign exchange
flows in the review period resulted in a
net outflow of US$2.14 billion.
At end-December 2013, the country's
external reserves could finance about10
months of imports. This was lower than
the 11.96 months at end-June 2013, but
higher than the minimum international
benchmark of 3 months.
In order to manage the decreasing trend in
reflecting an increase of US$1.57 billion
or 7.95 per cent. The increase in gross
inflows in the review period reflected,
largely, the increase in other government
revenues, reinforced by the rise in non-oil
export proceeds and interest on reserves
and investments. The sum of US$0.24
billion was recorded as unrealized
exchange rate gain at end-December

Operational Guidelines was formally
launched in November 2013 at the
Takaful Stakeholder Engagement
Workshop, held in Lagos.
In July 2013, FBN Life Assurance, in
partnership with Airtel Nigeria,
introduced a micro insurance scheme,
'Padi4Life'. The scheme is aimed at
providing low-income earners living in
remote locations a daily insurance cover
for permanent disability or death. For a
daily premium of N20, the subscriber
would be entitled to a N500,000
insurance cover.
In October 2013, MTN Nigeria
introduced airtime-based insurance
service, in collaboration with Mansard
Insurance Plc. This service would enable
subscribers on the platform to have
access to affordable life protection plan
directly from their mobile phones. For a
N15 daily premium, the subscriber would
receive a N350,000 insurance cover.
The first claim on the MTN Yello Cover
was made in December 2013. The
settlement came barely two months after
the launch of the service.
Overall, the introduction of the new
products would increase the patronage of
insurance by people in the lower segment
of the market to purchase life insurance at
low cost, via the use of mobile phone
technology.
It is envisaged that there would be
increased consolidation of activities
among the 50 existing insurance
companies as the pressure of competition
forces them into mergers. Furthermore,
2.10.1 Airtel Nigeria Life Insurance
2.10.2 MTN Nigeria Life Assurance
Service
reserves, a number of measures were
taken, including the following:
·
The increase in CRR for public
sector deposits in order to reduce
banks' capacity to fund
speculative activities in the
foreign exchange market;
·
The re-introduction of RDAS in
place of WDAS to reduce
speculation; and
·
Reconciliation of critical inflows
into the reserve accounts to
ensure that all receivables are
tracked.
In addition, the Federal Government
continued to encourage the development
of local industries that would reduce
over-reliance on imports and thus
conserve foreign exchange.
In order to promote micro-insurance, the
National Insurance Commission issued
guidelines on micro-insurance operations
in Nigeria in December 2013 and
inaugurated the Micro-Insurance
Steering Committee.
During the period under review, four
insurance companies merged to form a
single entity. This is expected to enable
the consolidated company benefit from
economies of scale and thereby engage in
big ticket transactions.
In pursuance of the National Roadmap
for the Adoption of IFRS, 43 of the 50
operating insurance companies published
IFRS-compliant accounts.
NAICOM facilitated the settlement of 61
disputes on claims between insurance
companies and customers, with the
settlement claims valued N2.24 billion
for 2013.
The Takaful (Shari'a Insurance)
2.10
The Insurance Sector
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

premium income for insurance
companies and thereby enhance their
viability.
the sustained enforcement of compulsory
insurances schemes, particularly Group
Life and motor, is expected to increase
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

December 2013, from 3.7 per cent at endJune 2013 (Figure 3.1). The
improvement in asset quality was
attributed to stricter adherence to credit
risk management policies and standards
by banks. The ratio of core liquid assets to
total assets increased by 1.2 percentage
points to 22.2 per cent at end-December
2013, from 21.0 per cent at end-June
2013. Similarly, the ratio of liquid assets
to short-term liabilities improved by 0.9
percentage point to 25.2 per cent at endJune 2013 (Figure 3.2).
3.1
Macro-Prudential Supervision
3.1.1
Financial Soundness
Indicators
3.1.1.1 Asset and Liquidity-
based Indicators
The quality of assets of the banking
industry improved slightly in the second
half of 2013, compared with the first half.
The ratio of non-performing loans
(NPLs) to total loans dropped by 0.5
percentage point to 3.2 per cent at endCBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 3.1: Banking Industry NPLs to Total Gross Loans
3.5
3.7

3.2
2.9


End-Dec 2012
End-June 2013
End-Dec 2013
Percentage

Figure 3.2: Banking Industry Liquidity Indicators

End-Dec 2012
End-June 2013
End-Dec 2013
Liquid assets (core) to total assets
Liquid assets (core) to short-term liabilities
2013 was 1.4 and 0.9 percentage points
below the levels at end-June 2013 and
end-December 2012, respectively
(Figure 3.3).The industry ratio of nonperforming loans (net of provisions) to
capital remained stable at 7.4 per cent at
end-December 2013. On the whole, the
3.1.1.2 Capital-based Indicators
The average ratio of regulatory capital to
risk weighted assets stood at 17.2 per cent
at end-December 2013, showing a
decrease of 1.7 and 1.1 percentage points,
respectively, below the levels at end-June
2013 and end-December 2012. Similarly,
the ratio of Tier 1 capital to risk weighted
assets of 17.1 per cent at end-December
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

Figure 3.3: Banking Industry Capital Adequacy Indicators


18.4
18.8
19.2
End Dec-2012
End-June 2013
End-Dec 2013
Regulatory capital to risk-weighted assets
Tier 1 capital to risk-weighted assets

expenses to gross income rose by 5.9
percentage points to 68.9 per cent at endDecember 2013. Conversely, the ratio of
personnel expenses to non-interest
expenses fell by 3.2 percentage points to
36.5 per cent, from 39.7 per cent at endJune 2013 (Table 3.1).
above scenario reflected a strong capital
base for Nigerian banks (Table 3.1).
The ratio of interest margin to gross
income increased to 64.9 per cent in the
review period, from 63.9 per cent at endJune 2013. The ratio of non-interest
3.1.1.3 Income and Expense-based
Indicators
Table 3.1: Selected Financial Soundness Indicators of the Nigerian Banking Industry


End
June
End
Dec
End
June
End
Dec
End
June
End
Dec
End
June
End
Dec
End
June
End
Dec
1. Asset-based Indicators
NPL to total gross loans
8.5

27.6

28.8

15.7

10.8

5.3

4.3

3.5
3.7
3.2
Liquid assets (core) to total
assets
15.6

16.5

17.2

17.2

22.6

25.7

23.5

24.7
21.0
22.2
Liquid assets (core) to shortterm liabilities
21.5

22.3

19.4

19.8

25.7

31.3

28.1

28.9
24.3
25.2
Return on Assets (ROA)
1.7

-8.9

1.0

3.9

0.9

0.1

1.5

1.2
1.4
0.8


CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
2. Capital-based Indicators
Regulatory capital to riskweighted assets

Tier 1 capital to risk-weighted
assets

NPLs net of provision to capital

12.5

106.8

289.8

192.7

74.3

10.1

6.8

6.1
7.4
7.4
Return on equity (ROE)
8.9

-222.8

50.2

265.2

29.4

0.5

13.1

11.2
12.4
7.7
3. Income and Expensebased Indicators


Interest margin to gross income

Non-interest expenses to gross
income

Personnel expenses to gross
income

cumulative 30-day shocks, with specific
assumptions on fire sale of assets.
The test assumed a gradual average
outflow of 3.8, 5.0 and 1.5 per cent of
total deposits, short-term and long-term
funding, respectively, over a 5-day (Test
1.1) and a cumulative average outflow of
22.0, 11.0 and 1.5 per cent of total
deposits, short-term and long-term
funding, respectively, on a 30-day
balance (Test 1.2). The test further
assumed that a percentage of the assets
would remain unencumbered on a fire
sale (Table 3.2).
3.1.2
Banking Industry Stress Tests
3.1.2.1 Liquidity Stress Test
The liquidity stress test was conducted at
end-December 2013 to assess the
resilience of the banking industry to
liquidity and funding shocks, using the
Implied Cash Flow Analysis (ICFA) and
Maturity Mismatch/Rollover Risk
approaches.
The ICFA test assessed the ability of the
banking system to withstand
unanticipated substantial withdrawal of
deposits, as well as short-term wholesale
and long-term funding over 5-day and
Table 3.2: Assets Un-encumbered

Item
No
Assets
%
Unencumbered

Cash and cash equivalent

Current account with CBN

CRR

Government Bonds & Treasury Bills
and other assets with 0% risk
-
weighting exposure
66.5

Other Short - term investments

Certificates of deposits held
66.5
total deposits would be available from the
CBN and intra-group funding; and
iii. Test 2c: Dynamic Rollover Risk: the
assumption was as in 2b above, but with
the option of closing the liquidity gap
from other buckets.
The test revealed that, after the 5-day and
cumulative 30-day shocks were applied,
the industry liquidity ratio (LR) declined
to 12.2 and 10.4 per cent, respectively,
from 50.53 per cent (Table 3.3). Most
banks' LRs were also below the 30.0 per
cent threshold after the two scenarios.
Furthermore, three (3) banks recorded a
negative LR, following a cumulative 30day shock. Two of these banks were

among the categorised “large banks” .
Analysis of Test Results
The Maturity Mismatch/Rollover Risk
approach assessed funding maturity
mismatch and rollover risk for assets and
liabilities in the 0-30 and 31-90 day
buckets, with the assumption on the
availability of funding from CBN and
intra-group sources as described below:
i. Test 2a: Descriptive Maturity Mismatch
assumed that the baseline mismatch
remained, but 5 per cent of total deposits
would be made available from the CBN
and intra-group funding;
ii. Test 2b: Static Rollover Risk assumed
that 80.0 and 72.0 percent of the funding
in the 0-30 and 31-90 day buckets would
be rolled over with no possibility to close
the funding gap from other buckets.
However, it is assumed that 5 per cent of
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
6Banks with assets over N1 trillion

Total
Number of
Banks tested
Number of
Banks with <
30% liquidity
ratio
Dec 2013

Dec 2013 (23
DMBs)

Sept
2013 (23
DMBs)

June 2013
(23 DMBs)

Mar 2013
(20 DMBs)

System
LR
Liquidity Shortfall
to make 30% LR
(N’billion)
Test 1.1:
Implied Cash
Flow Test ( 5
Days)


Day 1

34.1%
NIL
Day 2

29.4%
168.78
Day 3

24.2%
716.94
Day 4

18.5%
1,240.33
Day 5

12.2%
1,740.82
Test 1.2:
Implied Cash
Flow Test (30
Days)

10.4%
1,873.30
Table 3.3: Implied Cash Flow Analysis
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

Bank 1
Bank 2
Bank 3
Bank 4
Bank 5
Bank 6
Bank 7
Bank 8
Bank 9
Bank 10
Bank 11
Bank 12
Bank 13
Bank 14
Bank 15
Bank 16
Bank 17
Bank 18
Bank 19
Bank 20
Bank 21
Bank 22
Industry
Mar-13
Jun-13
Sep-13
Dec-13

Per cent
Figure 3.4: Industry and Individual Bank Pre-Shock Liquidity Ratio Positions

Figure 3.5: Industry Position after 1-5 day and Cumulative 30- day Shocks

-5

Pre-Shock
After Day 1 After Day 2 After Day 3 After Day 4 After Day 5
After cum
30 days
Per cent


Mar-13
Jun-13
Sep-13
Dec-13
Tests (Test 2c) (Figure 3.7).
In general, the banking industry was
resilient to liquidity stress, although the
test results indicated a deterioration in the
banks' resilience, compared with the
position in the preceding period.
Under the maturity mismatch/rollover
test, assets in the 0-30 day bucket were
adequately funded under the three
scenarios used for the test. However,
there was deterioration in the 31-90 day
bucket under the Static Rollover Analysis
(Test 2b) and the Dynamic Risk Rollover
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 3.6: Individual Bank Positions after 5-day and Cumulative 30-day Shocks

Percent
Day 5
Day 30
Pre-shock
N.B: Bank 23 was excluded from figure 3.6 because of its outlier effect
Less than
30 days
(N'billion)
31-90 days
(N'billion)
90 -
180days
(N'billion)

360days
(N'billion)
1-3 years
(N'billion)
above 3
years
(N'billion)
Pre-shock

Test 2a

Test 2b

Test 2c


Figure 3.7: Roll-over Risk, Pre- and Post-shock

multiple financial institutions on the
entire banking system arising from
exposures across institutions.
The analysis revealed that contagion risk
through interbank exposures in the
banking sector was minimal, as all the
placing banks met the minimum CAR.
Also, the industry position was above the
minimum required CAR.
A solvency stress test was conducted on
3.1.2.3 Solvency Stress Test
3.1.2.2 Contagion Risk Analysis
through Inter Bank Exposures
The contagion risk analysis assessed the
effect of the financial interconnectedness
of institutions in transmitting shocks to
individual banks and the banking system
as a whole. The test was conducted using
a network analysis tool which evaluates
sets of bilateral links among different
financial institutions. It assessed the
impact of a failure or a weakness of
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 3.8: Total Bilateral Exposure

Bank 10
Bank 4
Bank E
Bank F
Bank D
DH 2
Bank 4
0.5 percentage points over the end-June
2013 positions. Similarly, the pre-shock
liquidity ratios for the banking industry,
large and medium banks declined by
18.68, 19.47 and 13.15 percentage points
to 51.02, 50.75 and 62.30 per cent,
respectively compared with the end-June
2013 positions. However, the pre-shock
liquidity ratio for small banks increased
by 5.96 percentage points (Table 3.4).
the banking industry as at December 31,
2013 to assess the stability of the sector
under various hypothetically strained
macroeconomic conditions.
The pre-shock CARs for the entire
banking industry, large, medium and
small banks stood at 17.20, 16.24, 18.05
and 18.33 per cent, respectively. These
reflected decreases of 1.49, 2.62, 0.2 and
Baseline Position

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 3.4: Baseline CARs and Lrs
Ratio
Banking
Industry (%)

Large
Banks (%)

Medium
Banks (%)

Small
Banks (%)
Dec-2013 CAR
17.20

16.05

18.05
17.83
June-2013 CAR

18.69

18.86

18.25
18.33
Dec-2012 CAR
18.36

18.06

20.32
16.93
Dec-2013 Liquidity Ratio (LR)

51.02

50.75

62.30
74.43
June-2013 Liquidity Ratio (LR)

69.7

70.22

75.45
68.47
Dec-2012 Liquidity Ratio (LR)

Figure 3.9: Banks in Each Bucket of CAR

Banks with CAR
above 15%
Banks with CAR
above 10% but <
15%
Banks with CAR
below 10% but>
5%
Banks with CAR
below 5% but> 0%
Banks with CAR <
0%
Banks with CAR above 15%
Banks with CAR above 10% but < 15%
Banks with CAR below 10% but> 5%
Banks with CAR below 5% but> 0%
Figure 3.10: Banks in Each Bucket of LR

>40%
<40% but >30%
<30% but >20%
<20%
>40%
<40% but >30%
<30% but >20%
<20%

banks being the most profitable, while
ROEs stood at 19.83, 22.14, 20.40 and
17.56 per cent, respectively.
·
Credit Risk
Generally, the banking industry
resilience to credit risk sustained an
upward trend as the average industry
Analysis of Test Results
The pre-shock ROAs for the entire
banking industry, large, medium and
small banks were 2.31, 3.04, 2.42 and
2.02 per cent, respectively, with large
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 3.11: Banks in Each Bucket of LR
Figure 3.12: Baseline ROAs and ROEs (%)

Dec-2013 ROA
June-2013 ROA
Dec-2013 ROE
June-2013 ROE
Banking Industry
Large Banks
Medium Banks
Small Banks
general credit risks as their average
CARs fell from 17.64 per cent to 12.21
per cent and 17.03 to 11.45 per cent,
respectively. However, the average CAR
for the small banks deteriorated to 5.56
per cent (below the required minimum of
10.0 per cent), from 18.33 per cent. This
indicated that about N89.15 billion would
be required to raise their CAR to 10.0 per
CAR stood at 12.42 per cent under a
shock scenario of 200 per cent rise in
NPLs. Also, large banks and mediumsized banks were less vulnerable to

Dec-2013 CAR
June-2013 CAR
Dec-2013 Liquidty Ratio
June-2013 Liquidty Ratio
Banking Industry
Large Banks
Medium Banks
Small Banks

the CARs of the entire banking industry,
large, medium and small banks declined
from their baseline positions to 9.91,
7.22, 4.19 and 9.02 per cent, respectively.
Under this scenario, only five banks
would be able to maintain CARs equal to
or above 10.0 per cent, while the
remaining 18 would record less than 10.0
per cent CAR.
cent. Under this scenario, 15 banks
maintained CARs above 10.0 per cent, 5
banks had CARs between 5.0 and 10.0
per cent and 3 banks had less than 5 per
cent CARs (Table 3.5).
The banking industry and peered banks,
however, showed significant levels of
credit concentration as indicated by the
extent of capital depletion under the
various shock scenarios. On the
assumption that the credit facilities of the
five (5) biggest corporate obligors
deteriorated from “doubtful” to “lost”,
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 3.5: Stress Test Results – Credit Risk
Number of banks
Scenarios
≤0%

>0 but ≤5

>5 but ≤10
>10 but
≤15
>15
Total
Shock 1av-50% NPLs increase

Shock 1avi-100% NPLs increase

Shock 1avii-200% NPLs increase

Figure 3.13: Credit Concentration Risk
17.12
9.91


Baseline
Five biggest corporate obligor credit facilities shifted
from 'Doubtful' to 'Lost' (100%)
All banks
Large banks
Medium-sized banks
Small banks
showed more resilience as their liquidity
ratios were 36.00 and 42.12 per cent,
from 62.30 and 74.43 per cent,
respectively. All the peered groups of
banks remained above the 30 per cent
benchmark. Thus, the banking industry
and the three groups of peered banks were
resilient to the liquidity shock at the level
indicated.
·
Liquidity Risk
Liquidity risk was moderate as the impact
of a 10 per cent general run on the
banking industry resulted in the average
liquidity ratio falling to 31.24 per cent
(above the threshold of 30 per cent) from
51.02 per cent. Large banks followed the
same trajectory as their liquidity ratio
deteriorated to 30.07 per cent from 50.75
per cent. The medium and small banks
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 3.6: Credit Concentration Risk
CREDIT CONCENTRATION RISK
All Banks
Large Banks
Medium
Small
Baseline

Single Factor Credit
Concentration Shocks
Solvency Ratios after Shocks
All Banks
Large Banks
Medium
Small
2bi - Five biggest corporate
obligors credit facilities shifted
from ‘pass-through’to
‘sub-standard’(10%)

2bii- Five biggest corporate
obligor credit facilitie s shifted
from ‘sub-standard’ to
‘doubtful’ (50%)

2biii - Five biggest corporate
obligor credit facilities shifted
from ‘doubtful’ to ‘lost’ (100%)

Table 3.7: Stress Test Results - Liquidity Risk

Banking
Industry (%)

Banks by Category
Large (%)

Medium (%)
Small (%)
Baseline

51.02

50.75

62.30
74. 43
Shock 6gi ( 10% General Run)

31.24

30.07

36.00
42.12
Shock 6gii ( 15% General Run)

27.21

22.17

31.77
41.61
Shock 6giii ( 20% General Run)

21.10

17.13

22.42
37.35
Shock 6hi (20% Run on 20 largest Deposits)

38.42

36.99

43.45
48.52
Shock 6hii ( 50% Run on 20 largest
Deposits)

33.47

34.52

44.97
47.00
Unsatisfactory

<30

Border Line
≥30 < 35
Sound Position
≥35<60
Very Sound Position
≥60
and its peered categories were stable as
their positions declined only marginally,
even after the most severe shocks were
applied (Table 3.8).
·
Exchange Rate Risk
The banks generally showed modest
resilience to exchange rate risk as the
industry CAR deteriorated only
marginally, after a 50 per cent exchange
rate appreciation shock was induced,
with a 15 per cent hedging cover. After
·
Interest Rate Risk
The results of the test on the net position
of interest-sensitive instruments in
relation to capital impairment, ROA and
ROE, revealed that the banking industry
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 3.8: Stress Test Results - Interest Rate Risk
Scenario
Banking
Industry
(%)
Banks by Category
Large
(%)
Medium
(%)
Small
(%)
Baseline CAR

Baseline ROA

Baseline ROE

Interest Rate Volatility (Impact on CAR)
Shock 5biii (500bps downward parallel shift in
yield curve)
16.89

15.13
17.03
16.54
Shock 5biv (1000bps downward parallel shift in
yield curve)
16.41

14.85
16.55
15.14
Impact of Parallel Shift in Yield Curve Shocks on ROA

Interest Rate Volatility
Shock 5biii (500bps downward parallel shift in
yield curve)
1.23

2.89
0.74
1.58
Shock 5biv (1000bps downward parallel shift in
yield curve)

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 depreciation was
significant, as the industry, large,
medium and small banks CARs
deteriorated to 12.23, 11.07, 13.54 and
14.12 per cent, respectively when 30 per
cent of the total foreign exchange loan
exposure was assumed lost. Assuming a
50 per cent counterparty loss due to
exchange rate depreciation, the industry,
large, medium and small banks CARs
would fall to 7.34, 6.64, 8.12 and 8.47 per
cent, respectively (Table 3.9).
the shock, 4 banks had their CARs below
the 10 per cent minimum prudential
requirement (Table 3.9).
However, counterparty risk arising from

and ROE changed marginally after a 100
per cent decline in FX trading income
was assumed. This was largely due to the
small proportion of FX trading income to
gross income.
·
Foreign Exchange Trading
Risk
The results of the test showed that the
banking industry was resilient to FX
trading risk. The banks' pre-shock ROA
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Table 3.9: Stress Test Result - Exchange Rate Risk
Exchange Rate Shocks
Banking
Industry
Banks by Category
Large
Medium
Small
CAR - Pre-shock position

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

Shock 4bii (20% appreciation in
favour of the Naira)
15.59

15.53

15.61
15.90
Shock 4biii (50% appreciation in
favour of the Naira)
14.13

12.24

14.36
12.91
Shock 4biv (100% appreciation in
favour of the Naira)
3.21

2.22

5.08
6.20
Counterparty Risk Due to Exchange Rate Depreciation

20% of the total foreign exchange
loans exposure are categorised as loss

30% of the total foreign exchange
loans exposure are categorised as loss

50% of the total foreign exchange
loans exposure are categorised as
loss

Table 3.10: Stress Test Result - FX Trading Risk

Number of Banks with ROAs
and ROEs in the Respective
Buckets
≤0%
>0 ≤5%
>5 ≤10%
>10 ≤15%
>15%
Impact of FX Trading
Shocks on ROA
FX Trading Income Volatility

Banks
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)

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
The key challenges in the banking
industry remained weak corporate
governance and inadequate risk
management practices, while the rating
of the control functions generally trended
towards 'needs improvement' due to the
non-implementation of some previous
recommendations. Improvements were,
however, noted in the internal audit and
financial analysis functions of most
banks.
Risk-based examination of some
specialized financial institutions,
including the Asset Management
Corporation of Nigeria (AMCON), the
three private credit bureaux, and the noninterest banks (including the non-interest
banking windows of conventional banks)
was also conducted in the review period.
As part of its monitoring activities in the
foreign exchange market, the CBN
examined banks to ascertain their
compliance with regulations and extant
laws on utilisation of foreign exchange.
The major infractions observed included
failure to issue certificates of capital
importation to beneficiaries on time,
rendition of inaccurate returns to
regulators, and non-compliance with
approved net open position limits. The
erring banks were appropriately
penalised.
On the whole, the banking industry was
adjudged as being stable and resilient to
most of the shocks, even with severe
shock scenarios.
The Bank conducted risk-based
examination jointly with NDIC on 21
DMBs in the second half of 2013. The
examination covered the assessment of
risk assets and tested compliance with
prudential requirements and the quality
of the risk management control functions.
Of the 21 banks examined, two were
maiden examinations of the recently
licensed merchant banks.
Most banks' composite risk rating had a
stable outlook; while one (1) bank had an
increasing and two (2) others had a
decreasing risk outlook. Four of the
banks were examined under the riskbased supervision framework for the first
time.
The relatively stable risk profile of banks,
coupled with the measures taken by the
CBN and AMCON to support the
industry, resulted in the general stability
experienced by the banking industry as
the industry witnessed signs of recovery
and profitability.
3.2
Supervision of Banks and
Other Financial Institutions
3.2.1
Banks and Discount Houses
3.2.1.1 Banks

Impact of FX Trading Shocks on ROE
<0%
<1%
<2%
<5%
>5%
Initial ROE
FX Trading Income Volatility
Banks
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)

with a view to enhancing stability in the
sub-sector.
To give greater attention to the
supervision of MFBs and in
consideration of their large number, the
bank engaged 116 consultants to carry
out post-examination monitoring. The
first round of the post-examination
monitoring, involving 580 MFBs, took
place in December 2013, the outcome of
which is expected to inform appropriate
supervisory action early in 2014.
The examinations conducted in the
second half brought the total number of
MFBs examined in 2013 to 810. The
CBN will continue to ensure effective
supervision of the institutions with a view
to enhancing stability in the sub-sector.
The examinations conducted in the
second half brought the total number of
MFBs examined in 2013 to 810. The
CBN will continue to ensure effective
supervision of the in institutions with a
view to enhancing stability in the subsector.
On-site examination of the 82 licensed
PMBs was undertaken in the period. The
examination revealed that the average
NPL ratio was 42.0 per cent, with 23
meeting the 30 per cent benchmark. The
examination further revealed the lack of
focus on core mortgage banking business
by most operators as only 26 PMBs met
the minimum mortgage assets to loanable
funds ratio of 60 per cent, while 3 met the
minimum mortgage assets to total assets
ratio of 50 per cent. The examination also
showed that a considerable proportion of
the sub-sector's investible funds were
placed with commercial banks.
3.2.2.2 Primary Mortgage Banks
(PMBs)
3.2.1.2 Discount Houses
3.2.2
Other Financial Institutions
3.2.2.1 Microfinance Banks
The license of one discount house was
revoked as a result of its failure to meet
maturing obligations, severe undercapitalization and inability of the
shareholders to inject additional capital.
A liquidator was subsequently appointed.
In September 2013, a special
examination conducted on another
discount house showed signs of distress.
The investigation revealed that the
company's capital had been significantly
eroded, thus requiring a fresh capital
injection for it to continue as a going
concern. In the overarching interest of
financial system stability, the CBN took
over the company's management and
AMCON acquired its shares and injected
additional funds to recapitalize it.
Of the 821 MFBs in existence as at
December 31, 2013, on-site examination
was conducted on 797 MFBs in 2013,
while 24 MFBs were not examined. The
24 MFBs that were not examined
comprised 18 newly licensed MFBs that
had not operated for up to 6 six months as
at December 31, 2013 and 6 MFBs
located in volatile parts of the North-east
geo-political zone. Analysis of the on-site
examination revealed that 526 MFBs or
66 per cent of the 797 MFBs met the
capital adequacy ratio (CAR) of 10 per
cent. Furthermore, 568 MFBs or 71.27
per cent satisfied the minimum liquidity
ratio requirement of 20 per cent. The asset
quality of the MFBs was, however,
relatively poor as the average portfolioat-risk (PAR) ratio for the sub-sector was
45.70 per cent, much higher than the
prescribed maximum ratio of five (5) per
cent. The CBN will continue to ensure
effective supervision of the institutions
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

3.3
Compliance with International
Standards
3.3.1
Anti-Money
Laundering/Combating the
Financing of Terrorism
In supporting the global fight against
terrorism, the CBN regularly circulated
the United Nations Consolidated Lists of
Persons/Entities Involved in Terrorism
Financing or Terrorist Activities to
financial institutions under its regulatory
purview for appropriate action.
In order to strengthen domestic
collaboration, the CBN inaugurated the
AML/CFT Stakeholders' Consultative
Forum for key stakeholders in the fight
against money laundering and financing
of terrorism. This resulted in an increased
level of co-operation through the
exchange of information, joint
examinations, and training programmes.
Nigeria had been placed on the Financial
Action Task Force (FATF) “grey list” of
countries which had failed to make
significant progress in their AML/CFT
regimes in 2009. To address this problem,
the CBN and other stakeholders took
action based on the reports of the GIABA
Mutual Evaluation and International
Monetary Fund Technical Assistance
Team to improve legislation and
enforcement of the regulations on
AML/CFT.
The CBN action included the issuance of:
·
AML/CFT Regulations in 2013
(amended);
·
An AML/CFT Risk-based
Supervision (RBS) Framework;
·
An AML/CFT Compliance
Framework applicable to the
Bank's operations;
·
A Dud Cheques Policy;
·
Standard account opening forms
for financial institutions, in
3.2.2.3 Finance Companies (FCs)
3.2.2.4 Bureaux de Change
On-site examination was conducted on
55 out of the 61 operating finance
companies during the review period. Six
of the companies were undergoing
restructuring. The examination revealed
that 40 per cent of the FCs met the capital
adequacy ratio (CAR) of 12.5 per cent.
The average CAR for the sub- sector was,
however, a negative 442 per cent.
Overall, 40 per cent of the FCs had
shareholders' fund unimpaired by losses
of above N20 million. Thirty nine of the
FCs were operating with a lower capital
than the regulatory minimum of N20
million. Poor asset quality remained the
bane of the sub-sector, as the NPL ratio
stood at 40.7 per cent, well above the
prescribed maximum of 20 per cent. As
part of the reform measures adopted by
the Bank, the minimum capital was raised
to N100 million, from N20 million,
during the review period while the final
approval of the operating guidelines for
the sub- sector was being awaited.
Spot checks were carried out on 160
bureaux de change (BDCs) during the
review period, compared with the checks
on 60 undertaken in the first half of 2013,
thus bringing the total number of
reviewed BDCs in 2013 to 220. The
exercise indicated that certain infractions
persisted amongst the institutions,
including: non-rendition of returns on the
purchase and utilization of foreign
exchange (Forex); failure to keep
accounting records; and engaging in
wholesale foreign exchange trading.
Accordingly, 29 BDCs were suspended
from the CBN Forex window, 58 were
subjected to monetary sanctions, while
the licenses of 20 BDCs were revoked.
This brought the total number of revoked
BDC licenses in 2013 to 222.
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

·
Comply with the Pillar 3
disclosure requirements on a biannual basis.
The implementation of Basel II/III in
Nigeria is expected to enhance the safety
and soundness of financial institutions
and promote broad stability of the
financial system.
One of the identified risks in the
banking system is concentration
risk. To mitigate this risk and to
p r o v i d e i n c e n t i v e s f o r
diversification, the CBN
reviewed the risk weights for the
computation of capital adequacy
ratio. The review provided that:
·
Where the exposure to a
particular sector, as defined by the
International Standard Industrial
Classification of Economic
Sectors is in excess of 20 per cent
of the total credit facilities of a
bank, the risk weight of the entire
portfolio shall be 150 per cent;
·
Bonds that meet the eligibility
criteria set out in the Guidelines
for Granting Liquid Asset Status
for State Government Bonds
would be risk-weighted at 20 per
cent, while others would be
weighted at 100 per cent;
·
Any breach of the single obligor
limit shall be regarded as
impairment of capital;
·
Lending by a bank to its financial
holding company would be
regarded as return of capital and
shall, accordingly, be deducted
from the capital of the bank in the
course of computing its capital
adequacy ratio; and
·
Lending to subsidiaries within the
group shall be risk-weighted at
100 per cent, provided they are
fully collateralised. Otherwise,
Review of Risk Weights on Certain
Industry Exposures
collaboration with the Committee
of Chief Compliance Officers of
Banks in Nigeria; and
·
A Safe Custody Items Policy.
These measures led to the delisting of
Nigeria from the “grey list” by the
Financial Action Task Force on October
18, 2013.
For effective implementation of the Basel
II/III framework in Nigeria, the Bank
issued the Guidance Notes on the
Calculation of Regulatory Capital to the
banking industry in the reporting period.
The Guidance Notes took cognisance of
the peculiarities of Nigeria's local
environment and, therefore, required
banks to:
·
Commence a parallel run of
capital adequacy computation,
based on the requirements of the
new guidelines alongside Basel I
requirements, effective January
1, 2014 and migrate fully to Basel
II by June 2014;
·
Adopt basic approaches for
calculating credit, market and
operational risks capital
requirements for the first two
years, in anticipation of the
development of an effective
rating system in Nigeria. This
would also afford banks sufficient
time to gather the required data
and acquire necessary experience
for the adoption of the more
advanced approaches;
·
Carry out an Internal Capital
Adequacy Assessment Process
(ICAAP) on an annual basis, as at
December 31, and forward copies
of the assessment report to the
CBN for review, not later than
four (4) months after the year end,
beginning from 2014; and
3.3.2
Implementation of Basel II/III
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

was deployed by the Bank in November
2013. The new application, which went
live in December 2013, is expected to run
concurrently with the existing e-FASS
application.
The Corporation's bonds held by banks
and other private investors, amounting to
N734.09 billion, became due and were
redeemed on 31st December 2013, in line
with the terms of the indenture, while
bonds of N3.51 trillion held by the CBN
were restructured into a N3.80 trillion
Note at 6 per cent, with a 10-year tenor.
AMCON is due to redeem the third
tranche of its bonds held by private
investors in the sum of N866.73 billion
by October 2014. Thereafter, the CBN
would be the only bondholder in
AMCON.
The Eligible Bank Assets (EBAs)
acquired by AMCON stood at N2.37
trillion at end-December 2013, from
N2.72 trillion at end-June 2013.
Restructured loans amounted to N374.35
billion as at December 31, 2013 of which
55.75 per cent were performing, while
44.25 per cent were non-performing.
Total recoveries at end-December 2013
were N164.5 billion, from the N109.40
billion achieved at end-June 2013.
The NPL ratio decreased to 3.23 per cent,
compared with 3.65 per cent at end-June
2013, reflecting an improvement in the
quality of banks' assets. It also remained
within the regulatory threshold of 5 per
3.4
The Assets Management
Corporation of Nigeria
3.5
Key Risks in the Financial
System
3.5.1
Credit Risk
such exposures would be taken as
reduction of capital and be
deducted from capital during
capital adequacy computation.
The above policy measures, approved to
take effect from January 1, 2014, would
ensure a stricter prudential assessment of
the banks' capital adequacy.
Sequel to the publication of the first
IFRS-based annual financial statements
by banks and discount houses in the first
half of 2013, the CBN/NDIC added
traction to the implementation by
conducting an assessment of the
impairment methodology and IT support
for IFRS reporting of the entities in the
second half of 2013. The impairment
methodology assessment reviewed the
impairment models of the entities for
appropriateness, adequacy of the inputs,
and correctness of the output.
The assessment of IT support for IFRS
reporting indicated that while some
entities used Excel to convert their
NGAAP figures to IFRS figures, others
were at various stages of implementing
IT solutions for IFRS reporting.
During the review period, capacity
building programmes continued,
especially in the Other Financial
Institutions (OFIs) sub-sector. In
addition, 19 publicly quoted OFIs issued
their first IFRS financial statements as at
December 31, 2012. Guidelines were
also issued on the mode of adoption
expected of the other OFIs, with the unit
MFBs and BDCs categorised under
SMEGA Levels II and III respectively.
Following the adoption of IFRS in the
banking industry, an application, FinA,
3.3.3
International Financial
Reporting Standards
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

end-June 2013, indicating a marginal
decrease in credit concentration.
Liquidity risk remained subdued during
the review period as all banks exceeded
the minimum required ratio of 30 per cent
and the industry maintained an average of
50.63 per cent. The downside risk,
however, was the cost of liquidity
management in order to contain
inflationary pressure and to protect the
naira exchange rate.
Rates were generally stable in the second
3.5.2
Liquidity Risk
3.5.3
Market Risk
cent. Total NPLs, however, increased by
0.72 per cent to N324.13 billion at endDecember 2013, from N321.80 billion at
end-June 2013.
Furthermore, credit concentration
remained a concern as the top 50 and 100
borrowers constituted 31.88 and 40.51
per cent, respectively, of gross credit at
end-December 2013. This compares with
32.57 and 40.76 per cent, respectively, at
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 3.14: Trend of Banking Industry NPLs, 2010 - 2013


Nov, ‘10 Mar’11 Jun’11
Sep’11 Dec’11 Mar ‘12 Jun ‘12 Sep ‘12 Dec‘12 Mar‘13 Jun ’13 Dec’13
NPLs %
Notwithstanding the stable rates, the
continued decline of foreign reserves and
decrease in oil receipts due to challenges
in the oil sector, coupled with possible
foreign portfolio investment reversals
following the tapering of the US
quantitative easing programme, could
elevate market risk.
With enhanced security features in
electronic banking software, identity
theft and other cyber crimes have been
ameliorated. However, other operational
risks, such as fraud and forgeries,
persisted.
3.5.4
Operational Risk
half of 2013 except for the fluctuations
caused by the short-run effects of the July
2013 MPC decision to raise CRR on
public sector deposits to 50 per cent from
12 per cent, and the challenges
experienced by some discount houses.
Measures taken by the CBN, however,
helped in moderating the rates towards
the end of the reporting period.

in the CRMS were processed as against
86 from January to June 2013.
Periodic spot checks on banks'
compliance with the CRMS regulation
helped to improve the number of
borrowers registered in the database,
while the decline in CRMS-related
complaints was due to improved
compliance with the CRMS Guidelines.
Also, a workshop on basic CRMS
administration and processes was
conducted in November 2013 to train
desk officers of reporting institutions.
The three licensed private credit bureaux
(PCBs) continued to complement the
efforts of CBN's CRMS in ensuring that
financial institutions have adequate
information on prospective borrowers
while processing their credit requests.
The number of credit records in PCBs
increased to 21.89 million, from 21.08
million at end-June 2013.
The progress made by the PCBs
notwithstanding, they continued to face
the challenges of low public awareness,
absence of a unique identifier, inadequate
skilled human resources, and lack of an
efficient information sharing
mechanism. The guidelines for the
operation and regulation of PCBs were
revised, effective November 14, 2013, to
address the identified challenges and
facilitate sustainable growth of the
economy.
The Financial Services Regulation
Coordinating Committee (FSRCC)
continued to provide a forum for
interaction and coordination by the
3.6.2
Private Credit Bureaux
3.7
The Financial Services
Regulation Coordinating
Committee
Reported cases of fraud and forgery
increased by 58.07 per cent to 3,917,
involving a total sum of N31.49 billion in
the second half of 2013, from 2,478 cases
involving N22.41 billion in the first half
of 2013. Actual losses, however, declined
by 45.55 per cent to N2.08 billion in the
review period, from N3.82 billion in the
first half of 2013.
The activities of the consumer protection
function of the CBN, in mediating
between banks and their customers,
contributed in enhancing confidence in
the banking system. Furthermore, the
engagement of the general public through
sensitization workshops, road shows, and
consumer parliaments improved
confidence in the system. This was
evidenced by the substantial decline in
the number of complaints by bank
customers to the CBN.
Also, the delisting of Nigeria from the
Financial Action Task Force (FATF)
“Grey List” in October 2013 has
improved the country's reputation as an
investors' destination.
The Credit Risk Management System

(CRMS) continued to complement the
process of credit risk management in the
banking industry. At end-December
2013, the number of borrowers registered
by banks in the CRMS database stood at
202,611, while the total value of
outstanding credits was N16.49 billion.
During the review period, 75 requests/or
complaints on customers' credit records
3.5.5
Reputational Risk
3.6
Credit Bureaux
3.6.1
CBN's Credit Risk
Management System
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
7The CRMS is a depository of credit information on borrowers of N1 million and above for individuals, and N5 million and above for corporate
customers.

charged its Financial Sector Soundness
Sub-Committee (FSSSC) with the task of
developing a financial stability
monitor/dashboard and report on the
dashboard at every meeting of the
FSRCC.
The Bank received a total of 305
customer petitions against financial
institutions during the second half of
2013.The figure showed a decrease of
59.82 per cent, from the 759 petitions
received in the first half of 2013. The total
refunds by banks to petitioners arising
from the complaints amounted to N1.48
billion and US$194,000, compared with
N1.45 billion recorded in the first half of
the year.
3.8
Consumer Protection
3.8.1
Customer Complaints
regulatory authorities in the Nigerian
financial system. The framework for the
enhancement of supervisory tools,
developed by the Bank, was adopted by
the Committee for implementation.
Under the framework, the FSRCC would
be restructured to have a Support Service
Group (SSG) responsible for financial
research and macro-prudential analysis.
A robust, IT-driven database
infrastructure is expected to become an
important component part of the
restructuring arrangement. Other aspects
of the adopted framework include the
review of existing legislation and
capacity building to transform the
FSRCC into the Financial System
Stability Committee (FSSC).
The FSRCC also identified the need for
regular reports on vulnerabilities and
threats to financial system stability and
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

4.1
The Payments System Vision

The Bank sustained the implementation
of the Payments System Vision 2020
(PSV 2020) and achieved the following
milestones during the review period:
1.
Hosted a 2-day maiden International
Conference on the Payments System,
with over one thousand participants
from stakeholders across the globe;
2.
Revised and launched the Payments
System Vision 2020 Strategy
document. This would provide the
policy direction for the Bank in the
payments space in the next five years.
The overall objective remains
consistent with the original PSV 2020
document, intended to create an
electronic payments infrastructure
that is nationally utilised and
internationally recognized; and
3.
Assessed the Nigerian Payments
System Market Infrastructure against
the current 24 BIS/IOSCO core
Principles for Financial Market
Infrastructure (PFMI).
Consequent upon the revision of the
strategy document and benchmarking of
the Nigerian PFMI against the 24
BIS/IOSCO principles, the CBN shall:
a. Ensure that, henceforth, no
national payments system shall
invoke the principle of unwind;
b. Remove its implicit role of
'Lender of Last Resort' for the
RTGS payment system by
December 2016 and Deferred
Net Settlement systems by
December 2019;
In pursuance of the Payments System
Vision 2020, the CBN deployed a new
real-time gross settlement (RTGS)
system in the review period for the
settlement of inter-bank fund transfers,
customers' transfers and net positions
from clearing systems on real-time basis.
The new system interfaces with the
Scripless Securities Settlement System
(S4) to facilitate simultaneous delivery
versus payment to mitigate settlement
risks.
The Bank extended its cash-less policy,
earlier launched in Lagos, to five
additional States and the FCT, effective
October 1, 2013. This reduced the cost of
cash management, increased efficiency
of the payments system, and enhanced
financial inclusion.
Ten (10) additional Payment Terminal
Service Providers (PTSPs) were licensed
in the review period to deploy and
maintain PoS terminals, bringing the total
number of PTSPs to 16. With the
additional PTSPs, a wider coverage on
the deployment of PoS terminals across
the country would be achieved.
The Bank, in collaboration with the
Bankers Committee, commenced the
development of a biometric solution to
address the challenges posed by the
absence of a unique identifier in the
Nigerian banking industry.
During the review period, the Bank
adopted the use of mobile money and
issued the Guidelines for the Operation
and Regulation of Agent Banking in
Nigeria, aimed at promoting financial
inclusion.
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

I.
Health,
ii. Bill Presentment.
5. Issued the following guidelines:
i.
The Revised RTGS Rules and
Regulations, and
ii. The Clearing House sanctions.
The volume and value of inter-bank
transfers through the Nigeria Inter-bank
Settlement System (NISS) increased to
200,918 and N56,610.69 billion at endDecember 2013, from 197,220 and
N55,005.31 billion at end-June 2013,
reflecting increases of 1.88 and 2.92
percent in volume and value,
respectively.
The volume of NIBSS instant payment
(NIP) rose to 11,186,930 at endDecember 2013, from 5,924,602 at endJune 2013, reflecting an increase of 88.82
per cent, while the value increased by
59.53 percent to N6,666.17 billion. The
significant rise in volume and value of
NIP was attributed to the extension of the
cash-less policy to 5 additional states and
the FCT.
4.2
The Real-Time Gross
Settlement System
4.3
NIBSS Instant Payment
c.
S t r e n g t h e n i t s s c h e m e
governance structure to reflect
the significantly greater
responsibility of scheme
management, covering all aspects
o f r i s k , b u s i n e s s
m a n a g e m e n t a n d
operational resilience;
d. Ensure that each Scheme
Management Board carries out an
annual self-assessment against
the CPSS/IOSCO PFMI. An
independent
review shall be
undertaken every four years, with
the objective of making the
results publicly available by end2017;
e.
Open formal engagement
channels with Continuous Linked
Settlement as a first step towards
the naira becoming a settlement
currency;
f.
Mandate the use of the SWIFT
Sanctions Checking (or its
equivalent) for international
payment instructions originating
from all banks in Nigeria; and

g. Work jointly with SEC and other
key stakeholders to sponsor a
formal review of the securities
market in Nigeria, which would
be completed under the FSS2020
Financial Markets work stream.
4. Furthermore, the CBN identified the
following new areas and initiatives to
deepen the adoption of e-payment in
the next phase of the PSV2020
Project in the following areas:
i.
Agriculture,
ii. Smart cities,
iii. Transportation,
iv. Education,
v.
Hotels & entertainment,
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

billion at end-December 2013, from
13,918,838 and N6,738.14 billion at endJune 2013, reflecting increases of 15.78
per cent and 12.33 per cent in volume and
value, respectively.
4.4
NIBSS Electronic Fund
Transfer
The volume and value of NIBSS
Electronic Funds Transfer (NEFT)
increased to 16,115,171 and N7,569.17
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 4.1: Volume of NIP Transactions, July to December 2013


July
August
September
October
November December
Figure 4.2: Value (N Billion) of NIP Transactions, July to December 2013

-


Value N' Billion

21,096,075 and N11,492.50 billion at
end-June 2013, thus reflecting decreases
of 40.23 and 13.09 per cent, respectively.
4.5
Cheque Clearing
The volume and value of cheques cleared
decreased to 8,257,330 and N4, 073.15
billion at end-December 2013, from
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 4.3: Volume of NEFT Transactions, July to December 2013


July
August
September
October
November December
Figure 4.4: Value (N Billion) of NEFT Transactions, July to December 2013

-


July
August
September
October
November
December

increased to 176,413,492 at endDecember 2013, from 146,961,511 at
end-June 2013.
Automated teller machines (ATMs)
remained the dominant channel of
4.6
Electronic Cards
Electronic card (e-card) transactions rose
to N1,764.11 billion in the second half of
2013, from N1,416.10 billion in the first
half of 2013, reflecting an increase of
20.04 per cent, while the volume
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 4.5: Volume of Cheques Cleared, July to December 2013
Figure 4.2: V


Figure 4.6: Value (N Billion) of Cheques Cleared, July to December 2013

July
August
September
October
November
December

patronised and accounted for only 1.02
per cent of the total. In value terms, ATMs
accounted for 87.44 per cent; PoS, 5.88
per cent; mobile payments 5.17 per cent;
while the Internet accounted for 1.51 per
cent.
electronic payments. ATMs accounted
for 89.92 per cent, followed by mobile
payments with 5.55 per cent and PoS
terminals with 3.51 per cent. The Internet
as a payment channel (e-commerce) is yet
to be fully embraced by the banking
public. Thus, it remained the least
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 4.7: Volume of Electronic Card Transactions, July to December 2013

ATM
POS
WEB
MOBILE
Figure 4.8: Value of Electronic Card Transactions, July to Dec 2013


ATM
POS
WEB
MOBILE

136,663,013, reflecting an increase of
16.07 per cent, while the value increased
to N1,542.59 billion from N1,286.35
billion at end-June 2013, reflecting an
increase of 19.92 per cent.
4.6.1
ATM Transactions
The number of ATMs rose to 12,755 at
end-December 2013, from 11,702 at endJune 2013. The volume of ATM
transactions increased during the period
under review to 158,629,927, from
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 4.9: Volume of ATM Transactions, July - Dec 2013


July
August
September
October
November December
Figure 4.10: Value (N Billion) of ATM Transactions, July - Dec 2013

-

July
August
September
October
November
December

respective, in the first half of 2013,
respectively, reflecting increases of 63.77
and 75.96 per cent, respective, in volume
and value, respectively.
4.6.2
Mobile Payments
The volume and value of mobile
payments increased during the review
period to 9,797,110 and N91.14 billion,
from 5,982,225 and N51.79 billion,
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Figure 4.11: Volume of Mobile Payments, July - Dec 2013


July
August
September
October
November December
Figure 4.12: Value (N Billion) of Mobile Payments, July - Dec 2013

-

July
August
September
October
November
December

billion, respectively, in the second half of
2013, reflecting increases of 93.11 and
81.37 per cent in volume and value. The
number of PoS terminals rose to 120,191
at end-December 2013 from 119,653 at
end June 2013.
4.6.3
Point of Sale Terminal
Transactions
The volume and value of point of sale
(PoS) transactions increased during the
review period to 6,194,467 and N103.79
billion from 3,207,788 and N57.23
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013


July
August
September
October
November December
Figure 4.13: Volume of PoS Transactions, July - Dec 2013
Figure 4.14: Value (N Billion) of PoS Transactions, July - Dec 2013

July
August
September
October
November
December

2014. Although responses to the news on
tapering were relatively subdued in most
economies, the combination of portfolio
shifts and domestic weaknesses could
result in sharper capital outflows and
exchange rate adjustments.
Consequently, the report recommends
that efforts to strengthen the global
financial system and sever the links
between banking and sovereign debt
distress in Europe should be embarked
upon to ensure that improvements in the
global financial outlook translate into
better prospects for the real economy.
For the Nigerian economy, real GDP
growth is expected to remain strong at 7.3
per cent in 2014, up from the 6.4 per cent
recorded in 2013. Similarly, real GDP
growth in the non-oil sector is expected to
remain strong, driven largely by
agriculture, trade and services, while
activities in the oil sector are projected to
recover in 2014. Inflation is projected to
decline to 7.0 per cent by end of 2014,
down from the 8.0 per cent recorded at
end December 2013. The forecast is
based on the assumption that the Bank
would sustain its tight monetary policy
stance, in view of the forthcoming 2015
elections, and that the trend of declining
food prices, arising from higher rice and
wheat production, would persist. The
downside risks to developments in the
domestic economy include a continued
decline in oil revenues due to changes in
the international oil market, lack of fiscal
prudence induced by increasing political
activities, unabated security challenges
in the northern part of the country, likely
capital flow reversals as the Federal
Reserve continues implementing its
tapering programme, and uncertainties
Growth in global output is projected to
strengthen at 3.7 per cent in 2014, up
from the 3.0 per cent recorded in 2013.
Most of the growth is expected to come
from the advanced economies, as the drag
in fiscal consolidation and uncertainties
surrounding the impact of the US Federal
Reserve's decision to systematically cut
back on its quantitative easing
programme on most economies thin out
and private sector demand gains firmer
ground. Also, it is expected that 2014
would witness an appreciable reduction
in fiscal tightening, but accommodative
monetary conditions in most economies.
Consequently, output growth in the
advanced economies is projected at 2.2
per cent or 0.9 per cent higher than the 1.3
per cent recorded in 2013. The stronger
recovery in advanced economies will see
emerging markets benefiting from higher
external demand. Output in Emerging
Market and Developing Economies is
projected to grow at 5.1 per cent in 2014,
compared to 4.7 per cent in 2013, and
growth in Sub-Saharan Africa is
projected to expand to 6.1 per cent in
2014 from 5.1 per cent in 2013.
The IMF World Economic Outlook
(January 2014 Update), however, noted
that downside risks remained with these
forecasts. The risks include low inflation
in advanced economies, especially the
Euro area. Increases in real debt burdens
and “premature real interest rate”, given
that monetary policy in the Euro area, is
constrained in lowering nominal interest
rate. In the emerging market economies,
increased financial market and capital
flow volatility remains an issue of
concern, given the announcement in
December 2013 that the U.S. Federal
Reserve would start its tapering early
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

associated benefits in the reduction of
fraud and credit risk.
In the area of regulation, further measures
are expected to address issues relating to
capacity in the banking system to further
enhance the resilience of the financial
system. These measures include the
development of a competency
framework for the banking industry, the
issuance of regulations for holding
companies, and the automation of the 'fit
and proper persons' portal.
It is envisaged that the system will remain
resilient and capable of dealing with
emerging challenges, despite short-term
risks to financial stability.
about the pace of recovery in the global
economy.
Money market rates are expected to
remain stable in the first half of 2014,
albeit at a slightly higher level than was
recorded in the second half of 2013.
Expectations of an increased liquidity
surfeit in the system would likely be
counter-balanced by tight monetary
policy in order to maintain price stability.
The biometric solution to address the
challenges associated with a unique
identifier in the Nigerian banking
industry is expected to be deployed in the
first half of 2014. This would enhance the
application of the “Know Your
Customer” (KYC) principle, with its
CBN FINANCIAL STABILITY REPORT
DECEMBER 2013

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
Box 1: Guidance Note on Regulatory Capital
REGULATORY CAPITAL
1.0
Introduction
2.0
Composition of Regulatory Capital
This document lays down new supervisory regulations for assessing the capital

adequacy levels of banks and banking groups. The regulations have been revised
following the changes that were introduced in international regulations to take
account of developments in risk management methodologies adopted by banks and
the new policies and criteria underpinning supervisory activities.

The rules governing regulatory capital , the total capital requirement, the internal
capital assessment process and risk concentration shall be applied on solo and
consolidated bases.
The following regulation is applicable to all banks licensed by the CBN.
This guideline establishes the procedures for calculating regulatory capital,
which shall be the sum of
Capital elements:

Tier 1 Capital
(a)
Paid-up share capital/common stock

(b)
Disclosed reserves

Tier 2 Capital
(a)
Revaluation reserves
(b)
General provisions/general loan-loss reserves
(c)
Hybrid (debt/equity) capital instruments
(d)
Subordinated debt
Less any
a)
From Tier 1:
(i)
Goodwill and increase in equity capital resulting from a securitization;
(ii)
Investment in own shares (treasury stock);
(iii)
Losses carried forward and losses for the current financial year; and
(iv)
Intangible assets.
b)
The following items shall be deducted 50% from Tier 1 and 50%
from Tier 2 capital:
(i)
Investments in unconsolidated banking and financial subsidiary
companies;
(ii)
Investments in the capital of other banks and financial institutions; and
8More specifically, these are contained in International Convergence of Capital Measurement and Capital Standards, A Revised Framework.
Comprehensive Version, published by the Basel Committee on Banking Supervision June 2006 (the “New Basel Capital Accord", or "Basel II")
9Regulatory capital shall not be less than the initial capital required for authorization to engage in banking.
10Subject to Tier 1 capital prudential filters, if any, as computed by the CBN.
11These include share premium, retained profit, general reserves, SMEEIS reserves, regulatory risk reserves and statutory/legal reserves.
12Subject to Tier 2 capital prudential filters, if any, as specified by the CBN.

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
13The total of Tier 2 capital will be limited to a maximum of 33.3% of the total of Tier 1, while Tier 3 capital, innovative instrument and
undisclosed reserve are not allowed for inclusion in regulatory capital.
(iii)
Significant minority investments in other financial entities.
This includes only permanent shareholders' equity (issued and fully paid ordinary
shares/common stock and perpetual non-cumulative preference shares) and
disclosed reserves (created or increased by appropriations of retained earnings or
other surpluses).
In the case of consolidated accounts, this also includes minority interests in the equity
of subsidiaries which are not wholly owned. This basic definition of capital excludes
revaluation reserves and cumulative preference shares.
There is no limit on the inclusion of Tier 1 capital for the purpose of calculating
regulatory capital. For this purpose, the equity shares with the following
characteristics are included in Tier 1 capital:
·
Issued directly by the bank;
·
Clearly and separately identified in the balance sheet;
·
Have no maturity (are perpetual);
·
Fully paid;
·
Cannot be refunded beyond the possibility of the liquidation of a bank or a
reduction of its share capital;
·
Do not give to the holder rights to a minimum remuneration nor are there any
clauses that require the compulsory payment of dividends;
·
The dividends are paid solely out of distributable profits or retained earnings
distributable; and
·
Classified as equity instruments in accordance with IFRS.
(a)
Revaluation Reserve
i)
Fixed Asset Revaluation Reserve: This relates to revaluation of fixed assets
in line with market values reflected on the face of the balance sheet.
Prior approval of the CBN must be obtained by any bank before the recognition of the
revaluation surplus on fixed assets in its books, which can only be done taking into
consideration the following:
·
The valuation must be made by qualified professionals and the basis of the
revaluation as well as the identities of the valuers must be stated;
·
The difference between the market and historic values of the eligible fixed
assets being revalued shall be discounted by 55%;
·
The revaluation of fixed assets is applicable to own premises only; and
·
The revaluation of fixed assets (own premises only) is permissible within a
3.0
Qualifying Criteria for the Assessment of Capital Components
3.1
Tier 1 Capital

3.2 Tier 2 Capital

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
minimum period of seven years after the date of the purchase of the asset or
the last revaluation.
ii)
Other revaluation reserves: The inclusion of other revaluation reserves
created by the adoption of the International Financial Reporting Standards (IFRS) as
part of the Tier 2 capital shall be subject to the limitations that will be specified by the
CBN from time to time.
(b)
General provisions/General loan-loss reserves
For the purpose of the standardized credit risk measurement approach, provisions or
loan-loss reserves held against future (presently unidentified) losses are freely
available to meet losses which subsequently materialize and therefore qualify for
inclusion in Tier 2 capital. Provisions ascribed to specific or identified deterioration
of particular assets or known liabilities, whether individual or group (collective), are
excluded. Furthermore, general provisions/general loan-loss reserves eligible for
inclusion in Tier 2 will be limited to a maximum of 1.25 percentage points of credit
risk-weighted assets and subject to the approval of the CBN.
(c)
Hybrid (debt/equity) capital instruments
These include financial instruments which combine characteristics of equity and debt
capital. Essentially, they should meet the following requirements:
·
They are unsecured, subordinated and fully paid-up;
·
They are not redeemable at the initiative of the holder or without the prior
consent of the CBN;
·
They are available to participate in losses without the bank being obliged to
cease trading (unlike conventional subordinated debt);
·
Although the capital instrument may carry an obligation to pay interest that
cannot permanently be reduced or waived (unlike dividends on ordinary
shareholders' equity), it should allow service obligations to be deferred (as
with cumulative preference shares) where the profitability of the bank would
not support payment; and
·
Hybrid capital instruments that are redeemable must have a maturity of at
least 10 years. The contract must clearly specify that repayment is subject to
authorization by the Central Bank of Nigeria. Cumulative preference shares,
having these characteristics, would be eligible for inclusion in this category.
·
The valuation must be made by qualified professionals and the basis of the
revaluation as well as the identities of the valuers must be stated;
·
The difference between the market and historic values of the eligible fixed
assets being revalued shall be discounted by 55%;
·
The revaluation of fixed assets is applicable to own premises only; and
·
The revaluation of fixed assets (own premises only) is permissible within a
minimum period of seven years after the date of the purchase of the asset or
the last revaluation.

CBN FINANCIAL STABILITY REPORT
DECEMBER 2013
(d)
Subordinated term debts
Subordinated debts issued by banks shall form part of the Tier 2 capital, provided that
the contracts governing their issue expressly envisage that:
·
In the case of the liquidation of the issuer, the debt shall be repaid only after all
other creditors not equally subordinated have been satisfied;
·
The debt has an original maturity of at least five years. Where there is no set
maturity, repayment shall be subject to at least five years' prior notice;
·
Early repayment of the liabilities may take place only at the initiative of the
issuer and shall be subject to approval of the CBN;
·
The contracts shall not contain clauses whereby, in cases other than those
referred to in points (a) and (c), the debt may become redeemable prior to
maturity; and
·
During the last five years to maturity, a cumulative discount (or amortization)
factor of 20% per year will be applied to reflect the diminishing value of these
instruments as a continuing source of strength.
Unlike instruments included in hybrid capital above, these instruments are not
normally available to participate in the losses of a bank which continues trading. For
this reason, these instruments will be limited to a maximum of 50% of Tier 1 Capital.
Owing to the adoption of International Financial Reporting Standards (IFRS) by
banks and for the purpose of calculating regulatory capital, the CBN may, from time
to time, apply prudential filters.
Banks shall continue to report on regulatory capital in accordance with the CBN's
extant rules.
4.0
Prudential Filters
5.0
Frequency of Reporting and Procedures for Calculating Individual
Regulatory Capital