FINANCIAL STABILITY REPORT – JUNE 2019

FINANCIAL
STABILITY
REPORT


JUNE 2019

FINANCIAL STABILITY REPORT – JUNE 2019

i


Contents


FINANCIAL STABILITY REPORT – JUNE 2019


Differentiated Cash Reserve Ratio Window of Real Sector Support Facility .... 41

FINANCIAL STABILITY REPORT – JUNE 2019

iii


Anti- Money Laundering/Counter Financing of Terrorism and Corporate

FINANCIAL STABILITY REPORT – JUNE 2019

iv


Revised Nigeria Cheque Standards and Cheque Printers Accreditation
Scheme 69


5.1
5.2
5.3


FINANCIAL STABILITY REPORT – JUNE 2019

v


List of Figures


FINANCIAL STABILITY REPORT – JUNE 2019

vi


List of Tables


FINANCIAL STABILITY REPORT – JUNE 2019

vii


List of Boxes


FINANCIAL STABILITY REPORT – JUNE 2019

viii


LIST OF ACRONYMS
AMCON
Asset Management Corporation of Nigeria
AML/CFT
Anti-Money Laundering and Combating the Financing of Terrorism
BDCs
Bureaux de Change
BOI

BOA
Bank of Industry

Bank of Agriculture
BRICS
Brazil, Russia, India, China, and South Africa
BVN
Bank Verification Number
CACS
Commercial Agriculture Credit Scheme
CAR
Capital Adequacy Ratio
CBN
Central Bank of Nigeria
COB
Currency Outside Banks
CRMS
Credit Risk Management System
DAX
Deutscher Aktienindex (German stock index of 30 major German
companies)
DFIs
Development Finance Institutions
DMBs
Deposit Money Banks
EBAs
Eligible Bank Assets
ECB
European Central Bank
EGX CASE

Egypt Stock Exchange (Cairo and Alexandria Stock Exchange) 30
Stock Index
FAO
Food and Agriculture Organisation
FATF
Financial Action Task Force
FCs
Finance Companies
FGN
Federal Government of Nigeria
FMBN
Federal Mortgage Bank of Nigeria
FRACE
Financial Regulation Advisory Council of Experts
FSIs
Financial Soundness Indicators
FSR
Financial Stability Report
FSRCC
Financial Services Regulation Co-ordinating Committee
GDP
Gross Domestic Product
GSE
Ghanaian Stock Exchange
HHI
Herfindahl-Hirschman Index
ICE
Intercontinental Exchange
IFRS
International Financial Reporting Standards
IMF
International Monetary Fund
KYC
Know Your Customer
M1
Narrow Money Supply
M2
Broad Money Supply
M3
M2 plus CBN Bills held by the money holding sectors
MENA
Middle East and North African Countries
FINANCIAL STABILITY REPORT – JUNE 2019

ix


MFBs
Microfinance Banks
MICEX
Moscow Interbank Currency Exchange
MoUs
Memoranda of Understanding
MHSs
Money Holding Sectors
MPR
Monetary Policy Rate
NBS
National Bureau of Statistics
NCR
National Collateral Registry
NDC
Net Domestic Credit
NDIC
NEXIM
Nigeria Deposit Insurance Corporation
Nigerian Export-Import Bank
NIBSS
Nigerian Inter-bank Settlement System
NMRC
Nigeria Mortgage Re-finance Company Plc
NPLs
Non-Performing Loans
NSE ASI
Nigerian Stock Exchange All-Share Index
NSE 20
Nairobi Stock Exchange 20-Share Index
NYMEX
New York Mercantile Exchange
OBB
Open Buy Back
OFIs
Other Financial Institutions
OPEC
Organisation of Petroleum Exporting Countries
ORB
OPEC Reference Basket
PAIF
Power and Aviation Infrastructure Fund
PENCOM
National Pension Commission of Nigeria
PFAs
Pension Fund Administrators
PFCs
Pension Fund Custodians
PMBs
Primary Mortgage Banks
PoS
Point of Sale
PSV 2020
Payments System Vision 2020
ROA
Return on Assets
ROE
Return on Equity
RTGS
Real-Time Gross Settlement System
S&P/TSX
Standards and Poor’s Composite Index of the Toronto Stock
Exchange
SEC
Securities and Exchange Commission
SMEs
Small and Medium Enterprises
WAMZ
West African Monetary Zone
WEO
World Economic Outlook
WTI
West Texas Intermediate

FINANCIAL STABILITY REPORT – JUNE 2019

GOVERNOR’S STATEMENT

Global output remained subdued in the first half of 2019 against the backdrop of
slowdown in inflation in advance economies, intensified trade tensions and prolonged
uncertainty on Brexit. Consequently, global growth was expected to slow down to 3.2
per cent in 2019, from 3.6 per cent in 2018.

In Nigeria, although growth momentum slowed in the first half of 2019 compared with
the second half of 2018, it remained on a positive trajectory, owing largely to monetary
and fiscal policy initiatives. The implementation of the Federal Government Economic
Recovery and Growth Plan (ERGP) strategy, supported by CBN interventions in the
real sector, contributed significantly to the growth and stability in the economy.

The Bank signalled an accommodative monetary policy stance in the first half of 2019
in order to increase credit flow and further stimulate growth in the economy. Inflation
moderated marginally downwards to 11.22 per cent in the first half of 2019, from 11.44
per cent in the second half of 2018. The sustained stability in the foreign exchange
market further bolstered economic growth.

The banking sector remained stable and resilient in the face of both external and
domestic challenges. The financial soundness indicators of the industry remained
robust as liquidity and capital adequacy ratios were above regulatory thresholds. Major
improvements in the payments system facilitated credit growth to MSMEs and access
to financial services, leading to successes in the financial inclusion objectives.
The Bank will continue to intensify efforts at ensuring inclusive growth, sustainable
development and creation of employment opportunities to meet the demands of the
teeming population. It will also sustain its collaboration with the fiscal authorities
towards achieving these common goals.

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


FINANCIAL STABILITY REPORT – JUNE 2019

FOREWORD

Weakness in global economic activities reflected headwinds from the US – China trade
disputes, Brexit uncertainties and geopolitical tensions in the Gulf region. These
contributed to a decline in business confidence, tightness in the financial markets and
weakened growth across major world economies. However, global capital markets
showed signs of recovery in the first half of 2019.

In the foreign exchange market, the US dollar appreciated against other major
currencies, owing largely to increase in the US policy rate. In oil exporting countries,
relative stability in oil prices led to a rebound in economic growth in most of the
economies, particularly, Bonny Light reference crude trended upwards from US$63.59
at end-January 2019 to US$66.74 at end-June 2019.

In Nigeria, recovery in real GDP growth rate slowed marginally. However, growth
remained positive at 2.02 per cent, attributed mainly to expansion in the manufacturing
and services sub-sectors. To further spur growth, the Bank adopted an
accommodative monetary policy stance by reducing its policy rate by 50 basis points
to 13.50 per cent, to encourage credit flow to critical sectors of the economy.

In continuation of the efforts to ensure the safety and soundness of the banking
system, the CBN extended the adoption of the IFRS 9 to Other Financial Institutions
and increased capital requirements to strengthen the capacity of the sector. It also
sustained the monitoring of compliance with the requirements of IFRS 9 and Basel II
and III, and the supervision of banks in order to manage systemic risks and ensure
sound corporate governance practices.

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

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


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

FINANCIAL STABILITY REPORT – JUNE 2019

EXECUTIVE SUMMARY

Global growth remained subdued in the first half of 2019, owing to trade tensions
between the US and China, prolonged uncertainties surrounding Brexit, weak
investments and rising geopolitical issues. As a result of these developments, global
growth was expected to decline to 3.2 per cent in 2019, from 3.6 per cent in 2018.
Inflation trended below the target of 2.00 per cent in major advanced economies,
arising from the decrease in energy costs and weak aggregate demand. However, in
the emerging market and developing economies, inflation was expected to rise slightly
in 2019, a development attributed to moderate increase in aggregate demand and
pass-through effect of currency depreciations.

International stock market performance in the first half of 2019 was generally positive
as most markets showed signs of recovery. The foreign exchange market witnessed
appreciation of major currencies against the US dollar. The weakening of the US dollar
was driven by subdued global growth, declining long-term yields and the ongoing trade
tensions between the US and China. Monetary policy rates for most central banks
were kept relatively stable during the review period.

The domestic economy continued its gradual recovery, though GDP growth slowed to
2.02 per cent in the first half of 2019. The growth was due largely to the sustained rally
of activities in the services and agricultural sectors. Inflationary pressures eased
marginally in the first half of 2019 as headline inflation (year-on-year) decreased to
11.22 per cent in June 2019, from 11.44 per cent at end-December 2018. External
reserves increased by US$2.15 billion in the first half of 2019, to US$44.75 billion,
while rates remained stable in the foreign exchange market.

The Bank eased its monetary policy stance to promote growth by encouraging greater
credit flow to the productive sectors of the economy, particularly the critical sectors in
order to stimulate value chain development and conserve foreign exchange reserves.
Broad money supply, M3, grew by 4.97 per cent at end-June 2019 relative to 16.36 at
end-December 2018. Net aggregate credit to the economy grew by 17.26 per cent at
end-June 2019, reflecting the increases in both net claims on the Federal Government
and credit to the private sector. Reserve money also grew by 13.35 per cent, reflecting
the increase in net domestic assets.

The short-term money market rates trended mostly below the policy rate in the first
half of 2019. Money market rates closed lower at the interbank market with the
overnight call and open buy back rates trading below their levels in the preceding half
year. In the capital market, the Nigerian Stock Exchange All Share Index decreased,
reflecting bearish conditions in the market, while market capitalization increased,
owing to the listing of a telecommunications company.

FINANCIAL STABILITY REPORT – JUNE 2019

In the banking sector, there were improvements in the composite risk ratings of banks.
The capital adequacy ratio of the industry increased to 15.27 per cent, from 15.21 per
cent in the second half of 2018, reflecting improvement in the capital cover for bank
exposures. Similarly, the industry non-performing loan ratio improved to 9.33 per cent
at end-June 2019, from 11.67 per cent at end-December 2018. Also, the industry
return on assets (ROA) and return on equity (ROE) recorded moderate improvements.
The usage of electronic payment channels increased significantly, reflecting public
confidence in the payments system.

Overall, the economy is expected to continue on its growth recovery path amidst
sustained stability in the financial system.


FINANCIAL STABILITY REPORT – JUNE 2019

ECONOMIC AND FINANCIAL DEVELOPMENTS
1.1 Global Developments
1.1.1 Output
Global growth was projected to decline to 3.2 per cent in 2019 from 3.6 per cent in
2018, as the headwinds confronting the global economy continued amid increased
uncertainties and financial vulnerabilities. The downgrade was attributed to trade
tensions between the United States and China, Brexit uncertainties, weak investments
across advanced and emerging economies, sluggish global trade and rising geopolitical tensions.

Output growth in advanced economies was projected to decline to 1.9 per cent in 2019
from 2.2 per cent in 2018, reflecting decline in fiscal stimulus in the United States and
escalating trade tension between the US and China. In the United States, growth was
downgraded to 2.6 per cent in 2019 from 2.9 per cent in 2018. The downward
projection reflected the impact of lower fiscal spending, weak investment and softened
domestic demand, as well as sluggish export. In the United Kingdom, output growth
was estimated at 1.3 per cent in 2019, down marginally from 1.4 per cent in 2018. The
modest projection was driven by increased household expenditure supported by the
government pre-Brexit inventory accumulation and stockpiling. Conversely, growth in
Japan was expected to increase slightly to 0.9 per cent in 2019, from 0.8 per cent in
2018, reflecting increase in net exports and a rebound in household consumption and
business spending.

In the euro area, growth was projected to decline to 1.3 per cent in 2019 from 1.9 per
cent in 2018, owing to Brexit uncertainties, weak fiscal outlook, low private
consumption and industrial output, as well as subdued external demand.

In the emerging market and developing economies, growth was expected to decline
to 4.1 per cent in 2019 from 4.5 per cent in 2018, owing, largely, to the continued
slowdown in the Chinese economy. Output growth in China was projected to slow
down to 6.2 per cent in 2019, from 6.6 per cent in 2018, driven by the negative effects
of escalating trade tension with the US and weak external demand.

Growth in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region
was downgraded to 1.0 per cent in 2019, from 1.6 per cent in 2018 reflecting, largely,
the subdued growth in Saudi Arabia, macroeconomic adjustment challenges in
Pakistan, increased tension between the US and Iran, as well as continued conflicts
in Syria and Yemen.

In sub-Saharan Africa, output growth was expected to increase to 3.4 per cent in 2019,
from 3.1 per cent in 2018, owing to improved investment in some economies of the
region. Growth in Nigeria was projected to increase to 2.3 per cent in 2019 from 1.9
FINANCIAL STABILITY REPORT – JUNE 2019

per cent in 2018, reflecting recovery in oil production and prices, increased agricultural
output and growth in other non-oil sectors. However, growth in South Africa was
projected to decline to 0.7 per cent in 2019 from 0.8 per cent in 2018, reflecting weak
agricultural production and negative effects of power outages on manufacturing and
mining.
Table 1:1 Global Growth
Region/Country
Year-on- Year
Year

2019*
World
3.8
3.6
3.2
Advanced Economies
2.4
2.2
1.9
United States
2.2
2.9
2.6
Euro Area
2.4
1.9
1.3
Japan
1.9
0.8
0.9
United Kingdom
1.8
1.4
1.3
Canada
3.0
1.9
1.5
Emerging Markets and Developing
Economies
4.8
4.5
4.1
China
6.8
6.6
6.2
MENAP
2.1
1.6
1.0
Sub-Saharan Africa
2.9
3.1
3.4
Nigeria
0.8
1.9
2.3
South Africa
1.4
0.8
0.7
Source: IMF’s World Economic Outlook, July Update, 2019
*Projections
1.1.2 Inflation
Generally, inflation in advanced economies was expected to soften below target in
2019, thereby reinforcing the need for central banks to return to monetary
accommodation in the near to medium term.

In the United States, inflation was expected to decline to 2.0 per cent in 2019, from 2.4
per cent in 2018, reflecting the decrease in commodity prices, tepid wage growth and
global economic slowdown. In the euro area and the United Kingdom, inflation was
projected to decline to 1.3 and 1.8 per cent in 2019 from 1.8 and 2.5 per cent in 2018,
respectively, driven by the decrease in energy costs, transport, housing and utility
prices. However, inflation was expected to inch up to 1.1 per cent from 1.0 per cent in
Japan, owing to continuous government stimulus. Overall, in the advanced
economies, inflation was projected at 1.6 per cent in 2019 from 2.0 per cent in 2018.

In the emerging markets and developing economies, inflation was expected to rise
marginally to 4.9 per cent in 2019 from 4.8 per cent in 2018, indicating moderate
increase in aggregate demand. This also reflected the increase in value-added tax
rate in Russia, continued high food prices in India and currency depreciation in some
economies.

FINANCIAL STABILITY REPORT – JUNE 2019

In the MENAP region, inflation was expected to decline to 9.7 per cent in 2019 from
10.4 per cent in 2018, reflecting the moderation in the prices of food, tobacco,
beverages, fruits, vegetables and overall economic slowdown.

In sub-Saharan Africa, inflation was projected at 8.1 per cent in 2019, down from 8.5
per cent in 2018. In Nigeria, inflation was projected to decrease to 11.7 per cent in
2019 from 12.1 per cent in 2018, owing to the expected decrease in the prices of food,
housing and utilities. However, in South Africa, inflation was expected to increase to
5.0 per cent in 2019 from 4.6 per cent in 2018, reflecting the rising prices of food and
utilities.
Table 1:2 Global Inflation
Region/Country

2019*
Advanced Economies
1.7
2.0
1.6
United States
2.1
2.4
2.0
Euro Area
1.5
1.8
1.3
Japan
0.5
1.0
1.1
United Kingdom
2.7
2.5
1.8
Emerging Markets and Developing Economies
4.3
4.8
4.9
MENAP
6.4
10.4
9.7
Sub-Saharan Africa
11.0
8.5
8.1
Nigeria
16.5
12.1
11.7
South Africa
5.3
4.6
5.0
Source: IMF’s World Economic Outlook, April 2019
*Projections

1.1.3 Oil Prices
The recovery in oil prices continued in the first half of 2019, reflecting partly the
extension of the production ceiling period by OPEC and some non-OPEC members
as well as geopolitical tension in the Gulf region. Accordingly, the prices of OPEC
reference Basket, Bonny Light and UK Brent increased by 10.9, 14.75 and 15.82 per
cent, to US$63.2pb, US$66.74pb and US$65.66pb in June 2019 from US$56.94pb,
US$58.16pb and US$56.69pb in December 2018, respectively. Similarly, West Texas
Intermediate (WTI) increased by 3.19 per cent to US$43.35pb in June 2019 from
US$42.01pb in December 2018.

Table 1:3 Oil Prices (US$ per barrel)
Commodities

Dec
Dec
Jun
OPEC Basket
62.06
56.94
63.20
Bonny Light
65.40
58.16
66.74
UK Brent
64.85
56.69
65.66
Source: OPEC and Reuters

FINANCIAL STABILITY REPORT – JUNE 2019

1.1.4 Food Prices
In June 2019, the Food and Agriculture Organization (FAO) Food Price Index stood at
172.70 points, compared with 161.47 points in December 2018. This was driven,
largely, by increases in the prices of dairy, meat and cereals.

The FAO Meat Price Index averaged 175.19 points in June 2019, an increase of 12.8
index points or 7.88 per cent from 162.35 points in December 2018, driven by the
increases in bovine, ovine and poultry meat prices. The FAO Dairy Price index
averaged 199.24 points in June 2019, reflecting an increase of 29.2 index points or
17.2 per cent above 169.98 points in December 2018, owing to a general increase in
price quotations for all categories of dairy.

The FAO Cereal Index rose by about 5.4 points or 3.2 per cent to 173.23 points in
June 2019, compared with 167.79 points in December 2018, occasioned by increase
in the price of maize as export supplies from the US declined considerably.

The FAO Vegetable Oil Price Index averaged 125.46 points in June 2019, indicating
a decrease of 0.3 point or 0.23 per cent from 125.81 points in December 2018, owing
to weak demand for palm oil, soy, sunflower and rapeseed oil.

The FAO Sugar Price Index averaged 183.31 points in June 2019, up by 3.7 points or
2.06 per cent, compared with 179.56 points in December 2018. The increase was
attributed to the appreciation of the Brazilian real against the U.S. dollar.

Despite the increase in global food prices in the review period, prices were projected
to decline by 2.9 per cent at end-December 2019, compared with a decline of 0.6 per
cent in 2018, owing to weak emerging market currencies, slower economic activities
and excess supply of agricultural commodities.

Table 1:4 World Food Price Index
June 2018
December

June 2019
Food Price Index
172.73
161.47
172.70
Meat
166.55
162.35
175.19
Dairy
213.19
169.98
199.24
Cereals
166.83
167.79
173.23
Vegetable Oils
146.07
125.81
125.46
Sugar
177.40
179.56
183.31
Source: FAO July 2019

1.1.5 International Stock Markets
Global stock market performance during the first half of 2019 was generally positive
as most markets showed signs of recovery. The medley of monetary accommodation
FINANCIAL STABILITY REPORT – JUNE 2019

in the euro area, softening yields in the US and UK, moderately weak demand in
Japan, modest volatility in oil prices, Brexit uncertainties and increasing trade tensions
between the US and China characterised developments in the international capital
markets in the period under review.

In North America, the United States S&P 500, Canadian S&P/TSX Composite and
Mexican Bolsa indices increased by 17.3, 14.4 and 3.7 per cent, respectively. The
increase in the S&P 500 was driven by strong economic performance and increased
investor confidence. In Europe, the United Kingdom FTSE 100, France CAC 40 and
Germany DAX indices increased by 10.4, 17.1 and 17.4 per cent, respectively. The
increase in the FTSE 100 index reflected the resilience of the UK economy, despite
Brexit uncertainties.

In Asia, Japan’s Nikkei 225, China’s Shanghai Stock Exchange-A and India’s BSE
Sensex indices increased by 6.3, 19.5 and 9.2 per cent, respectively. The strong
Chinese stock market performance was due to investors’ confidence in the on-going
trade negotiations between the US and China. In South America, the Brazilian
Bovespa, Argentine Merval and Colombian COLCAP indices increased by 13.8, 38.0
and 16.8 per cent, respectively. The increase in the Brazilian Bovespa was driven by
improved oil and sugar prices.
In Africa, the South African JSE All-Share and Egyptian EGX CASE 30 indices
increased by 10.4 and 8.2 per cent, respectively. The improved performance of these
stock markets reflected anticipated slowdown in the pace of US Federal Reserve’s
monetary policy normalization, thus reducing capital reversals. However, the Nigerian
NSE All-Share, Kenyan Nairobi NSE 20 and Ghanaian GSE All-Share indices
decreased by 4.7, 7.1 and 4.2 per cent, respectively. The declines in Nigeria and
Ghana reflected preference for investments in fixed incomes over equities.


FINANCIAL STABILITY REPORT – JUNE 2019

Table 1:5 Indices of Selected Stock Markets
Country
Index
29-Jun-18
31-Dec-18
28-Jun-19
Jun 29, 2018-Jun
28, 2019 %
Change
Dec 31, 2018-Jun
28, 2019 %
Change
AFRICA


Nigeria
NSE All-Share Index

South Africa
JSE All-Share Index

Kenya
Nairobi NSE 20
Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share Index

NORTH AMERICA


US
S&P 500

Canada
S&P/TSX
Composite

Mexico
Bolsa

SOUTH AMERICA


Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

EUROPE


UK
FTSE 100

France
CAC 40

Germany
DAX

ASIA


Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex

Source: Bloomberg
1.1.6 Foreign Exchange Market
Developments in the global foreign exchange markets were mixed in the first half of
2019. In North America, the Mexican peso and the Canadian dollar appreciated by
3.82 and 2.24 per cent, respectively. The appreciation of the Canadian dollar and
Mexican peso reflected improved investments and exports. In South America, the
Brazilian real appreciated by 0.52 per cent, partly driven by gradual recovery in oil
price. However, the Argentine peso depreciated by 11.26 per cent due to financial and
macroeconomic imbalances.

In Europe, major currencies depreciated during the review period. The GBP and Euro
depreciated by 0.50 and 1.14 per cent, owing largely to uncertainties surrounding
Brexit. However, the Russian ruble appreciated by 10.26 per cent, driven largely by
improved oil prices.

In Asia, the Japanese yen, Chinese renminbi and Indian rupee appreciated by 1.63,
0.15 and 0.10 per cent, respectively. The appreciation of the yen was due largely to
the marginal growth in the Japanese economy, which attracted more investors.
FINANCIAL STABILITY REPORT – JUNE 2019

In Africa, the Nigerian naira, South African rand and the Egyptian pound appreciated
by 0.03, 1.92 and 7.37 per cent, respectively. The modest appreciation of the naira
against the dollar in the review period was due to relative stability in the oil market.
The rand appreciated as a result of increasing investors’ confidence. Conversely, the
Kenyan shilling and Ghanaian cedi depreciated by 0.44 and 10.05 per cent,
respectively. The depreciation of the cedi reflected the weak macroeconomic
conditions and gradual loss of investors’ confidence.

Table 1:6 Trends of Selected Currencies
Country/Region
Curren
cy

29-Jun-

31-Dec-

28-Jun-

Dec’ 18 - Jun
'19 % (YTD)
App/Dep

Y-on-Y %
App/Dep
AFRICA


Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi

NORTH AMERICA


Canada
Dollar

Mexico
Peso

SOUTH MERICA


Brazil
Real

Argentina
Peso

Colombia
Peso

EUROPE


UK
Pound

Euro Area
Euro

Russia
Ruble

ASIA


Japan
Yen

China
Yuan

India
Rupee

Source: Bloomberg
YoY= Year on Year, YtD = Year to Date

1.1.7 Monetary Policy Rates
In the developed economies, the Reserve Bank of Australia and the Reserve Bank of
New Zealand reduced their policy rates by 25 basis points from 1.75 and 1.50 to 1.50
and 1.25 per cent, respectively. The European Central Bank (ECB) maintained its
policy rate at zero per cent. In the ASEAN region, Bank Negara Malaysia reduced its
policy rate by 25 basis points to 3.00 per cent. However, Bank Indonesia maintained
its policy rate at 6.00 per cent.

FINANCIAL STABILITY REPORT – JUNE 2019

In the BRICS, the Central Bank of Brazil, Peoples’ Bank of China and the Reserve
Bank of South Africa held their rates constant at 6.50, 4.35 and 6.75 per cent,
respectively, while the Reserve Bank of India and Bank of Russia reduced their rates
by 25 basis points to 5.75 and 7.50 per cent, respectively.

In other emerging economies, Banco de Mexico and Banco de la Republica de
Colombia held their policy rates at 8.25 and 4.25 per cent, respectively. However, the
Central Bank of Chile reduced its policy rate by 50 basis points to 2.50 per cent in
June 2019.

In Africa, the Central Bank of Nigeria reduced its policy rate by 50 basis points to 13.5
per cent, while the Central Bank of Egypt and Bank of Ghana held their rates at 15.75
and 16.00 per cent, respectively.

Table 1. 1: Policy Rates of Selected Countries and Regions
Country
June

July

August

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May.

June

Developed Economies
Japan

Euro
Zone

UK

US

Canada

South
Korea

New
Zealand

Australia

ASEAN
Indonesia

Malaysia

BRICS
Brazil

Russia

India

China

South
Africa

FINANCIAL STABILITY REPORT – JUNE 2019

Other Emerging Economics and South America
Mexico

Chile

Colombia

Africa

Egypt

Ghana

Nigeria


Source: www.cbrates.com

1.1.8 Potential Risks from the Global Economic Developments
i.
Trade disputes between the US and China could impact negatively on global
output growth.
ii.
The expected slowdown in China’s growth could lead to decline in commodity
demand and prices.
iii.
Uncertainties over asset prices in financial markets could trigger deterioration
in market sentiment and worsen market conditions.
iv.
Downward volatility in oil prices could pose major threats to projected revenue
inflows in oil producing nations.

1.2 Domestic Developments
In the first half of 2019, the domestic economy was affected by the slow growth in the
global economy, geopolitical tensions in the Gulf region, the US – China trade dispute
and Brexit uncertainties, among others. However, there were exchange rate stability,
moderation in inflation and modest improvement in crude oil prices during the review
period. Accordingly, the Bank loosened its monetary policy stance to promote growth
through encouraging credit flow to the productive sectors of the economy.
1.2.1 Output
Output growth slowed in the first half of 2019, compared with the level in the second
half of 2018. Real gross domestic product (GDP) grew by 2.01 per cent in the first half,
down from the 2.10 per cent recorded in the second half of 2018.

FINANCIAL STABILITY REPORT – JUNE 2019

Figure 1.1 Gross Domestic Product by Sectors (N billion)
-3
-2
-1

H1 2016
H2 2016
H1 2017
H2 2017
H1 2018
H2 2018
H1 2019
Per cent
REAL GDP


Non-oil GDP grew by 2.05 per cent in real terms in the first half of 2019, compared
with 2.52 per cent growth in the second half of the 2018. The percentage share of the
non-oil sector to the total GDP stood at 90.98 per cent, compared with 91.81 per cent
recorded in the second half of the 2018. With respect to sectoral contribution in real
terms, the services sector accounted for the largest share (38.32%), followed by the
agricultural sector (22.36%), industry (18.57%), trade (16.47%) and construction
(4.27%).

Table 1:7 Sectoral Contribution to Real GDP
Sub-sector
H2 2018
H1 2019
Agriculture
27.66
22.36
Manufacturing
8.85
9.44
Construction
3.25
4.27
Services
35.73
38.32
Trade
16.16
16.47
Crude Petroleum & Natural Gas
8.19
9.02
Solid Minerals
0.16
0.11

Agricultural and construction sub-sectors grew by 2.45 per cent and 1.83 per cent in
the first half of 2019, compared with 2.17 and 1.36 per cent, respectively, in the second
half of 2018, while the other subsectors had slower growth rates in the first half of
2019, compared with the second half of 2018.


FINANCIAL STABILITY REPORT – JUNE 2019

Table 1:8 Changes (per cent) in Real GDP by Sector
Sub-sector
H2 2018
H1 2019
Agriculture
2.17
2.45
Manufacturing
2.14
0.35
Construction
1.36
1.83
Services
3.66
3.04
Trade
1.00
0.30
Crude Petroleum & Natural Gas
(2.34)
1.71
Solid Minerals
10.80
1.59

1.2.2 Oil Sector
Oil GDP increased by 1.71 per cent in the first half of 2019, in contrast to a decline of
2.34 per cent in the second half of 2018. Consequently, the percentage share of the
oil sector in real GDP increased by 0.83 percentage point to 9.02 per cent, compared
with the 8.19 per cent recorded in the second half of 2018.

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

H1 2018
H2 2018
H1 2019
Per cent
Oil
Non-oil


1.2.3 Inflation
The all-items composite Consumer Price Index (CPI) stood at 289.69 at end-June
2019, compared with 274.57 and 260.47 at end-December 2018 and end-June 2018,
respectively. The index for the first half of 2019 was higher than the levels in the
second half of 2018 and the corresponding half of 2018 by 5.51 and 11.22 per cent,
respectively. Consequently, the headline inflation (year-on-year), declined to 11.22 per
cent at end-June 2019 from 11.44 per cent in December 2018.

FINANCIAL STABILITY REPORT – JUNE 2019

The twelve-month moving average inflation stood at 11.30 per cent in June 2019,
compared with 12.10 and 14.37 per cent in December 2018 and the corresponding
half of 2018, respectively. In June 2019, core inflation fell by 0.93 and 1.55 percentage
points to 8.84 per cent below its respective levels of 9.77 and 10.39 per cent in
December 2018 and June 2018. Significant increases were recorded in the prices of
alcoholic beverages and tobacco, clothing and footwear, transport, health, recreation
and culture, education and miscellaneous goods.

However, food inflation, which comprised farm produce and processed food, rose to
13.56 per cent (year-on-year) at end-June 2019, same as in the preceding half year.
Increase in the prices of processed foods and some farm produce (yam, potatoes, and
other tubers) resulted in the rise in the index. Imported food inflation at end-June 2019
increased slightly to 15.75 per cent (year-on-year), compared to 15.66 per cent in
December 2018.

Figure 1.3 Inflationary Trend (Year-on-Year)

H1 18
H2 18
H1 19
Per cent
Headline (Y-o-Y)
Core (Y-o-Y)
Food (Y-o-Y)

1.2.4 External Sector
1.2.4.1 Foreign Exchange Flows
Total foreign exchange inflow to the CBN amounted to US$30.821 billion in the first
half of 2019, an increase of 7.26 per cent above the level in the preceding half-year.
Total outflow from the Bank was US$28.85 billion in the first half of 2019, a decrease
of 13.61 per cent from the level in the preceding half-year. Foreign exchange
transactions through the CBN resulted in a net inflow of US$1.97 billion in the first half
of 2019, compared with the net inflow of US$4.66 billion in the preceding half-year.


1 Provisional
FINANCIAL STABILITY REPORT – JUNE 2019

Table 1:9 Foreign Exchange Flows through the CBN (US$ million)
Period
Inflow
Outflow
Net flow
H1 - 2019
30,819.73
28,846.76
1,972.97
H2 - 2018
28,734.71
33,390.29
4,655.58
H1 - 2018
30,511.65
22,942.31
7,569.34
Source: CBN
1.2.4.2 External Reserves
Nigeria’s gross external reserves stood at US$44.75 billion at end-June 2019,
indicating an increase of US$2.15 billion or 5.05 per cent above the US$42.60 billion
recorded at end-December 2018. The external reserves position could cover 11.7
months of import of goods and services, higher than the IMF and WAMZ convergence
requirement.

The ownership structure of the external reserves indicated that the CBN, FGN and the
Federation holdings were US$37.22 billion, US$7.52 billion and US$3.61 million and
accounted for 83.19, 16.80 and 0.01 per cent of the total, respectively, at end-June
2019. In terms of the currency composition of external reserves, the US dollar at
US$40.14 billion, constituted 89.72 per cent of the total; special drawing rights,
US$2.08 billion 4.66 per cent; Chinese renminbi, US$2.07 billion 4.62 per cent; and
“others”, accounted for the balance.

Table 1:10 Ownership Structure of the Reserves
Ownership
Jun'19
US$ millions
Dec'18
US$ millions % Change
Federation
3.61
484.94

99.26
-
Federal Government
7,519.04
6,786.56

10.79

Central Bank of Nigeria
37,224.37
35,323.34

5.38

Total
44,747.02

42,594.84

5.05


FINANCIAL STABILITY REPORT – JUNE 2019

Figure 1.4 Movement of Gross Reserves Showing CBN, FGN & Federation Portions

1.2.5 Potential Risks to the External Reserves from Global developments
1. Market Risk: US-China trade tension could weaken the demand for crude
oil, lead to lower prices and reduce accretion to external reserves.
2. Credit Risk: Major central banks have attributed their easing policy/forward
guidance to slowing growth in the global economy. If the slow growth
persists, it could increase the risk of default.
3. Operational Risk: There is the potential for block chain technology to
disrupt some financial operations globally. These operations include
custody, payment, settlement, among others. Apart from technology
requirements (hardware and software), such disruptions could lead to
heightened cyber risk that would require the acquisition of new knowledge
and skills by personnel involved in the management of foreign reserves.

1.2.6 Fiscal Operations2
The estimated Federal Government retained revenue for the first half of 2019 stood at
N1,734.40 billion, lower than the half-year budget by 54.07 per cent, and receipts in
the preceding half of 2018 by 7.67 per cent. The fall in retained revenue relative to the
half- year proportional budget was attributed, mainly, to the decline in Federal
Government Independent Revenue. A breakdown of the retained revenue showed that
the share of the Federal Government from the Federation Account was N1,425.32
billion (82.17%); VAT Pool Account, N85.98 billion (4.96%); Federal Government

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

JUN'18 JUL'18 AUG'18 SEP'18 OCT'18NOV'18DEC'18 JAN'19 FEB '19 MAR'

APR '19 MAY
'19
JUN '19
Billions
CBN
FGN
FED
TOTAL RESERVES
FINANCIAL STABILITY REPORT – JUNE 2019

Independent Revenue, N178.65 billion (10.30%); Excess Non-oil, N6.40 billion
(0.37%); Exchange Gain, N1.85 billion (0.11%), and Excess oil revenue, N36.33 billion
(2.09%).

Federal Government expenditure in the first half of 2019 at N2,776.92 billion, was
lower than the half-year proportional budget by 16.83 per cent and the level recorded
in the preceding half by 41.6 per cent. The expenditure profile of the Federal
Government comprised recurrent expenditure (68.04%); capital expenditure (27.69%);
and transfers (4.27%). A breakdown of the recurrent expenditure indicated that nondebt obligations accounted for 55.17 per cent, while debt service payments and
transfers accounted for 44.83 per cent.

The fiscal operations of the Federal Government resulted in an estimated overall
deficit of N1,042.52 billion for the first half of 2019, compared with the deficit of
N1,765.40 billion in the second-half of 2018. The deficit was financed through
domestic sources, including the issuance of government securities.

Figure 1.5 Federal Government Fiscal Operations (N billion)

Source: OAGF & CBN

The consolidated domestic debt stock of the Federal Government at end-June 2019
was N13,412.80 billion, reflected an increase of 7.79 per cent over the N12,443.13
billion recorded at end-December 2018. The FGN Bonds accounted for 70.76 per cent,
Treasury Bills 19.44 per cent, FGN Sukuk and Green Bond 1.68 per cent of the total
domestic debt stock, while others (FGN Special Bonds, Savings Bonds and Nigeria
Treasury Bonds) accounted for the remaining 7.66 per cent.


Half Year Budget Estimate
2nd Half 2018
Half year 2019
Revenue
Expenditure
Fiscal Balance
FINANCIAL STABILITY REPORT – JUNE 2019

DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.1 Monetary and Credit Developments3
Broad money supply (M3) grew by 4.97 per cent at end-June 2019, compared with
16.36 and 2.35 per cent at end-December 2018 and end-June 2018, respectively. The
growth in broad money stock at an annualised rate of 9.94 per cent was below the
indicative benchmark of 16.08 per cent for 2019. The growths was due to 0.4 and
17.26 per cent increase in net foreign assets and domestic credit (net) of the banking
system, respectively. Correspondingly, the increase in total monetary liabilities was
driven by 9.25 per cent growth in quasi-money.


Narrow money (M1) fell by 5.05 per cent to N11,159.12 billion at end-June 2019, as
against an increase of 5.16 per cent at end-December 2018. The fall was due to
decrease in currency outside banks and demand deposits by 13.7 and 3.4 per cent,
respectively.

Figure 2.1 Trend in Monetary Aggregates

The intermediation efficiency measured by the proportion of currency outside banks
(COB) to total monetary liabilities stood at 5.92 per cent at end-June 2019, reflecting
an increase of 0.19 percentage point above the level at end-December 2018. The
proportion of time and savings deposits to total monetary liabilities increased by 14.08
percentage points above the level at end-December 2018.

2.1.1 Aggregate Credit to the Domestic Economy
Aggregate credit to the domestic economy (net) grew by 17.26 per cent to N32,332.63
billion at end-June 2019, com with 6.34 per cent at end-December 2018. The growth
in aggregate credit was attributed to the 55.80 and 9.00 per cent increases in net
claims on the Federal Government and claims on the private sector, respectively.
Consequently, aggregate credit to the domestic economy (net) contributed 16.60
percentage points to the growth in broad money at end-June 2019.

3 June 2019 figures are provisional.


Jun 2017
Dec 2017
Jun 2018
Dec 2018
Jun 2019
Monetary Aggregates (N'B)
M1
M3
COB
FINANCIAL STABILITY REPORT – JUNE 2019

Figure 2.2 Credit to the Economy


2.1.1.1 Claims on the Federal Government
Net claims on the Federal Government stood at N7,581.49 billion at end-June 2019,
showing a 55.80 per cent increase over the level of N4,866.09 billion recorded at endDecember 2018, attributable to the growth in holdings of government securities by the
public. Net claims on the Federal Government contributed 9.47 percentage points to
the growth of total monetary assets.

2.1.1.2 Aggregate Claims on the Private Sector
Banking system credit to the private sector stood at N24,751.13 billion at end-June
2019, reflecting a 9.00 per cent increase over the N22,708.23 billion recorded at endDecember 2018. The increase was due to the 1.98 and 0.57 per cent growth in claims
on the core4 private sector and state and local governments, respectively. Claims on
the private sector accounted for 1.5 percentage points to the growth of total monetary
assets.


4Excludes the state & local governments and non-financial public enterprises.


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

Table 2:1 Growth Rates of Monetary Aggregates
% Change (Over preceding
December)
Dec 16

Jun 17

Dec 17
revised
Jun 18
revised
Dec 18
provisional
Jun 19
provisional
Domestic Credit (Net)

Claims on Federal Government
(Net)

Claims on Private Sector

Foreign Assets (Net)

Other Assets (Net)

Total Monetary Assets (M3)

Quasi-Money

Money Supply (M1)

Currency Outside Banks

Demand Deposits

Monetary Liabilities (M2)

CBN bills held by money holding
sectors

Total Monetary Liabilities (M3)

Source: CBN
2.1.1.3 Foreign Assets (net) of the Banking System
Net foreign assets of the banking system rose by 0.40 per cent to N18,471.24 billion
at end-June 2019, from N18,397.82 billion at end-December 2018, reflecting the
growth in foreign assets of the banks. Its contribution to the growth of M3 was 0.26
percentage point at end-June 2019.
2.1.1.4 Consumer Credit
Outstanding consumer credit increased by 13.08 per cent to N753.85 billion at endJune 2019, from N683.36 billion at end-December 2018. Consumer credit constituted
3.05 per cent of banks’ outstanding claims on the core private sector and was 0.04
percentage point higher than the level at end-December 2018.
FINANCIAL STABILITY REPORT – JUNE 2019

Figure 2.3 Consumer Credit


2.1.2 Classification of Private Sector Credit
The contribution of agriculture, education, construction and services sub-sectors to
total credit increased to 4.20, 0.40, 4.39 and 36.49 per cent in the first half of 2019,
respectively, compared with 4.03, 0.38, 4.06 and 34.80 per cent in the preceding half
year. However, trade/general commerce and real estate sub-sectors declined to 6.57
and 10.56 per cent from 7.11 and 11.82 per cent in the preceding half year,
respectively.

Figure 2.4 Sectoral Distribution of Credit


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

Dec-18
Jun-19
FINANCIAL STABILITY REPORT – JUNE 2019

Table 2:2 Sectoral Distribution of Private Sector Credit


2.1.3 Reserve Money
Reserve money at end-June 2019 grew by 13.35 per cent to N8,088.46 billion,
compared with N7,135.73 billion at end-December 2018. The upward movement on
the asset side reflected increases of 2.3 and 15.6 per cent in net foreign assets and
net domestic assets, respectively. Correspondingly, the upward movement on the
liability side reflected the 26.39 per cent increase in bank reserves.

ITEM
Dec-18
Jun-19
Percentage Share in Total
%
(=N='m)
(=N='m)
Dec-18
Jun-19
(1)&(2)
(1)
'(2)
'(3)
(4)


[a] Agriculture

[b] Industry

Mining & Quarrying

Manufacturing

Oil & Gas

of which DownStream, Natural Gas
and Crude Oil Refining
3,548,970.8
3,329,468.7
Power and Energy

of which IPP and Power Generation
403,375.3
335,537.1
[c] Construction

[d] Trade/General Commerce

[e] Government

[f] Services

Real Estate

Finance, Insurance and Capital Market

Education

Oil & Gas

of which Upstream and Oil & Gas
Services
1,096,546.1
1,061,733.8
Power and Energy

of which Power Transmission and
Distribution
309,117.02
295,457.18


Others


of which: i. General


ii. Information &
Communication

iii. Transportation &
Storage

TOTAL

FINANCIAL STABILITY REPORT – JUNE 2019

Figure 2.5 Reserve Money and its Components


2.1.3.1 Currency-in–Circulation and Bank Deposits with the CBN
Currency-in-circulation accounted for 24.90 per cent of reserve money and fell by
13.55 per cent to N2,014.07 billion at end-June 2019, while bank deposits with the
CBN increased by 26.39 per cent to N4,806.71 billion in the same period.
2.1.4 Maturity Structure of Bank Deposits and Credits
Commercial banks’ outstanding credit at end-June 2019 showed that maturities for
short-term credit accounted for 47.00 per cent, compared with 47.14 per cent in the
preceding half year. Medium-term5 credit increased to 18.9 per cent at the end of the
first half of 2019, while long-term6 credit fell to 34.1 per cent. Thus, short-term
maturities maintained dominance in the credit market.

Figure 2.6 Distribution of Bank Loans and Advances by Maturity


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

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

Dec 15
Jun 16
Dec 16
Jun 17
Dec 17
Jun 18
Dec 18
Jun 19
Per cent
Short term
Medium-term
Long-Term
FINANCIAL STABILITY REPORT – JUNE 2019

The analysis of deposit liabilities of banks showed that short-term deposits with tenors
below one year constituted 87.69 per cent of the total (69.20 per cent had a maturity
of less than 30 days), compared with 88.06 per cent at end-December 2018. Medium
and long-term deposits constituted 4.24 and 8.07 per cent of total deposits at endJune 2019, compared with 3.83 and 8.11 per cent at end-December 2018,
respectively.

Figure 2.7 Maturity Structure of Bank Deposits


2.1.5 Market Structure of the Banking Industry
The structure of the Nigerian banking industry in the first half of 2019 showed that the
concentration ratios of the six largest banks stood at 63.6 per cent in terms of deposits
and 52.6 per cent in assets. The remaining twenty banks had market shares ranging
from 0.10 per cent to 4.31 per cent, in deposits, and 0.08 per cent to 4.22 per cent in
assets, compared with market shares ranging between 0.08 to 5.2 per cent in deposits
and 0.1 to 5.1 per cent in assets in December 2018, respectively.
However, there was no dominance of a single bank as the market share of the largest
bank with respect to deposits and assets stood at 14.94 and 13.20 per cent at endJune 2019, compared with 13.54 and 14.35 per cent at end-December 2018,
respectively. This was supported by the Herfindhal Hirschman Indices7 (HHI) of 664.08
in deposits and 608.64 in assets, compared with 719.10 and 763.85 at end-December
2018.


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

Jun 16
Dec 16
Jun17
Dec17
Jun18
Dec18
Jun19
Per cent
Per cent
Short-term
Medium-term (rhs)
Long-Term (rhs)
FINANCIAL STABILITY REPORT – JUNE 2019

Figure 2.8 Concentration Ratios of the Banking Industry Assets and Deposits


Table 2:3 Competition in the Nigerian Banking Industry

Jun 2018
Dec 2018
Jun 2019
CR(Deposits)
57.7
57.06
63.6
CR(Largest-Deposits)
12.5
12.34
14.94
CR(Assets)
63.7
58.87
52.64
CR (Largest-Assets)
14.5
13.93
13.20
HHI (Deposits)
846.1
719.10
664.1
HHI (Assets)
732.7
763.85
608.6


Potential Risks to the Domestic Economy
Growth recovery remained modest and is vulnerable to:
• Decline in government revenue, which could adversely impact government’s
ability to meet its obligations;
• Low accretion to external reserves, which could have adverse implications for
the foreign exchange market; and
• Negative volatility in oil prices, which could threaten banks’ exposure to the oil
and gas sector.
2.2 Licensing of Banks and Other Financial Institutions
The number of banks and other financial institutions (OFIs) licensed during the review
period were one (1) Commercial Bank, one (1) Financial Holding Companies, 7
Microfinance Banks (MFBs), 4 Finance Companies (FCs) and 306 Bureaux De
Change (BDCs). Consequently, there were 28 banks, four (4) Financial Holding
Companies and 5,820 Other Financial Institutions (OFIs) at end-June 2019, compared


Dec 17
Jun 18
Dec 18
Jun 19
HHI
CR
CR(Deposits)
CR( Assets)
CR( Largest-Deposits)
CR (Largest-Assets)
HHI (Deposits) (rhs)
HHI (Assets) (rhs)
FINANCIAL STABILITY REPORT – JUNE 2019

with 27 banks, three (3) Financial Holding Companies and 5,503 OFIs respectively, at
end-December 2018.

Table 2:4 Licensed Financial Institutions
S/N
Type
Total Licensed
Institutions as at
December 2018
Newly-Licensed
Jan – Jun 2019
Total Number of
licensed institutions
as at June 2019

Microfinance Banks

Bureaux De Change
4,492

4,798

Finance Companies

Commercial Banks

Merchant Banks

Nil

Specialized Banks
Nil
Nil
Nil

Development
Finance
Institutions

Nil

Primary
Mortgage
Banks

Nil

Holding Companies

2.2.1 Assets and Liabilities of Other Financial Institutions
The total assets of the sub-sector decreased by 3.33 per cent to N2,891.18 billion at
end-June 2019, from N2,990.82 billion at end-December 2018. This was due to
reductions in cash and short-term funds, total assets of DFIs and FCs (following the
revocation of the operating licences of 22 FCs in 2018).

Net loans and advances increased by 9.52 per cent to N1,477.95 billion at end-June
2019, from N1,349.42 billion at end-December 2018. Total deposits also increased by
14.12 per cent to N712.10 billion at end-June 2019, from N623.98 billion at endDecember 2018 owing, largely, to improved deposits for mortgages. However,
shareholders’ funds unimpaired by losses decreased by 10.43 per cent to N482.53
billion at end-June 2019, from N538.73 billion at end-December 2018, occasioned by
increased provisioning.

2.2.2 Development Finance Institutions
The total assets of the seven (7) DFIs decreased by 2.56 per cent to N1,889.71 billion
at end-June 2019 from N1,939.29 billion at end-December 2018, owing largely to the
reduction in their placements with banks, while net loans and advances increased by
5.89 per cent to N972.56 billion at end-June 2019 from N918.47 billion at endDecember 2018.
The paid-up capital remained at N238.78 billion, while the shareholders’ funds
increased by 18.62 per cent to N298.08 billion at end-June 2019, from N248.88 billion
at end-December 2018. The increase was due mainly to the accretion to reserves
FINANCIAL STABILITY REPORT – JUNE 2019

reported by Bank of Industry (BOI), Development Bank of Nigeria (DBN) and Nigeria
Mortgage Refinancing Company (NMRC).
The Federal Mortgage Bank of Nigeria (FMBN), BOI and DBN accounted for 13.15,
56.55 and 15.93 per cent of the total assets of the DFIs, while NEXIM, BOA, NMRC
and TIB accounted for 6.13, 4.19, 3.75 and 0.30 per cent, respectively. The breakdown
of net loans and advances is as follows: BOI, 66.22 per cent; FMBN, 16.32 per cent;
DBN 5.41 per cent; NEXIM, 4.85 per cent; BOA, 3.69 per cent; and NMRC, 3.87 per
cent.

2.2.3 Primary Mortgage Banks
The number of PMBs at end-June 2019 stood at 35, comprising 12 national and 23
state PMBs. The total assets of the sub-sector decreased by 0.88 per cent to N447.93
billion at end-June 2019 from N451.95 billion at end-December 2018. The decrease
was due to reduction in cash at hand by 62.0 per cent to N0.71 billion, balances with
banks by 8.33 per cent to N10.76 billion, non-current assets held for sale by 8.0 per
cent to N57.15 billion and investment in quoted shares by 13.29 per cent to N16.51
billion.

The CAR for the sub-sector stood at 40.99 per cent at end-June 2019, which was
above the regulatory minimum of 10 per cent. The sub-sector liquidity ratio stood at
98.37 per cent at end-June 2019, compared with 49.99 per cent at end-December
2018.
Table 2:5 Primary Mortgage Bank Financial Highlights

End-June 20198
(N’ billion)
End-December 2018
(N’ billion)
% Change
Total assets
447.93
451.95
(0.88)
Loans and advances
228.86
229.60
(0.32)
Placements with
banks
43.91
41.03
7.00
Investment in Quoted
Shares
16.51
19.04
(13.29)
Deposit liabilities
150.24
140.43
6.98
Other liabilities
166.25
154.92
7.31
Shareholders’ funds
55.67
82.99
32.91


8 Provisional
FINANCIAL STABILITY REPORT – JUNE 2019

2.2.3.1 Other Developments
To deepen the mortgage market, PMBs were encouraged to transfer portions of their
credit risks to the mortgage guarantee company. Consequently, the following
adjustments are allowable in the computation of CAR:
(i)
Reduction of risk weight on guaranteed legal mortgages from 100 to 50 per
cent; and
(ii)
Reduction of risk weight and Loan-to-Value (LTV) on non-guaranteed legal
mortgages from 100 to 75 per cent, and 80 to 70 per cent, respectively.

2.2.4 Finance Companies
The number of FCs stood at 73 at end-June 2019, compared to 69 at end-December
2018, owing to the licensing of four (4) new institutions.

The total assets of the sub-sector decreased by 28.41 per cent to N136.04 billion at
end-June 2019, down from N174.69 billion at end-December 2018, arising largely from
the revocation of the operating licences of 22 FCs in the preceding period. Borrowings
decreased by 20.05 per cent to N86.48 billion at end-June 2019, from N103.82 billion
at end-December 2018. Shareholders’ funds also decreased by 25.48 per cent to
N23.31 billion at end-June 2019, from N29.25 billion at end-December 2018. However,
loans and advances increased by 16.86 per cent to N63.94 billion at end-June 2019,
from N53.16 billion at end-December 2018.

Table 2:6 Financial Position of Finance Companies at end-June 2019


End-June 20199
(N’ billion)
End-Dec 2018
(N’ billion)
Change
(N’ billion)
% Change

Total Assets

Cash in Vault

Balances with Banks

Loans and Advances

Investments

Fixed Assets

Borrowings

Shareholders’ Funds

Paid-up capital

Reserves


9 Provisional
FINANCIAL STABILITY REPORT – JUNE 2019

2.2.5 Microfinance Banks
The total number of MFBs was 907, comprising 9 national, 136 state and 762 unit at
end-June 2019, compared with a total of 900 at end- December 2018, following the
licensing of 7 new institutions.

The total assets of the MFBs declined marginally to N417.50 billion at end-June 2019,
from N421.95 billion at end-December 2018, reflecting a decrease of 1.05 per cent.
Net loans and advances decreased by 3.78 per cent to N212.59 billion at end-June
2019, from N220.95 billion at end-December 2018.

The shareholders’ funds increased by 8.03 per cent to N105.47 billion at end-June
2019, from N97.63 billion at end-December 2018, due to capital injection and accretion
to reserves. Similarly, total deposit liabilities increased by 2.18 per cent to N217.90
billion at end-June 2019, from N213.25 billion at end-December 2018.

2.2.5.1 Review of Capital Requirements for Microfinance Bank
The Bank reviewed the capital requirements for MFBs in a bid to reposition them to
drive economic development and financial inclusion of the middle and lower social
economic strata. The new minimum capital requirements are as follows:
Urban (Tier 1 Unit) MFBs – N200 million;
Rural (Tier 2 Unit) MFBs – N50 million;
State MFBs – N1 billion; and
National MFBs – N5 billion.
The institutions were required to comply on or before April 2021.

2.2.5.2 Microfinance Certification Programme
The total number of certified candidates stood at 6,332 at end-June 2019, compared
with 5,790 at end-December 2018, following the certification of 542 candidates during
the review period.
2.2.6 Bank Verification Number Enrolment for OFIs
Data captured at end-June 2019 indicated that 453 out of 906 MFBs had submitted
their Bank Verification Number (BVN) enrolment data, showing that out of a total of
8,866,443 active customers, 1,756,950 (19.82%) customers had enrolled for the BVN.
2.3 Financial Markets
The Bank signalled an accommodative monetary policy stance in the first half of 2019
to encourage financial intermediation to the real sector to enhance economic growth,
following the reduction of the Monetary Policy Rate (MPR) to 13.50 per cent, from
14.00 per cent. However, the asymmetric corridor of +200/-500 basis points around
FINANCIAL STABILITY REPORT – JUNE 2019

the MPR was maintained. Similarly, the Cash Reserve Requirement (CRR) on
deposits and the Liquidity Ratio were retained at 22.50 per cent and 30.00 per cent,
respectively.
2.3.1 The Money Market
During the review period, the conduct of Open Market Operations (OMO) and sale of
foreign exchange to authorized dealers through wholesale and retail secondary market
interventions constituted the major withdrawals of liquidity from the system, while fiscal
allocations and maturing government securities were the major sources of injection.
Furthermore, interest rates varied in tandem with the liquidity conditions in the banking
system. Thus, the weighted daily average open-buy-back (OBB) rates opened at 19.21
per cent on January 2, 2019, and closed at 4.04 per cent at end June 2019. The
unsecured inter-bank call weighted daily average rates opened at 20.00 per cent on
January 9, 2019 and closed at 4.64 per cent at end June, 2019. The range of rates,
however, was between 3.00 and 35.00 per cent for the inter-bank call, and between
1.50 and 60.00 per cent for the OBB, in the review period.
Figure 2.9 Money Market Rate Movements, January – June 2019

*MPR was adjusted March 27th, 2019, hence the changes in average MPR, SDF & SLF for the month of March

2.3.1.1 Nigerian Treasury Bills
Nigerian Treasury Bills (NTBs) for 91-, 182- and 364-day tenors totalling N1,473.84
billion were issued and allotted in the first half of 2019. The total value of NTBs
decreased by N215.18 billion or 12.74 per cent, from N1,689.02 billion in the preceding
period. The decrease was attributed to the redemption of matured NTBs in line with
government’s debt management strategy.

Total subscriptions for NTBs increased to N4,153.63 billion during the first half of 2019,
indicating an increase of N1,016.8 billion or 32.42 per cent above the N3,136.83 billion
recorded in the second half of 2018. The increased subscription was as a result of

Inter-Bank Call (%)
Open-Buy-Back (OBB) (%)
MPR (%)
SDF
SLF
FINANCIAL STABILITY REPORT – JUNE 2019

high level of liquidity in the system and the general preference for government
securities.

Average marginal rates for the issues ranged from 9.6000 – 11.0000 per cent for the
91-day, 11.8900 - 13.5000 per cent for the 182-day and 12.0200 – 15.0000 per cent
for the 364-day tenors, respectively.

A breakdown of allotments indicated that: commercial banks accounted for N766.37
billion or 52.00 per cent; merchant banks, N52.94 billion or 3.59 per cent; CBN
mandate and internal-fund customers, N581.08 billion or 39.43 per cent; and CBN
bridge financing, N73.45 billion or 4.98 per cent. In the second half of 2018,
commercial banks took up N843.41 billion or 49.93 per cent; merchant banks, N30.05
billion or 1.78 per cent; and CBN mandate and internal-fund customers, N815.57
billion or 48.29 per cent.
Analysis of the outstanding NTBs of N2,651.51 billion at end-June 2019 showed that:
commercial banks accounted for 41.69 per cent; parastatals, 45.51 per cent; merchant
banks, 0.81 per cent; and CBN, 11.99 per cent.
2.3.2 The Foreign Exchange Market
During the review period, the Bank sustained its foreign exchange intervention in
critical areas, such as airline, petroleum, raw materials, machinery and eligible
invisible transactions. The SMEs and Investors and Exporters (I&E) windows provided
additional access to foreign exchange. Similarly, foreign exchange interventions
through the BDCs and in the Naira-Settled OTC Futures Market were sustained to
stabilise the exchange rate.

At the inter-bank segment of the foreign exchange market, daily rates opened at
N306.95/US$ on January 2, 2019 and closed at N306.90/US$ on June 28, 2019, while
rates opened at N305.75/US$ on July 2, 2018 and closed at N307.00/US$ on
December 31, 2018. At the I & E window, rates opened at N364.41/US$ on January
2, 2019 and closed at N360.74/US$ on June 28, 2019, reflecting an appreciation of
1.01 per cent, compared with N361.40/US$ on July 2, 2018 and N364.00/US$ on
December 31, 2018. At the BDC segment, rates opened on January 2, 2019 and
closed on June 28, 2019 at N360.75/US$ and N360.00/US$, respectively.

Under the Bi-lateral Currency Swap Agreement with the Peoples Bank of China
(PBoC), 13 auctions, valued CNY512.43 million, were conducted during the review
period, compared with 12, valued at CNY669.66 million, in the second half of 2018.


FINANCIAL STABILITY REPORT – JUNE 2019

Figure 2.10 BDC and I & E Exchange Rates, January – June 2019

2.3.2.1 Foreign Exchange Spot, Forwards and OTC Futures Transactions
The total foreign exchange sales by the Bank in the first half of 2019 were US$
8,287.52 million. The sales were through the following windows: interbank spot,
US$2,142.63 million; invisibles trade transactions, US$550.70 million; I&E,
US$212.11 million; inter-bank forwards, US$4,572.03 million; and SMEs, US$810.00
million. Inter-bank forwards maturity amounted to US$4,979.46 million, while
US$2,552.01 million remained outstanding at end-June 2019.

Comparatively, in the second half of 2018, the total CBN foreign exchange sales, at
the inter-bank segment were US$16,168.52 million, comprising: spot, US$1,898.34
million; invisibles, US$812.70 million; SMEs, US$678.50 million; I&E, US$7,035.56
million; and inter-bank forwards, US$5,743.42 million.

The notional amount of the OTC FX Futures contracts was US$8,035.39 million in the
first half of 2019. The sum of US$3,483.04 million matured, while US$9,324.70 million
remained outstanding at end-June 2019. Comparatively, the notional amount of the
OTC FX Futures contracts was US$3,911.47 million in the second half of 2018. The
sum of US$3,508.81 million matured, while US$4,772.35 million remained outstanding
at end-December 2018.

2.3.3 The Capital Market
During the review period, the capital market continued to provide long-term funds for
economic growth. The activities in the market were mainly influenced by the listing of
new issues at both the equity and debt market segments.
2.3.3.1 The Bond Market
The total value of bonds outstanding at end-June 2019 N9,818.15 billion, comprising:
FGN bonds, N8,840.30 billion or 90.04 per cent; FGN sukuk, N200.00 billion or 2.04

N/US$
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
I & E window

BDC

FINANCIAL STABILITY REPORT – JUNE 2019

per cent; sub-national bonds, N384.09 billion or 3.91 per cent; sub-national sukuk,
N3.83 billion or 0.04 per cent; and corporate bonds, N389.92 billion or 3.97 per cent.
The value of total bonds outstanding was 6.69 per cent higher than N9,202.46 billion
at end-December 2018, reflecting increased claims on the government.

Table 2:7 Outstanding Bonds (N Billions)
Bond Issuer
December

June 2019
% Change
Proportion
of Total
(December
2018)
Proportion
of Total
(June 2019)
FGN

FGN Sukuk

Sub-National

Sub-National Sukuk

Agency

Corporate

Total

Source: FMDQ OTC
2.3.3.1.1 Federal Government of Nigeria Bonds

New bond issues and re-openings increased by 22.8 per cent to N700.00 billion from
N570.00 billion in the second half of 2018. Public subscriptions and sales increased
to N1,160.45 billion and N615.39 billion in the first half of 2019, from N676.61 billion
and N336.69 billion in the second half of 2018, respectively. The increases in issues
and allotment were attributed to government’s preference for longer-tenored domestic
debt.

The yield on FGN bonds decreased at both the short and long ends of the curve,
compared with the preceding period, reflecting investors’ expectations of lower
inflation rates.

FINANCIAL STABILITY REPORT – JUNE 2019

Figure 2.11 Yield Curve for Nigeria

Source: FMDQ-OTC Plc
2.3.3.1.2 Federal Government of Nigeria Savings Bonds
FGN Savings Bonds (FGNSB) worth N2.75 billion were issued and allotted during the
review period. The issues were for two and three-year tenors with coupon rates
ranging between 11.2760 - 12.1250 per cent and 12.2760 - 13.1250 per cent,
respectively. Comparatively, N2.23 billion worth of bonds were issued in the preceding
period, with coupon rates ranging from 10.4830 - 12.4020 per cent and 11.4830 -
13.4020 per cent for the two- and three-year tenors, respectively. The increase of
N0.52 billion in FGNSB issues reflected the government’s efforts to further encourage
retail savings in the Country. With FGNSB worth N3.067 billion maturing during the
review period, the total value of FGNSB outstanding at end-June 2019 was N10.43
billion compared to N10.75 billion at end-December 2018.


Yield %
Time to Maturity
28/Jun/2019
31/12/2018
FINANCIAL STABILITY REPORT – JUNE 2019

2.3.3.1.3 Federal Government of Nigeria Green Bonds
During the review period, a 7-year bond worth N15.00 billion with a coupon rate of
14.5000 per cent was issued to finance projects, with envisaged positive impact on
the environment and the economy. An FGN Green Bond valued N25.69 billion was
outstanding as at end-June 2019.
2.3.3.1.4 Federal Government of Nigeria Sukuk
The FGN sukuk outstanding remained at N200.00 billion at end-June 2019 as there
was no new issue in the period under review.
2.3.3.1.5 Sub-National Bonds
In the review period, sub-national bond worth N6.84 billion issued by one state
government was listed, while a total of N384.09 billion, including N3.83 billion sukuk
by one state government, was outstanding. Two states fully redeemed bonds valued
N6.6 billion, while eight states partially redeemed bonds valued N8.03 billion.

As at end-December 2018, sub-national bonds worth N394.53 billion, including N4.94
billion sukuk issued by one state government, were outstanding. Two states fully
redeemed bonds valued N7.51 billion, eleven states partially redeemed N16.29 billion,
while one state partially redeemed N1.02 billion worth of sukuk.
2.3.3.1.6 Corporate Bond
Seven bonds worth N69.52 billion issued by four companies were listed, while three
bonds worth N27.19 billion were fully redeemed during the review period, compared
with eight bonds worth N88.09 billion newly listed and three bonds worth N35.76 billion
fully redeemed in the preceding period. The sum of N389.92 billion was outstanding
at end-June, 2019 against 20 listed companies, compared with N351.36 billion bonds
issued by 31 listed corporate entities at end-December 2018.


FINANCIAL STABILITY REPORT – JUNE 2019

Table 2:8 Newly Listed and Re-opened Corporate Bonds
Issuer

Listing Date
Description
Outstanding
Value (N’
Billion)
Mixta Real Estate Plc

12-Oct-18
16.50 Mixta Iia 12-Oct-2023
2.96
Mixta Real Estate Plc

12-Oct-18
17.75 Mixta Iib 12-Oct-2023
2.32
Stanbic IBTC

17-Dec-18
15.75 Stanbic I 5-Dec-2023
30.00
Cerpac Receivables Funding SPV Plc

29-Jan-18
18.25 Cerpac-SPV 15-Jan-

4.17
Cerpac Receivables Funding SPV Plc

07-May-18
15.25 Cerpac- SPV I 7-May-

10.91
Cerpac Receivables Funding SPV Plc

11-Jul-18
15.50 Cerpac- SPV Ii 15-Jul-

1.49
Wema Funding SPV Plc
12-Oct-18
16.50 Wema Funding Spv Ii
12-Oct-2025
17.68
Total
69.52
Source: FMDQ OTC
2.3.3.2 The Equities Market
The All Share Index opened at 31,070.06 in January 2019 and closed at 29,966.87 in
June 2019, reflecting a decrease of 1,103.19 points or 3.55 per cent. On the contrary,
the market capitalization (MC) of equities increased by N1.62 trillion or 13.98 per cent,
from N11.59 trillion in January to N13.21 trillion at end-June 2019. The increase in the
MC was due to the listing of a blue chip company on the Exchange.

The ASI opened at 38,221.71 in the second half of 2018, and closed at 31,430.50 at
end-June 2019, indicating a decrease of 6,791.21 points or 17.77 per cent. Similarly,
the MC of equities decreased by N1.86 trillion or 13.70 per cent, from N13.58 trillion
in July 2018 to N11.72 trillion at end-December 2018.
Foreign Portfolio Investment (FPI) inflows in the first half of 2019 totalled N177.32
billion, while divestments (outflows) stood at N198.74 billion, reflecting a net outflow
of N21.42 billion. The net outflow was largely attributed to investors’ perceived risks in
FINANCIAL STABILITY REPORT – JUNE 2019

the market. In comparison, inflows in the second half of 2018 amounted to N195.80
billion, while divestments stood at N223.59 billion, reflecting a net outflow of N27.79
billion.

Overall, FPI flows accounted for 47.58 per cent of total equity transactions in the
period, compared with 51.96 per cent in the preceding period. Domestic transactions
accounted for the balance of 52.42 per cent in the equity market, as against 48.04 per
cent in the preceding period.
Table 2:9 Domestic and Foreign Portfolio Participation in Equities Trading

2.3.4 Potential Risks to Financial Stability arising from the Equities Market
1. Declining yields at the sovereign primary markets could result in foreign portfolio
outflows.
2. Persistent foreign portfolio outflow could impact negatively on exchange rate
stability.
3. Persistent bearish equity market conditions could adversely affect investors’
confidence.
2.4 Real Sector Interventions
To increase credit flows to strategic sectors of the economy, stimulate value chain
development, generate more employment opportunities, conserve foreign exchange
and increase financial inclusion, the Bank sustained its intervention schemes in the
real sector.

2.4.1 Commercial Agriculture Credit Scheme
The Bank disbursed ₦4.84 billion to five (5) banks for six (6) projects under the
Scheme in the first half of 2019, compared with ₦40.36 billion to fifteen (15) banks for
twenty-four (24) projects in the second half of 2018. A total sum of N608.13 billion had
been disbursed for 588 projects from inception to end-June 2019. Of this amount,
₦329.27 billion (54.1%) was disbursed to state government-sponsored projects and
₦278.86 billion (45.9%) to the private sector.
Period
Total
Foreign
%
Foreign
Domestic
%
Domestic
Foreign
Inflow
Foreign
Outflow
NSE ASI
Market
Capitalization
H1 2019

790.31

376.05

47.58

414.25

52.42

177.32

198.74

29,966.87

13,205.54
H2 2018

807.14

419.39

51.96

387.75

48.04

195.80

223.59

31,430.50

11,720.72
H1 2018

1,597.25

799.71

50.07

797.54

49.93

380.65

419.06

38,278.55

13,866.42
H2 2017

1,607.64

777.33

48.35

830.31

51.65

556.28

221.05

33,243.19

13,609.47
FINANCIAL STABILITY REPORT – JUNE 2019

Repayments during the first half of 2019 stood at ₦23.91 billion in respect of 139
projects, compared with ₦32.22 billion repaid in respect of 272 projects in the second
half of 2018. This brought cumulative repayment as at end-June 2019 to ₦349.99
billion.

2.4.2 Paddy Aggregation Scheme
The sum of ₦35.20 billion was disbursed to seven (7) banks for 12 projects in the first
half of 2019, compared with ₦5.0 billion to one (1) bank for a project in the second half
of 2018. This brought total disbursement to ₦88.83 billion for 25 projects at end-June
2019.
The sum of ₦1.5 billion was repaid in the review period, compared with ₦18.63 billion
in the second half of 2018. The cumulative amount repaid since inception to end-June
2019 was ₦34.63 billion.

2.4.3 Anchor Borrowers’ Programme
In the first half of 2019, ₦26.67 billion was disbursed to 237,967 smallholder farmers,
compared with ₦82.59 billion to 490,481 farmers in the second half of 2018,
representing a decrease of 67.7 per cent in amount and 51.5 per cent in the number
of farmers. The agricultural activities financed included cassava, cotton, maize, rice,
soya bean, tomato, wheat, poultry, cattle rearing and fish farming.
From inception of the Programme up to end-June 2019, a total sum of ₦201.97 billion
had been disbursed, through 19 Participating Financial Institutions (PFIs) to 255
private and 14 state government anchors involving 1,140,854 farmers.
The amount repaid during the review period was ₦2.89 billion, reflecting a decrease
of 14.8 per cent, from ₦3.39 billion recorded in the second half of 2018. The cumulative
repayment from inception to end-June 2019 was N14.68 billion.

2.4.4 Accelerated Agriculture Development Scheme
The Scheme was launched in 2018 as an off-shoot of the Anchor Borrowers
Programme (ABP) and commenced operations in the first half of 2019, with ₦1.37
billion disbursed to a state government-owned poultry project.

2.5 Micro, Small and Medium Enterprises Development Fund
In the first half of 2019, ₦625.55 million was disbursed for 1,103 projects, compared
with ₦1.61 billion for 1,091 projects in the second half of 2018. Total repayments
during the review period amounted to ₦3.63 billion.
Total disbursement at end-June 2019 was ₦85.70 billion for 216,989 projects,
comprising state governments, ₦58.22 billion or 67.9 per cent and MSMEs (the private
sector), ₦27.46 billion or 32.1 per cent. Cumulative repayment stood at ₦30.19 billion
at end-June 2019.
FINANCIAL STABILITY REPORT – JUNE 2019

Table 2:10 Summary of MSMEDF Disbursements and Repayments
Activity
From inception to Dec.
31, 2018
(₦’ billion)
Jan – June 2019
(₦’ billion)
Cumulative
as at June 2019
(₦’ billion)
Disbursements to MSMEs
27.47
0.01
27.47
Disbursements to State
Governments
57.61
0.62
58.23
Total Disbursement
85.08
0.63
85.70
Repayments Received
26.57
3.63
30.19

2.5.1 Agri-business/ Small and Medium Enterprises Investment Scheme
In the first half of 2019, ₦1.29 billion was disbursed to 595 projects, compared with
₦0.34 billion to 162 projects in the second half of 2018. Aggregate disbursement from
inception to end-June 2019 was ₦1.74 billion for 1,111 projects. Repayment in the
review period was ₦0.981 million.

2.5.2 Creative Industry Financing Initiative
The Initiative was introduced during the review period as a window under the
AGSMEIS to improve access to long-term, low-interest financing by entrepreneurs
and investors in the areas of fashion, movie and music production, distribution,
software development and information technology.

2.5.3 Youth Entrepreneurship Development Programme
There was no disbursement in the review period. However, disbursement to date
stood at N173.42 million for 67 projects. The sum of ₦20.65 million was repaid in the
review period, compared with ₦5.27 million in the second half of 2018, bringing the
cumulative repayment at end-June 2019 to ₦32.94 million.
2.6 Real Sector Support Facility
During the review period, ₦40.00 billion was disbursed for a project, compared with
₦38.09 billion for four (4) projects in the second half of 2018. Cumulatively, ₦157.51
billion had been disbursed to twenty-four (24) projects at end-June 2019. The sum of
₦2.90 billion was repaid in the review period compared with ₦4.95 billion in the second
half of 2018, bringing total repayment to ₦11.81 billion at end-June 2019.
2.6.1 Differentiated Cash Reserve Ratio Window of Real Sector Support
Facility
In the first half of 2019, eighteen projects were financed with ₦75.55 billion, compared
with ₦6.15 billion disbursed to 4 projects in the second half of 2018, bringing aggregate
disbursement to ₦81.71 billion for 22 projects at end-June 2019.
FINANCIAL STABILITY REPORT – JUNE 2019

2.6.2 Small and Medium Enterprises Restructuring and Refinancing Facility
Total amount disbursed under the SMERRF10 was ₦300.1 billion for 604 projects. In
the review period, repayments amounted to ₦12.60 billion, bringing cumulative
repayments to ₦132.16 billion at end-June 2019.
2.6.3 Textile Sector Intervention Facility
In the first half of 2019, no disbursement was made, compared with ₦10.29 billion
disbursed for two (2) projects in the second half of 2018. Cumulatively, the sum of
₦55.76 billion had been disbursed for 33 projects at end-June 2019. The sum of
₦884.38 million was repaid in respect of six (6) projects, bringing total amount repaid
to ₦3.11 billion at end-June 2019.
2.6.4 Power and Airline Intervention Fund
A total of ₦301.37 billion had been disbursed at end-June 2019 for 71 projects,
comprising 47 power projects amounting to ₦180.61 billion or 59.9 per cent and 24
airline projects totalling ₦120.76 billion or 40.1 per cent.
The sum of ₦12.72 billion was repaid in the first half of 2019, compared with ₦13.35
billion in the second half of 2018, bringing aggregate repayment to ₦158.25 billion at
end-June 2019.

Table 2:11 PAIF Disbursements and Repayments
S/N

Type
No. of
Projects
Amount
(₦’ billion)

%
Repayments
(₦’ billion)

Airline

120.76
40.1
76.30

Power

180.61
59.9
81.95

Total

301.37
100.00
158.25
Source: CBN
2.6.5 Nigeria Electricity Market Stabilization Facility
A total amount of ₦183.09 billion had been disbursed to the Nigerian Electricity Supply
Industry Stabilisation Strategy Limited at end-June 2019 to refinance 37 eligible
market participants. The sum of ₦9.36 billion was repaid in the review period, bringing
total repayment to ₦39.82 billion.
2.6.6 Nigeria Bulk Electricity Trading Payment Assurance Facility
The sum of ₦98.12 billion was disbursed in the review period, compared with ₦290.04
billion disbursed in the second half of 2018. Total disbursement at end-June 2019
stood at ₦623.88 billion.

10 The SMERRF was discontinued in 2014
FINANCIAL STABILITY REPORT – JUNE 2019

2.6.7 CBN-BOI Industrial Facility
During the period under review, the Bank disbursed N50.00 billion through the Bank
of Industry (BOI) to 30 projects, bringing the total disbursement to ₦100.00 billion for
60 projects at end-June, 2019.
2.6.8 National Food Security Programme
The sum of ₦8.90 billion was disbursed to two (2) projects in the first half of 2019,
compared with N4.60 billion to three (3) projects in the second half of 2018. Cumulative
disbursement at end-June 2019 stood at ₦53.49 billion to 11 projects. Repayments in
the review period stood at ₦2.60 billion, bringing the total to ₦5.39 billion at end-June
2019.
2.6.9 Presidential Fertilizer Initiative
A sum of N35.00 billion was disbursed to five (5) projects at end-June 2019 through
the Nigeria Sovereign Investment Authority.
2.6.10 Non-oil Export Stimulation Facility
In the first half of 2019, ₦8.00 billion was disbursed to two (2) projects, compared with
₦6.45 billion to two (2) projects in the second half of 2018. Aggregate disbursement
at end-June 2019 was ₦33.49 billion. The sum of ₦1.00 billion was repaid in the review
period, bringing total repayment to ₦6.04 billion.

2.7 Credit Guarantee Schemes
2.7.1 The Agricultural Credit Guarantee Scheme
In the first half of 2019, a total of 11,981 loans valued ₦1.68 billion were guaranteed
under the ACGS, compared with 20,192 loans valued ₦2.62 billion in the second half
of 2018. The total number of loans guaranteed since inception to end-June 2019 was
1,143,781, valued at ₦115.93 billion.
A breakdown of the loans guaranteed revealed that food crops accounted for 8,183 or
68.3 per cent; livestock, 1,171 or 9.8 per cent; mixed crops, 702 or 5.9 per cent; cash
crops, 1,213 or 10.1 per cent; fisheries, 444 or 3.7 per cent; and ‘others’, 268 or 2.2
per cent. A breakdown of the value of the loans guaranteed revealed that individuals
accounted for ₦1.58 billion or 93.7 per cent; informal groups, ₦98.82 million or 5.9 per
cent; and companies, ₦7.00 million or 0.4 per cent.
During the review period, a total of 8,676 loans valued ₦1.32 billion were fully repaid,
compared with 12,395 loans valued ₦2.43 billion in the second half of 2018. The
cumulative repayment at end-June 2019 was ₦88.27 billion for 897,944 loans.
FINANCIAL STABILITY REPORT – JUNE 2019

Furthermore, a default claim valued at ₦0.047 million was settled in the review period,
compared with none in the second half of 2018. The cumulative number of settled
default claims at end-June 2019 stood at 17,758, valued at ₦652.64 million.
2.7.2 Interest Drawback Programme
In the first half of 2019, a total of 5,760 rebate claims valued ₦87.64 million were
settled, compared with 7,968 rebate claims valued ₦107.13 million in the second half
of 2018, a decrease of 27.71 per cent and 18.19 per cent in volume and value,
respectively. The number of IDP rebate claims settled were 357,300, valued at ₦3.19
billion at end-June 2019.
2.7.3 Commodity Champions Initiative
During the review period, the Commodity Champions Initiative (CCI) was launched to
stimulate and deepen the financing of selected commodities along the various value
chains. These commodities include cotton, oil palm, tomato, maize, rice, poultry,
cassava, fish and livestock (cattle).
Working Groups were set up for each commodity, led by a Commodity Champion, to
develop and implement work plans to increase production of the commodity. The work
plan include the conduct of gap analysis to identify current and market requirements,
as well as engage key commodity stakeholders which include seed/breed developers,
farmers, processors, importers, input suppliers, towards achieving the goals of the
initiatives.

2.8 Financial Inclusion
The “ownership” indicators under the Payments and Savings in the banking sector
recorded significant improvement. The total number of savings accounts in banks at
end-June 2019 stood at 98.48 million, an increase of 7.6 per cent above the level in
the second half of 2018. During the review period, a total of 2.1 million new bank
accounts were opened.

2.8.1 National Collateral Registry
The National Collateral Registry (NCR) in the first half of 2019 enrolled 15 institutions,
comprising seven (7) MFBs, seven (7) non-bank financial institutions and one (1) DFI.
The total number of financial institutions registered increased to 643, comprising 21
commercial banks, 558 MFBs, four (4) merchant banks, five (5) DFIs, 19 non-bank
financial institutions, 35 finance companies, and one (1) non-interest bank.

The NCR also registered 10,580 financing statements valued ₦65.75 billion and
US$12.28 million, compared with 9,421 financing statements valued ₦604.57 billion,
US$1.11 billion and €22,949.36 registered in the second half of 2018. Furthermore,
63 financial institutions registered financing statements in movable assets, used by
FINANCIAL STABILITY REPORT – JUNE 2019

19,228 borrowers as collaterals, compared with 62 financial institutions that registered
financing statements in respect of 27,295 borrowers in the second half of 2018.
Cumulatively, 50,365 financing statements valued at ₦1.29 trillion, US$1.16 billion and
€6.08 million in respect of 177,144 borrowers had been registered by 100 financial
institutions. An analysis of the borrowers showed that: individuals accounted for
17,275 or 89.8 per cent; large businesses, 58 or 0.3 per cent; medium businesses,
232 or 1.2 per cent; small businesses, 494 or 2.6 per cent; and micro businesses,
1,169 or 6.1 per cent.

Table 2:12 Summary of Financing Statements on the NCR as at end-June 2019
Borrower
Type
Number of borrowers
Number of financing
statements
Currency
Value of financing
statements (₦‘ million)
Jan - Jun

Cumulative
Jan - Jun

Cumulative
Jan - Jun

Cumulative
Individual

₦
19,890.48
149,990.11
US$

0.64
€

Large
Business

₦
23,589.22
883,890.94
US$
7.28
1,147.18
€

6.06
Medium
Business

2,434

2,389
₦
20,747.48
232,285.44
US$
5.00
8.41
€

Micro
Business
1,169
4,612

1,184
₦
289.96
5,972.73
US$

€

Small
Business

2,298

1,950
₦
1,230.56
21,132.92
US$

0.12
€

0.02
Total

₦
65,747.70
1,293,272.13
US$
12.28
1,156.35
€

6.08
Source: NCR
2.8.2 Financial Literacy
In furtherance of efforts to enhance financial literacy, the Bank carried out the following
activities:
a. In conjunction with other financial sector regulators and other stakeholders,
organized a National Financial Literacy Stakeholders’ Conference with the
theme “Implementing Financial Literacy and Consumer Protection to
Advance Financial Inclusion in Nigeria”. Policy documents presented at the
conference included the: Revised National Financial Inclusion Strategy;
Consumer Protection Framework; Nigeria Financial Education Strategy and the
National Financial Literacy Framework;
FINANCIAL STABILITY REPORT – JUNE 2019

b. Commemorated the 2019 Global Money Week with the theme “Learn, Earn
and Save”. Financial awareness campaign activities including Global Money
Walk and School Mentoring Programmes were held in six (6) states with a total
of 103,759 students participating;
c. Conducted sensitization campaigns through the “CBN Fair” in two (2) states;
d. Launched the maiden edition of its Consumer Protection Newsletter; and
e. Joined the International Financial Consumer Protection Organisation
(FinCoNet) and participated at its Seminar and Open Meeting in Paris.
2.9 Potential Risks in the Real Sector
I.
Participating Financial Institutions (PFIs) are exposed to credit risks arising from
defaults occasioned by side selling by small-holder farmers, smuggling and
non-payment of bills by consumers.
II.
Adverse weather conditions may pose major risks to the performance of
projects and result in low output and likelihood of default.
III.
Inadequate data may impede effective monitoring thereby exposing the Bank
to operational risks.
IV.
Operational bottlenecks in the disbursement of funds by PFIs may negatively
impact the efficiency of the schemes.


FINANCIAL STABILITY REPORT – JUNE 2019

REGULATORY AND SUPERVISORY ACTIVITIES
3.1 Financial Soundness Indicators
3.1.1 Asset-Based Indicators
3.1.1.1 Non-Performing Loans to Gross Loans
The quality of banks assets improved in the first half of 2019 as the ratio of nonperforming loans (NPLs) to gross loans decreased by 2.34 percentage points to 9.33
per cent at end-June 2019 from its level at end-December 2018. The reduction in NPLs
was attributed to improvement in economic activities and the write-off of NPLs by some
banks.

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

3.1.1.2 Core Liquid Assets to Total Assets and Short-term Liabilities
The ratio of core liquid assets to total assets decreased marginally by 0.15 percentage
point to 22.48 per cent at end-June 2019 from 22.64 per cent in the second half of
2018. However, the ratio of core liquid assets to short-term liabilities improved by 0.96
percentage points to 35.11 per cent at end-June 2019, from 34.15 per cent at endDecember 2018. The marginal improvement was attributed to banks’ increased
appetite for risk-free government securities.

End Jun. 2018
End Dec. 2018
End Jun. 2019
Per
cent
FINANCIAL STABILITY REPORT – JUNE 2019

Figure 3.2 Banking Industry Liquidity Indicators

3.1.2 Capital-Based Indicators
The ratio of regulatory capital to risk weighted assets increased slightly by 0.06
percentage point to 15.27 per cent at end-June 2019 compared to 15.21 per cent at
end-December 2018. Similarly, the ratio of Tier 1 capital to risk weighted assets
increased by 0.01 percentage point to 13.55 per cent at end-June 2019, from 13.54
per cent at end-December 2018. The improvement reflected efforts by banks to build
additional capital buffers.
Figure 3.3 Banking Industry Capital Adequacy Indicators


The ratio of non-performing loans net of provisions to capital for the industry declined
to negative 3.90 per cent at end-June 2019, from 0.05 per cent at end-December 2018.

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

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

This was due to the application of the Expected Credit Loss (ECL) model under the
IFRS 9 framework.
Return on assets (ROA) improved by 0.50 percentage point to 2.53 per cent at endJune 2019 from 2.03 per cent at end-December 2018.
3.1.3 Income and Expense Based Indicators
The ratio of interest margin to gross income decreased to 62.99 per cent during the
review period from 67.27 per cent at end-December 2018. However, the ratio of noninterest expenses to gross income increased to 65.44 per cent at end-June 2019, from
60.90 per cent in the preceding half. The ratio of personnel expenses to non-interest
expenses decreased to 33.47 per cent at end-June 2019, from 34.19 per cent at endDecember 2018.
Table 3:1 Selected Financial Soundness Indicators of the Nigerian Banking Industry

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

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

Liquid assets (core) to total assets*

Liquid assets (core) to short-term
liabilities*

2. Capital Based Indicators
Regulatory capital to risk-weighted
assets*

Regulatory Tier 1 capital to risk-weighted
assets*

Nonperforming loans net of provisions to
capital *

Return on assets*

Interest margin to gross income*

Noninterest expenses to gross income*

Personnel expenses to noninterest
expenses

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

Indicators

2018**
FINANCIAL STABILITY REPORT – JUNE 2019

3.2 The Banking Industry Stress Tests
3.2.1 Solvency Stress Test
3.2.1.1 Baseline Position
The baseline CAR and NPL ratios in the period under review were 15.27 and 9.33 per
cent, respectively, while ROA and ROE stood at 2.53 and 3.52 per cent, respectively,
at end-June 2019.

Table 3:2 Banking Industry Baseline Selected Key Indicators

CAR
LR
NPLs
ROA
ROE
June 2019 (%)

December 2018

Percentage Points
Change


Figure 3.4 Baseline (Pre-shock) CARs (per cent)


Jun ' 16
Dec ' 16
Jun ' 17
Dec '17
Jun ' 18
Dec '18
Jun' 19
Per cent
Banking Industry CAR
FINANCIAL STABILITY REPORT – JUNE 2019

Figure 3.5 Baseline (Pre-shock) ROA and ROE (per cent)


3.2.1.2 Credit Risk
The stress test revealed that the banking industry could withstand a shock of “up to
100 per cent increase” in the industry NPLs as the CAR remained above 10.00 per
cent.

Table 3:3 Credit Default Shocks


Similarly, the credit concentration stress test showed that the banking industry CAR
remained above the 10.00 per cent regulatory threshold under scenarios 1, 2 and 3 in
Table 3.4. The results showed an improvement in the banking industry resilience when
compared with the position at end-December 2018.

Jun-2019 ROA
Jun-2019 ROE
Dec-2018 ROA
Dec-2018 ROE
Single Factor Shocks
Post-Shock CAR
June 2019
December 2018
Baseline CAR
15.27
15.26
10% NPLs increase
14.82
14.46
15% NPLs increase
14.60
14.22
20% NPLs increase
14.37
13.98
30% NPLs increase
13.92
13.50
50% NPLs increase
13.01
12.51
75% NPLs increase
12.85
11.26
100% NPLs increase
10.65
9.96
FINANCIAL STABILITY REPORT – JUNE 2019

Table 3:4 Credit Concentration Risk


Figure 3.6 Credit Concentration Risk


3.2.1.3 Sectoral Credit Concentration Risk
A breakdown of banking industry total credit by sector at end-June 2019, showed that
the oil and gas sector accounted for 28.66 per cent; manufacturing, 15.09 per cent;
government, 8.57 per cent; general, 6.90 per cent; general commerce, 6.81 per cent;
finance and insurance, 6.26 per cent; and others, 27.69 per cent.

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

Post-Shock

Jun 2019
Dec 2018
Baseline CAR
15.27

Single Factor Credit Concentration Shocks
Solvency Ratio PostShocks
Scenario 1
Five largest corporate obligors’ credit facilities shifted from pass-through
to sub-standard (10%)
14.71
12.38
Scenario 2
Five largest corporate obligor credit facilities shifted from sub-standard to
doubtful (50%)
13.87
7.67
Scenario 3
Five largest corporate obligor credit facilities shifted from doubtful to lost
(100%)
12.44
-1.42
FINANCIAL STABILITY REPORT – JUNE 2019

Figure 3.7 Sectoral Concentration of Credit


The results of the stress test showed that the banking industry could withstand up to
50.00 per cent shock to the oil and gas sector exposure as the post-shock CAR stood
at 10.64 per cent.

Table 3:5 Oil and Gas Sector Default Stress Test

Industry CAR (%)
Baseline CAR
15.27
30% Default on total exposure to Oil and Gas
14.55
50% Default on total exposure to Oil and Gas
10.64

3.2.1.4 Interest Rate Risk
The results of the stress test on the net position of interest sensitive instruments
showed that the banking industry would maintain a stable solvency position to interest
rate shock of “up to 1000 basis points downward shift in yield curve” as the post-shock
CAR declined from 15.26 to 13.79 per cent. However, the ROA and ROE will decline
to negative 0.56 and negative 7.37, respectively.

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

Figure 3.8 Impact of Interest Rate Shocks on CAR

Figure 3.9 Impact of Interest Rate Shocks on ROA and ROE


15.26
13.79
Baseline CAR
Impact of 1000 bps downward shift in yield curve on
CAR

Baseline ROA
Baseline ROE
Impact of 1000 bps downward
shift in yield curve on ROA
Impact of 1000 bps downward
shift in yield curve on ROE
FINANCIAL STABILITY REPORT – JUNE 2019

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

Banking
Industry (%)
Baseline ROA
2.53
Baseline ROE
3.52
Impact of Downward Shift in Yield Curve Shocks on CAR

500 bps downward shift in yield curve
14.52
1000 bps downward shift in yield curve
13.70
Impact of Downward Shift in Yield Curve Shocks on ROA

500 bps downward shift in yield curve
-0.15
1000 bps downward shift in yield curve
-0.56
Impact of Downward Shift in Yield Curve Shocks on ROE

500 bps downward shift in yield curve
-1.92
1000 bps downward shift in yield curve
-7.37

3.2.2 Liquidity Stress Test11

The stress test result revealed that after a one-day run scenario, the liquidity ratio for
the industry would decline to 31.37 per cent from the 51.67 per cent baseline position.
Similarly, under the 5-day and 30-day scenarios, the liquidity ratio for the industry
would decline to 11.69 and 6.55 per cent, indicating N2.29 trillion and N2.78 trillion
liquidity shortfalls, respectively.


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

Figure 3.10 Industry Liquidity Ratios at Periods 1-5 and cumulative 30-day Shocks


Table 3:7 Liquidity Stress Test Results (Post-Shock)
Scenario
Banks with
Liquidity Ratios (LR) < 30%
June 2019
December 2018
(26 DMBs)
June 2019
(25 DMBs)
LR (%)
Shortfall to 30% LR
threshold
(N’ billion)
Test 1.1: Implied Cash Flow Test
Test 1.1: Implied Cash
Flow Test
Day 1

31.37
Nil
Day 2

26.83

Day 3

22.23
1,103
Day 4

17.29
1,697
Day 5

11.69
2,295
Implied Cash Flow
Test (30 Days)

6.55
2,779
3.2.3 Maturity Mismatch
The industry baseline assets and liabilities maturity profile at end-June 2019, revealed
that the shorter end of the market (≤90 day buckets) were adequately funded. In the
≤30 day bucket, seven banks were not adequately funded, while in the 31-90 day
bucket, eight banks had funding gaps. However, the cumulative position for the
industry showed an excess of N4.1 trillion assets over liabilities.


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

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

31-90 days

91-180 days

181-365 days

1-3 years

>3 years

Total
25,301.85
29,431.25
(4,129.40)


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

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

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

≤30 days
8,448.98

5,043.38

(399.15)

31-90 days
4,129.10

198.06

(200.89)

91-180days
1,844.95

(1,428.72)

(248.16)

181-365days
346.38

(2,889.75)

(1,278.43)

1-3 Years
989.84

(2,428.59)

(1,451.92)

Above 3 years
(1,484.97)

(4,559.40)

(3,674.67)

Total
14,274.28

(6,065.01)

(7,253.22)

FINANCIAL STABILITY REPORT – JUNE 2019

Table 3.9 revealed that under test 2A (Descriptive Maturity Mismatch) the banking
industry was adequately funded, while under Test 2B (Static Rollover Risk Analysis)
and 2C (Dynamic Rollover Risk test) the industry had mismatches of N6.1 trillion and
N7.3 trillion, respectively. These represented a decrease of N0.2 trillion under the Test
2B and an increase of N0.2 trillion under Test 2C, relative to end-December 2018
tests.
3.2.4 Contagion Risk Analysis
Contagion risk analysis showed a 99 per cent increase in exposure and
interconnectedness through interbank placements and takings, compared with the
end-December 2018 position. Three banks were central on the network as they were
exposed to seven or more counterparties. Six banks accounted for N521 billion or 85
per cent of total placements and N488 billion or 80 per cent of total takings of which
N362 billion or 74 per cent was provided by the top four placers of funds.
Figure 3.11 Network Analysis based on Interbank Exposures


FINANCIAL STABILITY REPORT – JUNE 2019

Figure 3.12 Tiered Structure of Unsecured Placements and Takings12


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

Table 3:10 Result of Net Interbank Unsecured Exposures on Capital Adequacy Ratio.
Lending Banks
Bank

Bank

Bank

Bank

Bank 23
Bank 25
Bank 26
Industry
Pre-Test CAR(%)

Post-Test CAR(%)

Placements (N’
Billion)


12 Note: Node colour representation (The sizes of the nodes represent the quantum
of the exposures)

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

Box 1: Liquidity Stress Test Assumptions
Implied Cash Flow Analysis
The Implied Cash Flow Analysis (ICFA) assessed the ability of the banking system to
withstand unanticipated substantial withdrawals of deposits, short-term wholesale and longterm funding over 5 days and cumulative 30 days, with specific assumptions on fire sale of
assets. The test assumed gradual average outflows of 3.8, 5.0 and 1.5 per cent of total
deposits, short-term funding and long-term funding respectively, over a 5-day period and a
cumulative average outflow of 22.0, 11.0 and 1.5 per cent of total deposits, short-term funding
and long-term funding respectively, on a 30-day balance. It also assumed that the assets in
Table 3.10 would remain unencumbered after a fire sale.

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

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

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

iii. Test 2c: Dynamic Rollover Risk made the same assumption as in 2b above, but with the
option of closing the liquidity gap from other buckets.
Table 3. 1: Percentage of Assets Unencumbered after Fire Sales
Item
No
Assets
%
Unencumbered
1.
Cash and cash equivalents

2.
Current account with CBN

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

6.
Collateralized placements and money at call

7.
CRR

FINANCIAL STABILITY REPORT – JUNE 2019

3.3 Supervision of Banks
3.3.1 Bank Examination
A target examination was carried out in the first half of 2019 to determine the quality
of assets and adequacy of loan loss provisions of banks as part of the process for the
approval of their 2018 annual audited financial statements.
3.3.2 Foreign Exchange Examination
During the review period, the Bank conducted foreign exchange examination and adhoc reviews/spot checks on the foreign exchange activities of Authorized Dealers
(Commercial and Merchant Banks) to ensure compliance with extant foreign exchange
rules and regulations.
3.3.3 Anti- Money Laundering/Counter Financing of Terrorism and Corporate
Governance
During the review period, AML/CFT pilot examination was conducted on three (3)
banks, using the Offsite Risk Assessment Methodology (ORAM) tool. The pilot
exercise was to guide examiners on the use of the risk-based approach (RBA) for
AML/CFT examination. Thereafter, the Bank conducted the maiden Risk–Based
AML/CFT examination for all the banks in line with GIABA and FATF mutual evaluation
standards.

The Bank also participated in the Technical Plenary session in Conakry, Guinea, and
FATF Plenary in France. Discussions at both meetings centred on AML/CFT issues
and strategies to curb emerging trends.

To strengthen domestic collaboration with financial institutions under the purview of
the Bank, bi-monthly meetings of the Association of Chief Compliance Officers of
Banks in Nigeria (ACCOBIN) was held to discuss issues of mutual interest.

The Bank also conducted the first quarter Corporate Governance Scorecard
Assessment on twelve banks to:
• determine the level of compliance with the CBN Code of Corporate
Governance;
• ascertain the adequacy of disclosure and transparency in the industry; and
• evaluate performance and accountability towards creating long-term
shareholder value.
3.3.4 Risk Based Cyber Security Framework
The Bank issued a risk based cyber-security Framework, specifying the minimum
requirements in governance and oversight, risk management, operational resilience,
self-assessment and reporting. Under the reporting requirements of the Framework,
effective January 1, 2019, banks were required to render returns on cyber threat
intelligence, cybersecurity incident and annual self-assessment.
FINANCIAL STABILITY REPORT – JUNE 2019

3.3.5 CROSS-BORDER SUPERVISION
3.3.5.1 Foreign Subsidiaries of Nigerian Banks
The number of offshore subsidiaries of Nigerian banks remained 58 at end-June 2019.
The number of representative offices, reduced to five (5) in the first half of 2019, from
six (6) as at end-December 2018, following the approval granted for the closure of a
representative office. The number of affiliates and international branches remained
one (1) and two (2) respectively, thus bringing the total number of offshore entities to
66.
3.3.6 Onsite Examination of Offshore Subsidiaries of Banks
The Bank and the host supervisor jointly examined two (2) offshore banking
subsidiaries in the first half of 2019. The examination revealed that one of the
subsidiaries had a composite risk rating of ‘High’ and was directed to take appropriate
actions to address the regulatory concerns.
3.3.6.1 College of Supervisors
During the review period, the Bank participated in the annual meeting of the College
of Supervisors for First Rand Ltd, which was held in South Africa. In addition, the FBN
College of Supervisors was inaugurated.
3.3.6.2 Supervisory Collaborations
i.
Community of African Banking Supervisors
a) The Association of African Central Banks (AACB) Secretariat was mandated to
liaise with the World Bank for technical support on the minimum legal and
regulatory requirements in member states to improve their banking crisis
management and resolution regimes.
b)
The Bank participated in the Community of African Banking Supervisors (CABS)
Working Groups Meeting on Cross Border Supervision in South Africa and the
Annual Conference of the CABS held in Egypt, to maintain and enhance
information sharing amongst African banks supervisors.
ii.
Technical Assistance
The Bank hosted Examiners from the Bank of Uganda on an AML attachment
programme in line with its initiative to build capacity of regional bank supervisors on
AML regulations and supervisions.
iii.
College of Supervisors of the West African Monetary Zone
The Bank participated in the 32nd and 33rd meetings of the College of Supervisors of
the West African Monetary Zone (CSWAMZ) during the review period. Members
reviewed developments in the banking system across the zone, including
implementation of IFRS 9, Basel I, II and III, as well as Integrated Regulatory Solution
(IRS).
FINANCIAL STABILITY REPORT – JUNE 2019

3.3.7 Supervision of Domestic Systemically Important Banks
The number of Domestic Systemically Important Banks (D-SIBs) decreased to six,
following the merger of two of the banks in the review period. The D-SIBs accounted
for 63.49 per cent of the industry total asset of N38.04 trillion. Similarly, the banks
accounted for 62.39 per cent of total industry deposits of N34.53 trillion and 66.65 per
cent of the aggregate industry loans of N14.83 trillion at end-June.
The D-SIBs were largely compliant with capital adequacy and liquidity ratio
requirements during the period under review. The CAR for the D-SIBs stood at 19.98
per cent, while the liquidity ratio stood at 49 per cent, compared with the regulatory
requirement of 16 and 30 per cent, respectively. In terms of asset quality, the nonperforming loans ratio of D-SIBs improved to 6.21 per cent at end-June 2019 from
9.82 per cent in the preceding period.
3.3.8 Asset Management Corporation of Nigeria
The examination of the Asset Management Corporation of Nigeria (AMCON) during
the review period revealed that its liabilities stood at N5.43 trillion, comprising: AMCON
Notes, N4.028 trillion; Debenture, N500 billion; and Others, N898.45 billion. The net
assets increased to N827.59 billion at end-June 2019, from N769.87 billion at endDecember 2018.
AMCON’s liabilities of N5.43 trillion are expected to be redeemed through credit
recoveries, asset sales and Banking Sector Resolution Cost Fund (BSRCF). The total
amount in the BSRCF stood at N240.11 billion at end-June 2019. During the review
period, the Corporation made cash recovery of N24.35 billion, while total recoveries
from inception were N999.69 billion, comprising cash of N377.65 billion, asset
forfeiture of N393.12 billion and clawback/repurchases of N228.92 billion.
3.4 Supervision of Other Financial Institutions
The Bank conducted routine and special examinations of 437 OFIs during the period
under review. The exercise covered RBS examination of 7 DFIs, Income Audit of nine
(9) PMBs and two (2) FCs, Target Examination of 345 MFBs and 12 BDCs, RBS and
Income Audit of 12 MFBs, as well as, AML/CFT examination using the Risk-Based
Approach for 29 MFBs and 23 PMBs.
3.4.1 Examination of Bureaux De Change
The Bank conducted special examination of 12 BDCs in the review period. The
exercise revealed breaches relating to wholesale transactions, record-keeping,
documentation and rendition of AML/CFT returns.

3.4.2 Finance Companies
A special examination of two (2) FCs was conducted to ascertain their compliance with
IFRS 9 on classification and measurement of financial instruments. The exercise
FINANCIAL STABILITY REPORT – JUNE 2019

facilitated the issuance of “No Objection” for the publication of the financial statements
of the two institutions for the year ended December 31, 2018.
During the review period, the result of the examination of 53 FCs conducted in the
preceding period revealed high NPLs, inadequate collateral and poor corporate
governance practices. The institutions have been notified of the supervisory concerns.
3.4.3 Primary Mortgage Banks
The examination of 32 PMBs during the period under review revealed that liquidity
ratios were above the 20% regulatory minimum. However, there were high credit
concentration ratios and impairment charges.
3.4.4 Microfinance Banks
The Bank carried out examination of 386 MFBs during the review period, comprising
29 on AML/CFT, 345 special and routine examinations of 12 institutions designated
as Systemically Important Other Financial Institutions (SIOFIs).

The analysis of the 12 SIOFIs showed that 5, 4 and 3 MFBs had Composite Risk
Ratings (CRR) of “Moderate”, “Above Average” and “High”, respectively.

3.4.5 Development Finance Institutions
The examination of the seven (7) DFIs13 revealed that the Composite Risk Ratings of
the institutions were: “High” (4), “Above Average” (1), “Moderate” (1), and “Low” (1).

3.5 Financial Services Regulation Coordinating Committee
3.5.1 National Road Map on Sustainable Finance
The FSRCC Secretariat, in collaboration with the Harmonization and Coordination
Sub-Committee, assessed the progress made by the CBN, NSE and Corporate Affairs
Commission (CAC) on the implementation status of the national road map on
sustainable finance.
3.5.2 Financial System Stability Dashboard
The Financial System Stability Dashboard was presented at the 63rd meeting of the
FSRCC to have a holistic view of the financial system stability. The dashboard
revealed mild vulnerabilities in some sectors of the financial system.
3.5.3 Illegal Fund Managers
The Legal and Enforcement Sub-Committee of the FSRCC set up a Technical Working
Group (TWG) to develop a framework on the prosecution of Illegal Fund Managers

13 The RBS examinations of BOA and NMRC were conducted in 2018 and the ratings were adopted in this
analysis on the DFIs.
FINANCIAL STABILITY REPORT – JUNE 2019

(IFMs). Meanwhile, the FSRCC sustained its efforts in the campaign against
IFMs/’Wonder Banks’ through newspaper adverts, radio jingles and TV programme.
3.6 Other Developments in the Financial System
3.6.1 IFRS Implementation
3.6.1.1 FRS 9 Examination
(A)
The maiden Risk Assets Examination on the first sets of full-year IFRS 9 based
financial reports at December 31, 2018 covered the following areas, among others:
• The basis of bank impairment charges for the top facilities;
• Consistency between prudential classifications and IFRS 9 loan staging criteria;
• Consistency in the prudential classification between on- and off-balance sheet
exposures to same customers; and
• Validation of reasonability of the Credit Conversion Factors (CCF) applied by
banks and consistency with the Basel CCF standard.
(B)
As experienced in most other jurisdictions, the assessment of the validity of the
IFRS 9 Expected Credit Loss (ECL) models revealed prevalent use of expert judgment
and some difficulty in the interpretation of the requirements of the standard.
3.6.1.2 IFRS 16
The IFRS 16 replaced IAS 17 and became effective in January 2019. The standard
specifies the rules for recognition, measurement, presentation and disclosure of
leases. Banks were expected to:
• identify and categorize classes/types of lease contracts at December 31, 2018.
• estimate the Right-of-use assets for all leased assets.
The transition adjustment would result in a reclassification between Assets of Prepaid
Rent to Right-of-Use Assets.

3.6.2 UPDATE ON BASEL II/III IMPLEMENTATION
The guidelines for Credit Concentration Risk, Interest Rate Risk in the Banking Book,
Business & Strategy Risk, Reputation Risk and Stress Testing have been concluded
and were issued in March 2019.

3.6.3 Payment Service Banks
The Bank issued Guidelines for Licensing and Regulation of Payment Service Banks
in Nigeria. The Payment Service Banks (PSBs) were expected to leverage mobile and
digital channels to enhance financial inclusion and stimulate economic activities at the
grassroots.
FINANCIAL STABILITY REPORT – JUNE 2019

3.6.4 Complaints Management and Resolution
The Bank received 1,528 complaints from consumers of financial services in the period
under review, a decrease of 84 or 5.21 per cent, from the 1,612 received in the second
half of 2018. Of the total number of complaints, 1,476 or 96.60 per cent were against
banks, while 52 complaints or 3.40 per cent were against OFIs. The complaints
received were in respect of excess/unauthorized charges, fraud, guarantees, account
management, ATM dispense errors and fund transfers.
A total of 1,548 complaints were resolved or closed in the first half of 2019, compared
with 1,496 resolved or closed in the second half of 2018, representing an increase of
3.48 per cent. Total amounts in dispute were N8.71 billion and US$0.32 million, while
the sums of N7.23 billion and US$0.32 million were refunded to customers.
3.7 Potential Risks to Regulatory and Supervisory Activities
• The adoption of ECL models to meet IFRS 9 requirements may pose model
risks;
• Dearth of expertise in IFRS 9 poses risks to the level of compliance by
financial institutions;
• Cross-border vulnerabilities may pose threats to Nigerian banks with foreign
subsidiaries/affiliates;
• Heightened cyber security risks may impact negatively on regulatory
oversight;
• Increased activities of illegal funds managers/Ponzi schemes threatens
confidence in the financial system; and
• Inadequate disclosures and data credibility pose major risks to regulatory
oversight.
3.8 Credit Risk Management System
3.8.1 CBN Credit Risk Management System
The total number of credit facilities in the CRMS database stood at 6,625,415, an
increase of 33.23 per cent, over the 4,973,036 recorded at end-December 2018. Total
number of facilities with outstanding balance stood at 1,600,072 at end-June 2019,
compared with 1,079,141 at end-December 2018, representing a 48.27 per cent
increase. The increase in the number of credits recorded was largely due to the backfiling of credits and creation of new loans.


FINANCIAL STABILITY REPORT – JUNE 2019

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

December

June 2019
Absolute
Change:
Increase/
(decrease)
% Change
* Total No. of Credit facilities reported
on the CRMS:

Individuals

Non-Individuals

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

Individuals

Non-Individuals

* The figures include borrower(s) with multiple loans and/or credit lines.
** Commercial, Merchant and Non-Interest Banks only

3.8.2 Private Credit Bureaux

During the review period, the total number of credit record and value stood at
100,288,398 and N97.10, while the number of subscribers and borrowers stood at
54,430,609 and 2,822.

S/N

CRC Credit
Bureau
CR Services
First Central
Credit Bureau

Number of credit records
27,250,484
50,378,709
22,659,205

Number of subscribers
1,274

1,022

Value of Credit Facilities
N25.045 trillion
N44.660 trillion
N27.399 trillion

Number of borrowers
15,602,511
23,826,705
15,001,393
* Source –Obtained from the June Monthly Reports of the Credit Bureaux.


FINANCIAL STABILITY REPORT – JUNE 2019

THE PAYMENTS SYSTEM
4.1 Developments in the Payments System
4.1.1 Bank Verification Number Operations and Watch-list
During the review period, the number of BVN enrolments stood at 38,268,639, an
increase of 5.80 per cent over the 36,170,176 recorded at end-December, 2018. The
number of accounts linked to BVNs were 51,394,802 out of 72,937,140 active
customer accounts, while the number of watch-listed BVNs stood at 1,724 at end-June
2019. The BVN has remained a veritable tool for financial institutions, credit bureaux
and law enforcement agencies in combating frauds and other financial crimes in the
financial system.

4.1.2 Nigeria Electronic Fraud Forum
During the review period, the Forum secured approval for the establishment of the
Payments System Security and Risk Management Centre (PSSRMC) to further
facilitate efforts to curb cyber security threats in the Nigerian payments system.
4.1.3 Examination of Payments System Participants
The examination of licensed Payment Service Providers (PSPs) was conducted to
ascertain their compliance with guidelines and frameworks. The examination revealed
a number of infractions, for which appropriate recommendations were made and
appropriate sanctions were imposed.

4.1.4 Licensing of Payments System Participants
During the review period, seven (7) licences were issued comprising one (1) mobile
money operator, two (2) payment solution service providers, two (2) payment terminal
service providers and two (2) super agents. The new issues increased the number of
licensed PSPs to 96 at end-June 2019.

Table 4:1 Licensed Payments System Participants
Licence –Type
Number
Dec 2018
Jun 2019
Card Schemes

Mobile Money Operators

Payment Solution Service Providers

Payment Terminal Service Providers

Transaction Switching Companies

Third Party Processors

Super Agents

Non-Bank Acquirers

Accredited Cheque Printers

Total

FINANCIAL STABILITY REPORT – JUNE 2019

4.1.5 Revised Nigeria Cheque Standards and Cheque Printers Accreditation
Scheme
The Bank commenced the implementation of the revised Nigeria Cheque Standards
and Nigeria Cheque Printers Accreditation Scheme during the review period. A parallel
run of the old and new cheques was scheduled to be undertaken from September 1,
2019 to August 31, 2020.


4.2 Payments System Statistics and Trends
4.2.1 Large Value Payments
The volume of inter-bank fund transfers through the CBN Real Time Gross Settlement
(RTGS) system decreased by 9,074 or 1.62 per cent to 550,243 at end-June 2019,
from 559,317 at end-December 2018. However, the value increased by N22,063.85
billion or 10.8 per cent to N226,275.85 billion at end-June 2019 from N204,212 billion
at end-December 2018.


4.2.2 Retail Payments
4.2.2.1 Cheque Clearing
The volume and value of cheques cleared decreased from 4,274,922 and N2,439.37
billion at end-December 2018 to 3,416,537 and N2,270.92 billion at end-June 2019,
reflecting decreases of 20.08 per cent and 6.91 per cent, respectively. The decline in
cheque transactions reflected customers’ increased preference for electronic
payments.

4.2.2.2 Electronic Transactions
The volume of electronic transactions rose by 182,872,207 or 17.41 per cent to
1,233,043,503 at end-June 2019, from 1,050,171,296 at end-December 2018,
reflecting increased usage of electronic channels. However, the value decreased by
N9,398.25 billion or 14.01 per cent to N67,080.10 billion at end-June 2019, from
N76,478.35 billion at end-December 2018.

FINANCIAL STABILITY REPORT – JUNE 2019

Table 4:2 Electronic Transactions
Payment
Channel
Number of
Terminals
Number of Transactions
%
Change
(Volume)
Value N’ Billion
%
Change
(Value)
Dec
June
Dec-18
Jun-19
Dec-18
Jun-19

ATMs

POS

Mobile

Internet
(Web)

NIP


e-Bills
Pay


REMITA


NAPS


Total


1,050,171,296 1,233,043,503 17.41%
67,080.10 76,478.35 14.01%

4.3 Potential Risks in the Payments System
Generally, the payments system remained resilient. However, there were potential
risks to the payments system, including the following:
• Exposure to electronic fraud, including SIM swap, dormant SIM and use of
stolen SIM card for USSD/mobile payments could threaten penetration of
mobile payments;
• Threat of cyber-attacks; and
• Threat of social engineering, which could negatively impact consumer
confidence and undermine the attainment of the Bank’s financial inclusion
targets.


FINANCIAL STABILITY REPORT – JUNE 2019

Key Risks to the Financial System
5.1 Credit Risk
Risk Rating
(High Risk, Trending downwards)


During the review period, exposure to the oil and gas sector constituted the largest
component of credit at N3,329.47 billion, compared with N 3,548.97 billion at endDecember 2018. Total NPLs declined to N1,444.57 billion at end June 2019, from
N1,792.48 billion at end-December 2018, reflecting a reduction in the NPL ratio from
11.67 per cent to 9.33 per cent. The reduction in NPLs reflected improvement in
economic conditions leading to increased repayment by obligors, loan write-offs and
aggressive debt recovery strategies.


Figure 5.1 Non-Performing Loans Ratio

5.2 Liquidity Risk
Risk Rating (Medium Risk, Stable)


The average liquidity ratio of the banking industry declined slightly to 51.67 per cent
at end-June 2019, from 51.70 per cent at end-December 2018. This ratio, however,
remained significantly above the regulatory threshold of 30 per cent. The liquidity
position in the industry reflected the banks' preference for holding liquid assets.

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

The rates in the interbank market declined significantly during the review period, as
Interbank Call and OBB rates fell from 15.00 and 19.71 per cent in January 2019 to
8.38 and 8.71 per cent, respectively, in June 2019, reflecting liquidity surfeit. Similarly,
savings rate fell to 3.93 per cent from 4.07 per cent at end-December 2018, while the
maximum lending rate rose from 30.48 to 31.04 per cent during the review period.
FINANCIAL STABILITY REPORT – JUNE 2019

In the foreign exchange segment, rates remained stable, reflecting the Bank’s effort at
ensuring liquidity and depth in the market.
The equities market remained bearish as investors' perception and preference for
fixed income securities translated to a loss of 5.61 per cent in the capital market, with
the NSE ASI closing at 29,666.87 points at end-June 2019, compared with 31,430.50
points at end-December 2018. In addition, a 30-year FGN Bond valued N20 billion
was issued to generate long term funds for infrastructure and manage government
finances. To enable wider portfolio diversification and facilitate the inflow of foreign
investment, five (5) FGN Eurobonds were listed.

The review of the Federal Government's borrowing strategy in favour of external over
domestic sources reduced the country's cost of debt financing. The extension of the
compliance date on the OPEC production cap, minimal pipeline disruptions and
recovery in crude oil prices reduced the overall risk to the 2019 budget.
5.4
Operational Risk
Risk Rating (High risk, trending
up)


During the review period, reported cases of fraud and forgeries in DMBs rose to 29,215
from 25,029 at end-December 2018. The total amount involved fell to N8.35 billion at
end-June 2019, from N18.94 billion at end-December 2018, while actual losses
increased to N2.38 billion from N2.21 billion. The frauds included suppression of
cheques, conversion of customers’ deposits, unauthorised fund transfers, and
fraudulent ATM withdrawals. ATM and mobile channels continued to record the
highest incidence of fraud. To stem the trend, customers were continually sensitized
on safe banking practices and banks were also enjoined to implement strong
authentication controls and carry out comprehensive infrastructure risk assessments.

Cyber-attacks were recorded on service providers’ platforms, compromising
customers’ data and privacy as well as other financial information. Similarly, social
engineering, identity theft, SIM swap, unauthorised card-not-present and unauthorized
push payment scams persisted. In a bid to check the growing trend of cyber crime,
banks and payment service providers were directed to fully comply with the
requirements of the CBN Cyber-Security Framework and Guidelines, which came into
effect on January 1, 2019.


FINANCIAL STABILITY REPORT – JUNE 2019

5.5
Macroeconomic Risk
Risk Rating (High Risk, Trending down)

During the review period, the Federal Government's sustained efforts at implementing
the Economic Recovery and Growth Plan (ERGP). This continued to yield positive
results, evidenced by reduction in inflation rate, moderate growth in the non-oil sector
and increased tax income.

The global shift from fossil fuels to alternative energy sources, disruptions to crude oil
facilities in the Niger Delta region and inadequate credit to the private sector pose
threat to achieving the CBN growth forecast of 2.3 per cent for 2019.
Similarly, the persistent high levels of liquidity and energy prices constituted major
threat to the downward trend in inflation.

OUTLOOK
Global growth in 2019 is projected to decline to 3.2 per cent from 3.6 per cent in 2018,
while inflation in advanced economies is projected to decline to 1.6 per cent from 2.0
per cent in 2018. In emerging economies, growth is projected to decline to 4.1 per cent
from 4.5 per cent in 2018, while in sub-Sahara Africa, growth is projected to inch up to
3.4 per cent from 3.1 per cent in 2018. Inflation, in emerging markets and developing
economies is projected to increase to 4.9 per cent from 4.8 per cent in 2018, while
inflation in sub-Sahara Africa is expected to decline to 8.1 per cent from 8.5 per cent
in 2018 (IMF, World Economic Outlook). Global outlook was shaped by major global
uncertainties, including trade disputes, Brexit and geopolitical tensions.

Growth in Nigeria is projected to increase to 2.27 per cent in 2019 from 1.93 per cent
in 2018, while inflation (year-on-year) is projected to decline to 11.37 14per cent in 2019
from 11.44 per cent at end-December 2018. The positive outlook for Nigeria was
shaped by the expected stability in oil prices and improved domestic output growth
from expansion in the non-oil sub-sector.

The banking industry is projected to record improved performance as new policy
measures are geared towards capital enhancement and sound corporate governance.
Furthermore, the various intervention schemes of the Bank are expected to enhance
performance in the banking sector.

The general outlook for both the global and domestic economies remained threatened
by trade and market uncertainties, variability in oil prices and domestic security
challenges. Consequently, the Bank will pursue appropriate measures to mitigate the
expected vulnerabilities and reinforce financial system stability.


14 Staff Estimate
FINANCIAL STABILITY REPORT – JUNE 2019

ACKNOWLEDGEMENTS
List of Major Contributors

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

I. S. Tukur
Ditto

M. N. Ekugo
Ditto

J. S. Onojah
Ditto

J. M. Gana
Ditto

H. J. Audu
Ditto

J. A. Mohammed
Ditto

Yemisi Babade
Ditto

Umar Babale
Ditto

Victor Johnson
Ditto

E. E. Ihua
Development Finance Department

U. B. Ndako
Monetary Policy Department

C. P. Nwosu (Mrs)
Research Department

A. Shebe
Banking Supervision Department

Salihu Audu
Statistics Department

E. O. Shonibare (Mrs)
Risk Management Department

A. M. Ashiru
Financial Markets Department

V. A. Martins
Other Financial Institutions Supervision
Department

M. M. Farouk
Reserve Management Department

A. M. M. Mwelfwang
Consumer Protection Department

H. Abdullahi
Banking Services Department

E. H. Aniemeke
Payments System Management Department

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

KEVIN N. AMUGO
Director, Financial Policy and Regulation Department