CENTRAL BANK OF NIGERIA
FINANCIAL
STABILITY
REPORT
FINANCIAL
STABILITY
REPORT
DECEMBER 2012
DECEMBER 2012

CBN FINANCIAL STABILITY REPORT December 2012
T a b l e o f C o n t e n t s
iii
LIST OF TABLES ..

vi
LIST OF FIGURES

vii
LIST OF BOXES ..

viii
LIST OF ABBREVIATIONS AND ACRONYMS

ix
DEFINITION AND FUNCTION OF FINANCIAL STABILITY ..
..
..
..
xi
GOVERNOR'S STATEMENT

xiii
DEPUTY GOVERNOR'S REMARKS

xiv
EXECUTIVE SUMMARY ..

xv
1.
MACROECONOMIC DEVELOPMENTS AND FINANCIAL STABILITY
..


DEVELOPMENTS IN THE FINANCIAL SYSTEM


Global Economic and Financial Developments
..
..

Output..


Inflation


Oil Prices


The Monetary Policy


Domestic Developments


Output..


Inflation


Interest Rates ..


Fiscal Operations


Monetary and Credit Developments
..
..
..

Aggregate Credit to the Economy
..
..
..

2.1.1.1 Claims on the Federal Government ..
..

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

Reserve Money


Maturity Structure of DMBs' Deposits and Credits
..

The Market Structure of the Banking Industry..
..

The Banking Sector


Other Financial Institutions (OFIs)


Microfinance Banks (MFBs)


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

Finance Companies (FCs)


Financial Inclusion Activities


Financial Markets


The Money Market


The Foreign Exchange Market
..
..
..

The Bond Market


The Equity Market


The Central Securities Depository
..
..
..

The Insurance Sector ..


The Pension Sector


Real Sector Intervention Initiatives


CBN FINANCIAL STABILITY REPORT December 2012
iv

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

The Commercial Agriculture Credit Scheme (CACS)

The Agricultural Credit Guarantee Scheme (ACGS)..

The Agricultural Credit Support Scheme (ACSS)
..

The SME Credit Guarantee Scheme (SMECGS)
..

The Power and Airline Intervention Fund (PAIF)
..

Entrepreneurship Development Centres (EDCs)
..

The External Sector


Macro-Prudential Supervision


Financial Soundness Indicators
..
..
..

Assets-based Indicators
..
..
..

Capital-based Indicators
..
..
..

Income and Expense-based Indicators
..

The Banking Industry Stress Test
..
..
..

The Liquidity Stress Test
..
..
..

The Solvency Stress Test
..
..
..

Stress Test Results


Enhancement of the Specific Tools and
Framework for Supervision


Supervision of Banks and Other Financial Institutions..
..

Banks ..


Commercial Banks


Examination of Foreign Subsidiaries ..
..

Non-Interest Banks


Merchant Banks


Discount Houses


Other Financial Institutions


Microfinance Banks (MFBs)
..
..
..

Primary Mortgage Banks (PMBs)
..
..

Finance Companies (FCs)
..
..
..

Development Finance Institutions (DFIs)
..

Bureaux de Change ..
..
..
..

Compliance with International Standards
..
..
..

Anti-Money Laundering/Combating the
Financing of Terrorism


International Financial Reporting
Standards (IFRS)and Basel II/III
..
..
..

The Asset Management Corporation of Nigeria (AMCON) ..

Key Risks in the Financial System


Credit Risk


Liquidity Risk


Market Risk


Operational Risk


Reputational Risk


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


CBN FINANCIAL STABILITY REPORT December 2012
v
Credit Information Bureaux


The Credit Risk Management System (CRMS)
..

Private Credit Bureaux (PCBs)
..
..
..

The Financial Services Regulation Co-ordinating
Committee (FSRCC)


Consumer Protection ..


The Real-Time Gross Settlement (RTGS) System
..
..

NIBSS Instant Payment (NIP)


NIBSS Electronic Fund Transfer (NEFT) ..
..
..
..

Cheque Clearing ..


Electronic Card Payments


ATM Transactions


Mobile Payments


The Macroeconomic Environment


Monetary Policy


The Payments System ..


Banking Sector and Financial Stability
..
..
..


DEVELOPMENTS IN THE PAYMENTS SYSTEM


OUTLOOK


CBN FINANCIAL STABILITY REPORT December 2012
L i s t o f T a b l e s
vi
Table 1:
Table 2:
Table 3:
Table 4:
Table 5:
Table 6:
Table 7:
Table 8:
Table 9:
Table 10
Table 11
Table 12
Table 13
Table 14
World Output Growth and Projections (2011-2013) ..
..
..

Global Consumer Price Inflation ..


Global Inflation


Summary Table of Policy Rates Across Selected Countries
(January – December 2012)


Changes in GDP by Sector


Selected Asset-based Indicators ..


Selected Capital-based Indicators


Selected Income and Expense-based Indicators
..
..

Implied Cash Flow Analysis, System Level Results ..
..
..

: Stress Test Results – Credit Risk


: Stress Test Results – Interest Rate Risk


: Stress Test Results - Exchange Rate Risk


: Foreign Exchange Trading Risk


: Composite Risk Rating of Banks


L i s t o f F i g u r e s
CBN FINANCIAL STABILITY REPORT December 2012
vii
Figure 1:
Figure 2:
Figure 3:
Figure 4:
Figure 5:
Figure 6:
Figure 7:
Figure 8:
Figure 9:
Figure 10:
Figure 11:
Figure 12:
Figure 13:
Figure 14:
Figure 15:
Figure 16:
Figure 17:
Figure 18:
Figure 19:
Figure 20:
Figure 21:
Figure 22:
Figure 23:
Figure 24:
Figure 25:
Figure 26:
Figure 27:
Figure 28:
Figure 29:
Figure 30:
Figure 31:
Figure 32:
Figure 33:
Figure 34:
Figure 35:
Figure 36:
Figure 37:
Figure 38:
Real Gross Domestic Product


Share in total GDP (%)


Inflationary Trend (Year-on-Year)


Money Market Interest Rates


Lending and Deposit Rates


Federal Government's Fiscal Operations
..
..
..

Trend in Monetary Aggregates


Credit to the Economy


Distribution of DMBs' Loans and Advances by Maturity
(June 2011 to December 2012) ..


Distribution of DMBs' Deposit Structure
(June 2011 to December 2012) ..


Market Concentration Ratios of DMBs (Assets) ..
..
..

Inter-bank Rates Movements


WDAS, Inter-bank and BDC Rates, 2012
..
..
..

FGN Bonds' Yield Curve


Bond Yields on December 28, 2012 versus
December Inflation Rate


Banking Industry NPLs to Total Gross Loans (%) ..
..
..

Banking Industry Liquidity Indicators (%) ..
..
..
..

Banking Industry Income and Expense-based Indicators (%)
..

Rollover Risk Pre- and Post-Shock


Industry and Individual Bank Pre-Shock Positions
..
..

Industry Position After 1-5 Day and Cumulative
30-Day Shocks


Individual Bank Positions After 5-Day and Cumulative
30-Day Shocks


Number of Banks in Each Bucket of CAR
..
..
..

Number of Banks in Each Bucket of LR


Baseline CAR and Liquidity Ratios (%)


Baseline ROA and ROE (%)


Credit Concentration Risk


Trend of Banking Industry NPLs


Selected CRMS Statistics for end-December 2012
..
.. 39
CBN RTGS Transactions


NIP Transactions (Value) ..


NIP Transactions (Volume)


NEFT Transactions (Value)


NEFT Transactions (Volume)


Volume of Cheque Transactions


Value of Cheque Transactions ..


Volume of Electronic Card Transactions, June - December 2012

Value of Electronic Card Transactions, June - December 2012

CBN FINANCIAL STABILITY REPORT December 2012
List of Boxes
viii
Box 1:
Box 2:
SDF/SLF/OBB/REPO Operations by Banks in Nigeria
(January - December 2012)


Regulatory Filter Issued by the Financial Reporting
Council of Nigeria on the Implementation of IFRS in Nigeria ..
..

List of Abbreviations and Acronyms
ACGS
ACSS
AMCON
AML/CFT
ASEAN
ASI
ATMs
BCEAO
BDCs
BIM
BIS
BOI
BRICS
BRS
CACS
CAR
CBN
CBSWCA
CIFTS
CR5
CRMS
CSD
DFIs
DMBs
DvP
EBAs
EDCs
EMLC
FATF
FCs
FGN
FMI
FPIs
FRC
FSIs
FSRCC
GAAP
GBI-EM
GDP
GIABA
-
Agricultural Credit Guarantee Scheme
-
Agricultural Credit Support Scheme
-
Asset Management Corporation of Nigeria
-
Anti-Money Laundering and Combating the Financing of
Terrorism
-
Association of South East Asian Nations
-
All Share Index (Nigerian Stock Exchange Index)
-
Automated Teller Machines
-
Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank
of West African States)
-
Bureaux de Change
-
Bank Incentive Mechanism
-
Bank for International Settlements
-
Bank of Industry
-
Brazil, Russia, India, China, and South Africa
-
Bank Rating System
-
Commercial Agricultural Credit Scheme
-
Capital Adequacy Ratio
-
Central Bank of Nigeria
-
Committee of Banking Supervisors of West and Central Africa
-
CBN Interbank Fund Transfer System
-
Concentration Ratio (of the five largest banks)
-
Credit Risk Management System
-
Central Securities Depository
-
Development Finance Institutions
-
Deposit Money Banks
-
Delivery versus Payment
-
Eligible Bank Assets
-
Entrepreneurship Development Centres
-
Emerging Markets Local Currency
-
Financial Action Task Force
-
Finance Companies
-
Federal Government of Nigeria
-
Financial Market Infranstructures
-
Foreign Portfolio Investments
-
Financial Reporting Council of Nigeria
-
Financial Soundness Indicators
-
Financial Services Regulation Coordinating Committee
-
Generally Accepted Accounting Principles
-
Global Bonds Index - Emerging Markets
-
Gross Domestic Product
-
Inter-Governmental Action Group Against Money Laundering in
West Africa

CBN FINANCIAL STABILITY REPORT December 2012
ix
HHI
IDP
IF
IFRS
IMC
IMF
INEC
KYC
LR
M1
M2
MCP
MENA
MFBs
MPR
NAICOM
NEFT
NGAAP+
NIFIs
NIBSS
NIP
NIRSAL
NPLs
NSBP
NSE
OBB
OFIs
PAIF
PCBs
PENCOM
PFAs
PMBs
PoS
PTAD
REPO
RSF
RTGS
SDF
SEC
SLF
SMEs
SMECGS
SWF
TAF
WAMZ
WDAS
-
Herfindahl-Hirschman Index
-
Interest Drawback Programme
-
Insurance Facility
-
International Financial Reporting Standards
-
Inter-Ministerial Committee
-
International Monetary Fund
-
Independent National Electoral Commission
-
Know Your Customer
-
Liquidity Ratio
-
Narrow Money Supply
-
Broad Money Supply
-
Microfinance Certification Programme
-
Middle East and North African countries
-
Microfinance Banks
-
Monetary Policy Rate
-
National Insurance Commission
-
NIBSS Electronic Fund Transfer
-
Nigerian Generally Accepted Accounting Principles
-
Non-Interest Financial Instruments
-
Nigerian Interbank Settlement System
-
NIBSS Instant Payment
-
Nigerian Incentive-based Risk Sharing System for Agricultural
Lending
-
Non-Performing Loans
-
Nigerian Stock Exchange
-
Open Buy Back
-
Other Financial Institutions
-
Power and Airline Infrastructure Fund
-
Private Credit Bureaux
-
National Pension Commission of Nigeria
-
Pension Fund Administrators
-
Primary Mortgage Banks
-
Point of Sale
-
Pension Transitional Arrangement Department
-
Repurchase Agreement
-
Risk Sharing Facility
-
Real-Time Gross Settlement System
-
Standing Deposit Facility
-
Securities and Exchange Commission
-
Standing Lending Facility
-
Small and Medium Enterprises
-
Small and Medium Enterprises Credit Guarantee Scheme
-
Sovereign Wealth Fund
-
Technical Assistance Facility
-
West African Monetary Zone
-
Wholesale Dutch Auction System
-
Nigerian Sustainable Banking Principles
CBN FINANCIAL STABILITY REPORT December 2012
x
CBN FINANCIAL STABILITY REPORT December 2012
Definition and Function of Financial Stability
xi
'Financial stability' is the resilience of the financial system to unanticipated adverse
shocks, while enabling the continuing smooth functioning of the financial system's
intermediation process. The financial system supports the ability of households and
firms to hold or transfer financial assets with confidence. A stable financial system
contributes to broader economic growth and rising living standards.
Governor’s Statement
CBN FINANCIAL STABILITY REPORT December 2012
xiii
The slow recovery of the global economy had implications for the international
financial system as the sovereign debt crisis of the Euro Area and weak consumer
demand continued to impinge on the system. The Nigerian financial system was not
insulated as international trading partners and foreign portfolio investors occasionally
responded adversely. The Nigerian financial system remained stable and resilient,
despite the slower rate of growth in global output in the second half of 2012. The period
witnessed renewed efforts by monetary authorities to cushion the adverse impacts of
these global developments.
The key domestic challenges in the second half of 2012 included the persistent
exclusion of a large segment of the populace from financial services, the oligopolistic
nature of the banking system, paucity of long-term funds necessary for real sector
development, and the likelihood of sudden reversals of foreign portfolio investments.
Most of the risks in the system were isolated and appropriate measures adopted to
achieve financial stability. Specifically, new areas of growth and development that will
impact the financial system include financial inclusion and pension funds. The growing
pension funds are expected to provide the needed long-term funds for the growth of
the real sector. The Bank continued its collaborative engagements with other
regulatory agencies to achieve a safe and sound banking system, a vibrant capital
market, and reliable insurance and pension sub-sectors. The attainment of a seamless
conversion from NGAAP to IFRS and the full adoption of the Basel II/III also engaged
regulatory attention.
In spite of the challenges, the Nigerian financial system remained stable over the
period as evidenced by the stress tests on the banking sector. A positive outlook is
envisaged over the short and medium terms.
Sanusi Lamido Sanusi (CON)
Governor, Central Bank of Nigeria
CBN FINANCIAL STABILITY REPORT December 2012
Deputy Governor’s Remarks
xiv
This edition of the FSR, as the previous ones, assesses the stability of the Nigerian
financial system in the second half of 2012 and chronicles the policies and initiatives
adopted to address inherent challenges. The key policies include: the roll-out of the
National Microfinance Strategy and Financial Inclusion Strategy; the establishment of
NIRSAL Plc to promote affordable financial products to the agricultural value-chain;
and the acquisition of a Central Securities Depository to be integrated with the new
RTGS. The Sovereign Wealth Fund and the proposed Mortgage Refinance Company
are also highlighted.
In order to enhance CBN's supervisory framework, a consultant was engaged to
review, with the aim of enhancing the Bank's specific tools and framework for
managing the stability of the Nigerian financial system. The ring-fencing of Nigerian
banks, through the new banking model, was also pursued with the commencement of
holding companies by some of the banks and disengagement from non-banking
subsidiaries by other banks.
It is hoped that, as with previous editions, this Report would assist stakeholders to
appreciate the risks inherent in the system and facilitate informed discussion on the
development and stability of the Nigerian financial system.
Your feedback on this Report will be appreciated. Please send your feedback to:

Dr. Kingsley C. Moghalu
Deputy Governor, Financial System Stability
CBN FINANCIAL STABILITY REPORT December 2012
Executive Summary
xv
The impact of the global financial crisis was evident in the slowdown of global output in
the second half of 2012. The sovereign debt crisis in the Euro Area and uncertainties
surrounding the fiscal cliff in the USA were particularly significant. These developments
moderated commodity prices, with global headline inflation falling to 1.7 per cent in
December 2012, from 3.4 per cent in 2011. Similarly, demand for crude oil weakened
during the period to an average of 90 mbd, leading to a fall in prices. In addition, the
implementation of the US policy of achieving self-sufficiency in oil production
contributed to a 44.6 per cent drop in the USA's oil imports from Nigeria. The plans for a
further 50 per cent cut by 2013 and zero oil imports from Nigeria by 2015, could pose a
significant risk for Nigeria, given the level of dependence on crude oil earnings for
funding the budget and meeting external trade obligations.
In the second half of 2012, monetary policy rates remained low in most advanced
economies, with the US Federal Reserve Bank, the Bank of England, the Bank of
Canada, the Bank of Japan and the European Central Bank holding interest rates at
between 0.25 and 1.00 per cent. Some central banks, such as the Reserve Bank of
Australia and the Bank of Korea, progressively reduced their rates, while others left their
policy rates unchanged. For most developing and emerging economies, monetary
policy remained accommodating with policy rates rarely changing in the second half
of 2012.
In Nigeria, economic growth remained strong at 6.5 per cent in the second half of 2012,
despite the uncertainties in the global economy. The non-oil sector continued to drive
growth with agriculture, wholesale and retail trade, and services constituting 40.4, 19.7
and 19.2 per cent of total output, respectively. Inflation moderated but remained at
double digits during the review period. The Central Bank sustained a tight monetary
policy stance, maintaining the Monetary Policy Rate at 12 per cent throughout the
year. This posture ensured that money market rates were relatively stable during the
period, except for the spike in August after an increase in Cash Reserve Requirement to
12.0 per cent, from 8.0 per cent, in July 2012.
The Naira exchange rate appreciated in all segments of the market in the second half
of 2012, with the spread between the inter-bank and BDC rates narrowing with the
WDAS rate. Gross External Reserves also increased to US$43.83 billion during the period,
which was adequate to finance 11.3 months of imports.
The dominance of a few banks in the industry continued in the second half of 2012. The
maturity mismatch and the near-absence of long-term deposits constrained the ability
of banks to create long-tenored risk assets necessary for economic development.
However, asset quality and the level of capitalization improved significantly during the
period.
The results of the examination of banks and other financial institutions showed
improvements in risk ratings. Meanwhile, AMCON continued to play its stabilizing role
CBN FINANCIAL STABILITY REPORT December 2012
xvi
in the banking system by acquiring additional eligible bank assets (EBAs). The
contribution of banks to the Banking Sector Resolution Cost Sinking Fund was increased
from 30 to 50 basis points of their total assets at the end of each year to minimise the risk
of crystallization of the FGN Guarantee.
The NSE All Share Index (ASI) rose, owing to increased demand resulting from growth in
earnings and investor-confidence.
The following factors underpin a positive outlook for 2013:
·
Moody's rating of Nigeria as Ba3, with a stable outlook for 2013;
·
Expected improvements in liquidity in the financial markets, buoyed by growing
foreign inflows;
·
Inclusion of Nigeria in the JP Morgan Global Bonds Index – Emerging Markets (GBI
– EM) and the Barclays EMLC Index will improve confidence in the Nigerian
financial markets;
·
The take-off of the Sovereign Wealth Fund (SWF);
·
Expected trending down of inflation with strong growth prospects in 2013; and
·
Expected improvement in socio-economic infrastructure, notably power.
MACROECONOMIC DEVELOPMENTS
AND FINANCIAL STABILITY
1.0
CBN FINANCIAL STABILITY REPORT December 2012

1.1
Global Economic and Financial
Developments
1.1.1
Output
Global output grew at a slower rate of
3.2 per cent in 2012, compared with 3.9
per cent in 2011, owing to the sovereign
debts crisis and weak aggregate
demand in the Euro Area, recession in
Japan and slow economic growth in the
BRICS countries. However, it is projected
to grow at 3.5 per cent in 2013, as the risks
underlying the slowdown are expected
to subside.
Real GDP growth in the advanced
economies was estimated at 1.3 per
cent in 2012, compared with 1.6 per cent
in 2011. The slow growth was partly
attributed to austerity measures and
continued contraction of growth in the
Euro Area, difficulties associated with
China's effort to “rebalance” its growth
and the onset of recession in Japan. The
decline was, however, moderated by
the surprise growth in the US, despite the
fiscal standoff.
Euro Area real GDP contracted
significantly to -0.4 per cent in 2012, in
contrast to 1.4 per cent growth in 2011.
The sharp decline was due largely to
austerity and fiscal consolidation
measures aimed at containing the
region's debt crisis. Euro Area output is
projected at -0.2 per cent in 2013.
Although the European Central Bank
(ECB) has taken steps to address the
negative growth, the impact is not
expected to be fully realized in 2013,
owing to the lag in the transmission
mechanism.
Growth in the emerging and developing
economies slowed to 5.1 per cent in
2012, from 6.3 per cent in 2011, owing to
declining exports to the Euro Area.
Activities in Russia, which also lost
momentum, contributed to the
slowdown in these economies.
Output growth in China declined to 7.8
per cent in 2012, from 9.3 per cent in 2011,
a s a r e s u l t o f c o n t r a c t i o n i n
manufacturing output, weak external
demand and tight credit conditions.
India's economic activities suffered from
waning business confidence amid slow
approvals for new projects, sluggish
structural reforms, policy rate hikes to rein
in inflation, and flagging external
demand. However, the situation is
expected to improve in 2013, with a
projected output growth of 3.2 per cent.
Real GDP growth also decelerated in
Latin America to about 3.0 per cent in
2012, largely owing to the drop in Brazil's
GDP growth to 1.0 per cent, from 2.7 per
cent in 2011. It also reflects the impact of
past policy tightening to contain
inflationary pressure and moderate
credit growth in some market segments.
Growth in Sub-Saharan Africa declined
to 4.8 per cent in 2012, from 5.3 per cent
in 2011, which was in part, due to the
impact of the global slowdown on the
region's economies. It is projected to
grow by 5.8 per cent in 2013.
Overall, global output growth is
projected to be moderate in 2013, as it is
expected to increase marginally to 3.5
per cent, from 3.2 per cent in 2012. This
forecast is on the premise of projected
i m p r o v e m e n t s i n e c o n o m i c
performance of the US (2.0 per cent),
expanded activity in Japan (1.2 per
cent) and China in (8.2 per cent),
improvements in growth projections of
Table 1: World Output Growth and Projections (2011-2013)

Projections

World Output

3.9

3.2

3.5

Advanced

Economies

1.6

1.3

1.4

United States

1.8

2.3

2.0

Japan

-0.6

2.0

1.2

Euro Area

1.4
-0.4

-0.2

Germany

3.1
0.9

0.6

France

1.7
0.1

0.4

Italy
0.4
-2.1

-1.0

Spain

0.4
-1.4

-1.5

United Kingdom

0.9
-0.2

1.0

Emerging and Developing
Economies

6.3
5.1

5.5

Sub-Saharan Africa

5.3

4.8

5.8

China

9.3

7.8

8.2

India

7.9

4.5

5.9

Brazil

2.7

1.0

3.5

Mexico

3.9

3.8

3.5

MENA
3.5
5.2
3.4
Source: IMF's World Economic Outlook, January Update 2013
emerging and developing economies
(5.5 per cent), and robust growth in SubSaharan Africa (5.8 per cent).
Global inflation declined in 2012 as a
result of low average commodity prices
relative to 2011, following lower
aggregate demand in the Euro Area,
less than expected growth in the BRICS
1.1.2
Inflation
countries and moderate US and
Japanese GDP growth. Inflationary
pressures were well contained in
Table 2: Global Consumer Price Inflation

REGION

ESTIMATE

PROJECTIONS
Advanced Economies

1.8
2.7

2.0

1.5
Emerging and Developing Economies

6.1
7.2

6.1

5.6
Source: IMF’s World Economic Outlook, January 2013
CBN FINANCIAL STABILITY REPORT December 2012

advanced countries, averaging 2.0 per
cent in 2012. This was as a result of
persistent economic slack and
adequately anchored inflation
expectations. Likewise, inflation is
projected to fall to 5.6 per cent in 2013,
from 6.1 per cent in 2012 in the emerging
and developing economies (IMF WEO,
January 2013).
The slowdown in global activity and the
slack in demand in many advanced
economies have had a moderating
effect on inflation. In the US, headline
inflation fell to 1.7 per cent in December
2012 from 3.4 per cent in 2011. Likewise,
inflation declined in Canada, UK and
France. The same trend was recorded
among the emerging economies (Table
3). Brazil had 5.84 per cent inflation in
December 2012, down from 6.6 per cent
in 2011; Egypt, in spite of political
instability, recorded a sharp decline in
inflation to 5.6 per cent in December
Table 3: Global Inflation


Country/Region

2013 Projection
Africa

Nigeria

12.7

12.4

13.57

South Africa

5.6 Nov

6.1

5.5

Egypt
5.6 Dec

9.5

8.5

Ghana

9.1 Dec

8.7

9.3

North America

US
1.8 Nov

3.4

1.9

Canada

0.8 Nov

2.9

1.7

Mexico

3.6 Dec
3.8

3.9

Latin America

Brazil

5.84 Dec
6.6

5.6

Argentina

10.6 Nov
9.5

10.6

Columbia

2.4 Dec
3.7

3.1

Europe
UK
2.7 Nov

4.8

2.5

France

1.3 Dec

2.5

1.7

Germany

2.1 Dec

2.1

1.9

Russia

6.5 Dec

6.1

6.5

Asia
Japan
-0.2 Nov

-0.5

0.0

China
2.0 Nov

4.2

3.1

India
9.9 Nov
10.8
8.5
Sources: NBS, Bloomberg and the Economist
2012, from 9.5 per cent in 2011. Some of
the emerging economies, such as Russia
and Argentina, however, experienced
higher inflation at the end of 2012.
The IMF forecasts further easing of
inflationary pressure in the advanced
economies, with headline inflation
declining to 1.75 per cent in 2013. In the
emerging and developing economies,
headline inflation is projected to remain
unchanged.
Oil demand remained flat during the
second half of 2012, averaging about 90
mbd, thus contributing to the easing in
crude oil prices. The lack of growth in oil
demand reflected the declining trend in
1.1.3
Oil Prices
CBN FINANCIAL STABILITY REPORT December 2012

OECD countries (except Japan) which
was moderated by growth in China and
India. Increased Japanese demand
reflected the use of oil for power
generation, after nuclear production
was halted in the wake of the Fukushima
nuclear disaster. The demand for oil in
Japan is expected to remain high, given
the country's recent decision to phase
out nuclear power by 2040. Much of
China's demand was attributed to its
decision to build up its strategic
petroleum reserves and to support the
expanding vehicle usage and growth in
petrochemical demand. India's
demand intensified owing to irrigation
needs and power shortages during the
third quarter (WEO, October 2012).
M o n e t a r y p o l i c y r e m a i n e d
accommodative in most advanced
economies in the second half of 2012.
The US Federal Reserve, the Bank of
England, the Bank of Canada, the Bank
of Japan and the ECB had interest rates
1.1.4
The Monetary Policy
Table 4: Summary Table of Policy Rates Across Selected Countries
(January – December 2012)
Country
January
February March April
May
June
July
August September
October November December
Developed Economies
Japan

Europe

UK

USA

Canada

South Korea

New Zealand

Australia

ASEAN
Indonesia

Malaysia

Phillipines

BRICS
Brazil

Russia

India

HK Base

South Africa

Other Emerging Economies & South America
Mexico

Turkey

Chile

Colombia

Africa
Morocco

Ghana

Nigeria

Monthly Policy Rate
Source: Bloomberg
CBN FINANCIAL STABILITY REPORT December 2012

ranging between 0.25 and 1.00 per cent.
The Reserve Bank of Australia and the
Bank of Korea also progressively reduced
their policy rates during the review period
to 3.00 and 2.75 per cent respectively at
end-December 2012, from 3.50 and 3.25
per cent at end-June.
Among the BRICS economies, monetary
p o l i c y r e m a i n e d l a r g e l y
accommodative except Russia which
reviewed its policy rate upwards to 8.25
per cent at end-December 2012, from
8.00 per cent at end-June 2012. Brazil
reduced its rate to 7.25 per cent at endDecember 2012 from 8.00 per cent at
end-June, while China, India and South
Africa left their rates unchanged at 0.50,
9.00 and 5.00 per cent, respectively,
during the review period (Table 4).
1.2
Domestic Developments
1.2.1
Output
Growth of the domestic economy
remained strong at 6.5 per cent in the
second half of 2012 despite the
uncertainties in the global economy. The
non-oil sector continued to drive growth
with agriculture, wholesale and retail
trade, and services constituting 40.4, 19.7
and 19.2 per cent of the total,
respectively.
A growth rate of 6.8 per cent had been
projected for the second half of 2012;
the growth of 6.5 per cent was slightly
higher than the 6.4 per cent recorded in
the first half of the year. The slight
increase in GDP reflected the relative
macroeconomic stability observed,
following the resolution of the fuel
subsidy crisis in the first half of the year. As
in the preceding year, the growth in GDP
was entirely accounted for by the growth
of the non-oil sector comprising
agriculture (3.90%), industry (2.20%),
building and construction (12.10%),
wholesale and retail trade (10.20%), and
services (14.30%). Growth in the oil sector
component of the GDP declined by 0.05
per cent in the second half of 2012. The
sector, nevertheless, contributed 13.05
per cent to GDP in the same period.
In anticipation of the resolution of the
European debt crisis, the continued
accommodative stance of monetary
policy, and the robust performance of
the emerging and developing
economies, global economic growth
would be expected to gradually
stimulate output growth in Nigeria during
the year 2013.
Figure 1: Real Gross Domestic Product

HY1'11
HY2'11
HY1'12
HY2'12
Agriculture
Industry
Crude petrpleum & Natural gas
Building&construction
Wholesale &Retail Trade
Services
Total
N billion
Table 5: Changes in GDP by Sector
Sector

2012Q1
2012Q2

2012Q3

2012Q4
Agriculture

4.37
4.21

3.89
3.83
Industry

-1.64
1.21

1.64
2.7
Crude Petroleum & Natural Gas
-2.32
-0.73

0.08
-0.17
Building and Construction


Wholesale and Retail Trade

8.42
8.65

9.62
10.76
Services


Total

Source: National Bureau of Statistics
CBN FINANCIAL STABILITY REPORT December 2012

Figure 2: Share in total GDP (%)

Agriculture
Industry
Crude petrpleum &
Natural gas
Building&construction Wholesale &Retail
Trade
Services
Per cent
2012Q1
2012Q2
2012Q3
2012Q4
1.2.2
Inflation
Inflation moderated but remained at
double digit during the review period.
The year-on-year headline inflation
declined to 12.0 per cent in December
2012, from 12.9 per cent in June. The
decline was attributed to the stability in
the supply of petroleum products,
following the partial removal of the
subsidy on premium motor spirit (PMS) in
January 2012 and the tight monetary
policy stance.
The Central Bank of Nigeria (CBN)
maintained a contractionary monetary
policy stance, with the Monetary Policy
Rate at 12 per cent throughout 2012.
1.2.3
Interest Rates
Figure 3: Inflationary Trend (Year-on-Year)

Q1 '11
Q2'11
Q3'11
Q4'11
Q1'12
Q2'12
Q3'12
Q4'12
Core (Non -food)
Food
Headline
Per cent
Consequently, interest rates rose
generally in the money market. The
average inter-bank rate stood at 13.61
per cent for the second half of 2012,
slightly down from 14.28 per cent for the
first half. The average term deposit rate
rose marginally by 0.70 percentage point
to 6.61 per cent. Similarly, the average
maximum lending rate rose by 125 basis
points to 24.52 per cent in the second half
of the year. Thus, the spread between
the maximum lending rate and the
average term deposit rate stood at 17.01
percentage points, a 0.55 percentage
point rise over that of the first half of the
year. With the inflation rate at 12.0 per
cent, deposit rates were negative in real
terms.
CBN FINANCIAL STABILITY REPORT December 2012

Figure 4: Money Market Interest Rates

DEC '10
H1' 10
H2' 10
H1 '11
H2'11
H1'12
Interbank Call Rates
Savings
Average Term Deposit Rates
Open Buy Back (OBB)
Per cent
Figure 5: Lending and Deposit Rates

DEC '10
H1' 10
H2' 10
H1 '11
H2'11
H1'12
H2'12
Prime
Maximum
MPR
Spread(Max-Avtrm)
Per cent
Spread (percentage points)
1.2.4
Fiscal Operations
The retained revenue of the Federal
Government was 1,887.62 billion, while
the total expenditure was
2,581.5
billion. Thus, the fiscal operations of the
Federal Government in the second half
of 2012 resulted in an estimated deficit of
693.88 billion, compared with
281.82
billion in the first half. The cumulative
deficit for the year was thus
975.70
billion, representing 2.4 per cent of GDP.
At that level, the deficit to GDP ratio was
within the 3.0 per cent benchmark for the
WAMZ Convergence criteria. The deficit
was financed largely from the proceeds
of FGN Bonds.
Figure 6: Federal Government's Fiscal Operations


FG-Retained Revenue
Total Expenditure
Deficit
H2' 11
H1'12
N Billion
CBN FINANCIAL STABILITY REPORT December 2012

DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.0
2.1
M o n e t a r y a n d C r e d i t
Developments
The growth of money supply remained
modest in the second half of 2012
relative to the benchmark for 2012. Over
the level at end-June 2012, broad
money supply (M2), at
15,128.7 billion,
grew by 12.2 per cent, compared with
1.4 per cent recorded at the end of the
preceding half year. At that level, the
growth in M2 was 12.4 percentage points
below the benchmark for fiscal 2012. The
development reflected the respective
growth rates of 20.9 per cent and 4.8 per
cent in net foreign assets and domestic
assets of the banking system. Narrow
money supply (M1) grew by 7.1 per cent,
in contrast to a decline of 2.5 per cent in
Figure 7: Trend in Monetary Aggregates


Dec' 10
Jun' 11
Dec '11
Jun' 12
Dec' 12
M2
M1
COB
N Billion
the preceding half year. The growth in
M1 reflected increases of 19.6 per cent
and 4.6 per cent in the currency and
demand deposit components,
respectively.
Aggregate credit to the domestic
economy grew by 4.8 per cent to
13,937.4 billion in the second half of
2012, in contrast to the 2.7 per cent
2.1.1
Aggregate Credit to the
Economy
decline at the end of the first half of the
year. This reflected largely the growth of
4.0 per cent in claims on the private
sector, with the core private sector
accounting for 3.6 percentage points.
CBN FINANCIAL STABILITY REPORT December 2012

Figure 8: Credit to the Economy

-4000
-2000


Dec -10
Jun -11
Dec '11
Jun -12
Dec -12
NDC
CP
NCG
2.1.1.1 C l a i m s o n t h e F e d e r a l
Government
2.1.1.2 Claims on the Private Sector
Claims on Federal Government
increased marginally by 3.8 per cent to
negative 1,327.9 billion end-December
2012, in contrast to a decline of 177.9 per
cent at end-June 2012. The slight growth
in Government claims was attributable
to the growth of 9.2 and 3.4 per cent in
Treasury bills and FGN bonds holdings,
respectively. The Federal Government,
however, remained a net lender to the
banking system in the period under
review.
Credit to the private sector grew by 4.0
per cent to 15,285.3 billion at the end of
the review period, compared with 3.6
per cent growth at the end of the first half
of 2012.
The development was attributable
mainly to the 3.6 per cent growth in
claims on the core private sector.
The Household Sector
The rising trend of credit to the household
sector in the first half of 2012 continued in
the second half of the year. Loans to the
sector increased by 5.7 per cent to
613.5 billion at end-December 2012,
from 580.3 billion at end-June 2012. The
growth is attributable to increased
product innovations by banks.
The Corporate Sector
Total credit to the corporate sector
increased by 2.3 per cent to
6,673.4
billion at end-December 2012, from
6,522.4 billion at end-June. The sector
continued to face a number of
challenges, including the high cost of
doing business owing, largely, to
dilapidated public infrastructure, high
lending rates, increased fuel prices and
security concerns.
The Real-Estate Sector
The real-estate sector contributed 1.73
per cent to the GDP in the third quarter of

2012 . Credit to the real-estate sector
declined to
376.6 billion at endDecember 2012, from
380.7 billion at
end-June 2012. The quality of the
exposures measured by the ratio of the
1National Bureau of Statistics
CBN FINANCIAL STABILITY REPORT December 2012

sector's NPLs to total credit, however,
improved to 3.1 per cent at end-
December 2012, from 4.2 per cent at
end-June 2012.
The main challenge to the funding of the
real estate sector is the dearth of longterm funds. The dominance of short-term
funds has led to a mismatch between
the long-term mortgage assets and
short-term-oriented liabilities of primary
mortgage banks (PMBs). As part of
efforts to address this, the CBN is
promoting the establishment of a
mortgage re-finance company (MRC),
in collaboration with other stakeholders.
The PMBs are also being repositioned to
serve as veritable channels for
mortgage/housing finance and home
ownership.
The MRC will provide short-term liquidity
and long-term funding or guarantees to
mortgage originators and housing
finance lenders. It will also serve as a
catalyst for the development of the
secondary mortgage market and a
precursor to mortgage-backed
securitization.
In order to minimize the risks associated
with the operation of the MRC and
ensure it remains mission-focused, the
Regulatory and Supervisory Framework
for the operation of the Mortgage
Refinance Company was drafted, in
collaboration with the World Bank, in the
second half of 2012.
In the second half of 2012, reserve
money grew by 40.6 per cent to
3,532.05 billion, in contrast to the
decline of 9.8 per cent at end-June 2012.
The growth in reserve money reflected
2.1.2
Reserve Money
the respective 19.7 and 65.4 per cent
growth in currency in circulation and
DMB's reserves with the CBN. At that
level, reserve money was 16.98 per cent
above its benchmark for fiscal 2012.
The structure of DMBs' credit at endDecember 2012 indicated that shortterm maturities remained dominant.
Outstanding credits maturing within one
year accounted for 57.6 per cent,
compared with 59.1 per cent at the end
of the first half of 2012. The medium-term
(≥1yr and < 3yrs) and long-term (3yrs and
above) maturities stood at 18.4 and 24.0
per cent, respectively, compared with
14.8 and 26.1 per cent, in the first half of
2012. Similarly, deposits below one year
constituted 97.5 per cent of the total, of
which 76.31 per cent had maturities of
less than 30 days, while long-term
deposits constituted only 0.01 per cent. In
addition to the consequences of the
maturity mismatch, the near-absence of
long-term deposits continued to
constrain the ability of banks to create
long-tenored risk assets crucial for
economic development.
The pattern has been spurred in the past
by instability of the macroeconomic
indicators, such as inflation, interest and
exchange rates. To address the
challenge, the Bank, through its reform
agenda, has been able to bolster
confidence in the financial system. Also,
the relative stability so far achieved in the
macro-economic indicators, would
engender greater confidence for
customers to place their monies for
longer periods in the near future.
2.1.3
Maturity Structure of DMBs'
Deposits and Credits
CBN FINANCIAL STABILITY REPORT December 2012

Figure 9: Distribution of DMBs' Loans and Advances by Maturity
(June 2011 to December 2012)

Jun' 11
Dec' 11
Jun' 12
Dec' 12
Per cent
Short-term
Medium-term
Long-term
Figure 10: Distribution of DMBs' Deposit Structure (June 2011 to December 2012)


Jun' 11
Dec' 11
Jun' 12
Dec' 12
Per cent
Short-term(lhs)
Medium-term(rhs)
Long-term(rhs)
2.1.4
The Market Structure of the
Banking Industry
The dominance of a few major players in
the banking industry continued as in the
first half of 2012. Available data showed
that the average market share of assets
and deposits of the five largest banks
(concentration ratio – CR ) stood at 52.36

and 51.07 per cent, respectively,
compared with 51.64 and 53.14 per cent
at the end of the first half of 2012. The
market share of the largest bank, with
respect to assets and deposits, stood at
14.99 and 13.47 per cent, respectively, at
end-December 2012, compared with
14.05 and 15.60 per cent at end-June
2012. This showed that competition
remained limited in the banking system
as confirmed by the HerfindahlHirschman Index (HHI) of 790.66 and
741.43 for total deposits and total assets,
compared with 699.10 and 690.10,
respectively, at end-June 2012.
Figure 11: Market Concentration Ratios of DMBs (Assets)

Jun' 11
Dec' 11
Jun' 12
Dec '12
HHI
HHI ASS
CR5 Ass
CR5 Dep (rhs)
HHI Dep (lhs)
CBN FINANCIAL STABILITY REPORT December 2012

2.2
The Banking Sector
The banking sector and capital market
reforms continued to drive growth and a
vibrant financial system. The Nigerian
b a n k i n g s e c t o r s u s t a i n e d t h e
i m p r o v e m e n t s i n t h e l e v e l o f
capitalization. The capital adequacy
and Tier I to risk-weighted assets ratios
stood at 18.1 per cent and 16.1 per cent
at end-December 2012, compared with
17.7 per cent and 16.0 per cent,
respectively at end-June 2012. The
increase in the level of capitalization of
the banks was attributable to half-year
profits and raising of Tier II capital.
Total loans increased by 3.5 per cent to
8,150.0 billion at end-December 2012,
from
7,870.9 billion at end-June.
Increased income from intermediation
accounted for the increases in earnings
performance. Interest margin to gross
income declined from 48.8 per cent at
end-June 2012 to 46.0 per cent at endDecember 2012. Non-interest expense
to gross income increased from 50.9 per
cent at end-June 2012 to 51.5 per cent at
end-December 2012. Sustained
improvement was observed in the level
of liquidity in the system, with the ratio of
liquid assets (core) to total assets
increasing from 24.3 per cent at endJune 2012 to 28.9 per cent at endDecember 2012, indicating that the
industry was very liquid.
Asset quality improved during the review
period as the ratio of non-performing
loans (NPLs) to total loans improved to
3.5 per cent at end-December 2012,
from 4.3 per cent at end-June. Although
the industry NPL ratio was within the 5.0
per cent regulatory threshold, a number
of banks operated above it. The ratio of
provisions to NPLs stood at 68.7 per cent
at end-December 2012, indicating that
the prevailing level of NPL did not pose a
significant risk to the industry. The CBN will
continue to monitor developments to
ensure that the NPL ratios remain within
the threshold.
The recent crisis in the Nigerian banking
industry highlighted several weaknesses
in the system, key of which was the
excessive concentration of credit in the
asset portfolios of banks. To ensure that
banks properly manage these
concentration, or pools of exposures
whose collective performance may
potentially affect a bank negatively, the
CBN, in line with its risk-based supervisory
process, reviewed the risk weights
assigned to some exposures in the
computation of capital adequacy ratio.
Cross-Border Collaboration
In the period under review, the CBN
executed memoranda of understanding
on information sharing with the central
banks of Tanzania, Mozambique, and
Burundi and the Banking Commission of
W e s t A f r i c a ( B C E A O ) . I t a l s o
collaborated with regulatory authorities
in the sub-region to harmonize
supervisory standards in West Africa and
signed the charter of the Committee of
Banking Supervisors of West and Central
Africa (CBSWCA).
The sector witnessed significant activities
in all the OFI categories in the second half
of 2012. The highlights of these
developments are described in subsections 2.3.1 to 2.3.3.
Access to finance through microfinance
banks improved significantly during the
r e v i e w p e r i o d w i t h t h e m a i n
performance indicators recording
positive changes. Total assets of MFBs
rose to
222.8 billion at end-December
2.3
Other Financial Institutions (OFIs)
2.3.1
Microfinance Banks (MFBs)
CBN FINANCIAL STABILITY REPORT December 2012

2012, from
196.5 billion at end-June,
representing a 13.4 per cent increase.
Similarly, the paid-up capital and
shareholders' funds of MFBs increased by
23.6 and 12.0 per cent respectively to
60.7 billion and 53.3 billion, from 49.1
billion and
47.6 billion. The increase in
capital was due largely to the
recapitalization of some Unit-MFBs to
attain the prescribed minimum capital of
100 million for state-MFBs.
Total deposit liabilities and net
loans/advances of MFBs also increased
by 26.9 and 12.0 per cent to 132.2 billion
and
97.0 billion respectively at endDecember 2012, compared with 104.2
billion and 86.6 billion at end-June. The
rise in deposit liabilities was indicative of
increased depositors' confidence, while
the growth in net loans/advances
reflected the enhanced mission-focus
on the part of operators. However,
reserves plummeted by
5.9 billion to
negative
7.4 billion, owing due mainly
to the erosion of earnings by large nonperforming loans. The CBN, therefore,
continued to pursue policies and
initiatives for the sustainability of MFBs,
including the adoption of risk-based
supervision and the extension of its
f u n d i n g o f t h e M i c r o f i n a n c e
Certification Programme (MCP) to
December 2013. Meanwhile, the
number of MFB officers certified under
the MCP at end-December 2012, stood
at 1,420.
During the review period, efforts were
made to extend the banking sector
reform initiatives to MFBs, with a view to
repositioning them for greater efficiency
and viability. These initiatives included
the adoption of:
·
December 31 as the common
year-end for all MFBs;
·
The use of International Financial
Reporting Standards (IFRS) in the
p r e p a r a t i o n o f f i n a n c i a l
statements; and
·
A p p r o v e d p e r s o n s r e g i m e
procedures in evaluating the
suitability of nominees to board
and top management positions of
the institutions.
The consolidated financial position of the
sub-sector declined marginally at endDecember 2012 due largely to the
absorption of two (2) PMBs by their
parent DMBs, under the new banking
model. Total assets of PMBs decreased
by 3.7 per cent to
348.1 billion at endDecember 2012, from
361.4 billion at
end-June. Paid up capital and
shareholders’ funds also reduced by 6.4
and 4.1 per cent to 62.9 billion and 74.6
billion, respectively, from 67.2 billion and
77.8 billion. Similarly, loans and
advances declined by 12.8 per cent to
120.9 billion from 138.7 billion.
Activities in the sub-sector focused on the
implementation of the three pillars of the
PMB reform programme. These included:
·
Compliance with the higher
minimum capital requirements
before April 30, 2013;
·
Establishment of a Mortgage
Refinance/Liquidity Company as a
specialised second-tier institution
to provide short-term liquidity and
long-term funding to mortgage
lenders; and
·
E s t a b l i s h m e n t o f u n i f o r m
underwriting standards for
mortgage loan origination, in
collaboration with industry
stakeholders and in consonance
with the Regulatory Framework for
the Mortgage Refinancing
2.3.2
Primary Mortgage Banks (PMBs)
CBN FINANCIAL STABILITY REPORT December 2012

Company (MRC).
The total assets of FCs decreased to
109.5 billion at end-December 2012,
from
117.6 billion at end-December
2011, representing a decline of 6.9 per
cent. Total paid-up capital and
shareholders' funds also decreased by
5.0 and 13.6 per cent respectively, to
19.1 billion and
13.3 billion at endDecember 2012, from
20.1 billion and
15.4 billion, at end-December 2011.
Furthermore, net loans/advances and
total borrowings decreased by 5.3 and
17.4 per cent respectively, to 30.2 billion
and 65.1 billion at end-December 2012,
from
31.9 billion and
78.8 billion, at
end-December 2011. The decrease was
largely attributed to the revocation of
the licences of 40 FCs and cancellation
of the licences of 11 others. Investible
funds available to the sub-sector during
the period totalled
19.8 billion. The
funds were sourced mainly from the
reduction in placements with banks of
9.7 billion and an increase in other
liabilities of 8.3 billion. They were utilized
mainly to reduce borrowings by
13.7
billion and to increase investments by
2.3 billion.
As part of the efforts to sanitize the
financial system, the Inter-agency
C o m m i t t e e o n I l l e g a l F u n d
Managers/“Wonder Banks” closed 32
unlicensed/illegal finance companies in
the second half of 2012. Also, the
Committee commenced investigations
preparatory to instituting legal action
against directors of such companies and
settled the claims of depositors to one of
the closed companies.
During the review period, the CBN rolled
out a financial inclusion strategy
document with emphasis on financial
2.3.3
Finance Companies (FCs)
2.4
Financial Inclusion Activities
access, inclusion and literacy. The
strategy aims at leveraging the
geographical spread and branch
network of the Nigerian Postal Service
(NIPOST) to reach the target population.
To this end, the Bank commenced the
implementation of a public/private
partnership arrangement that would
enable the private sector to support
NIPOST to effectively participate in the
implementation of the financial inclusion
strategy.
In order to deepen access to financial
services, the CBN issued a Three-Tiered
KYC Guideline designed to lower
requirements for low-income applicants
who do not possess the requisite
documents for the opening of standard
bank accounts. The tiered KYC
presupposes that when the financial
status of such low-income customers
improves, higher KYC requirements
would automatically apply.
In the second half of the year, the Ministry
of Communication Technology, also
rolled out an all-inclusive ICT policy
document. Implementation of the policy
will address some of the challenges
associated with the payments system,
and thereby enhance financial inclusion.
In line with its objective of ensuring price
stability, the Bank sustained a tight
monetary policy stance in the second
half of 2012. This ensured that money
market rates were relatively stable in the
period, except for a spike in August,
which was occasioned by an increase, in
July, of the Cash Reserve Requirement
(CRR) from 8.0 per cent to 12.0 per cent.
The tight monetary stance was
complemented by the issuance of a
Revised Guideline for Accessing CBN
2.5
Financial Markets
2.5.1
The Money Market
CBN FINANCIAL STABILITY REPORT December 2012

Lending Window and Repurchase
Transactions which prohibited
authorized dealers from concurrently
accessing the Wholesale Dutch Auction
S y s t e m ( W D A S ) a n d t h e
Repurchase/Standing Lending Facility
(SLF) windows, throughout the term of a
repurchase or SLF transaction.
The average weighted open-buy-back
(OBB) and inter-bank call rates stood at
10.29 and 10.56 per cent, respectively, at
end-December 2012, down from 14.46
and 15.26 per cent at end-June 2012.
This development was attributed to
increased liquidity in the financial system
through payments from the Excess Crude
Account to sub-national governments,
repayment of matured CBN Bills and the
build-up of liquidity by DMBs to meet
anticipated withdrawals associated with
year-end festivities.
To further deepen the money market,
enhance financial inclusion, facilitate
effective liquidity management and
achieve price stability, the Bank released
the guidelines for the operation of the
following Non-Interest Financial
Figure 12: Inter-bank Rates Movements
Instruments (NIFIs):
·
CBN Safe-Custody Account;
·
CBN Non-interest Note; and
·
CBN Non-interest Asset-backed
Securities.
These instruments are accessible to
licensed non-interest banks, DMBs with a
non-interest banking window, and any
other authorised dealer approved by
the Bank. Appropriate governance
structures, including the establishment of
a Market Support Committee and a NIFI
Product Development Committee, have
been put in place to ensure the effective
implementation and administration of
the instruments.
The average exchange rate of the Naira
appreciated in all segments of the
market in the second half of 2012, with
the inter-bank and BDC rates closing in
on the WDAS rate. The average WDAS,
inter-bank and BDC exchange rates
appreciated by 0.07, 3.16 and 2.62 per
cent respectively, to close at 157.3240,
157.3542 and 159.2632 to the US Dollar,
at end-December 2012 (Figure 13). The
2.5.2
The Foreign Exchange Market
CBN FINANCIAL STABILITY REPORT December 2012

appreciation was attributed to
increased Foreign Portfolio Investments
(FPIs), following the inclusion of Federal
Government of Nigeria (FGN) bonds on
the Global Bond Index for Emerging
Markets (GBI-EM) by JPMorgan Chase &
Co. on October 1, 2012. In addition, the
announcement by Barclays Plc, in
November 2012, that it would include
the FGN bonds in its Emerging Markets
Local Currency (EMLC) government
bond index in March 2013 further
enhanced investor confidence.
During the review period, FPIs valued at
US$8.06 billion (with 87.16, 4.70 and 8.14
per cent, invested in equity, bonds, and
money market instruments, respectively)
were recorded in the country,
compared with US$5.26 billion (87.98,
3.92 and 8.09 per cent respectively,
invested in equity, bonds and money
market instruments) in the first half of
2012. The Bank, mindful of the adverse
impact of sudden reversals, continued to
monitor FPIs in-flow into the country and
h a s p u t i n p l a c e a d e q u a t e
arrangements to mitigate such impact
on the Nigerian financial markets.
Figure 13: WDAS, Inter-bank and BDC Rates, 2012
2.5.3
The Bond Market
FGN Bond yields at end-December 2012
declined when compared with endJune 2012 (Figure 14). The development
was attributed to the increased trading
and liquidity associated with the
inclusion of FGN Bonds on the JPMorgan
GBI-EM index, the inflow of foreign funds
due to the continued Euro-zone debt
crisis, the relative stability of the foreign
exchange rate, and increased liquidity
in the banking system.
JPMorgan Chase & Co. included FGN
Bonds maturing in 2014, 2019 and 2022 on
the GBI-EM index on October 1, 2012. The
FGN Bonds are estimated to represent
about 0.59 percent of the index.
Furthermore, Barclays Plc, in November
2012, announced the inclusion of FGN
Bonds in its EMLC government bond
index from March 2013, reflecting
increased government efforts at
developing the bond market, as well as
the integration of the Nigerian financial
markets into the international financial
markets as envisioned by the Financial
System Stability 2020 programme. These
CBN FINANCIAL STABILITY REPORT December 2012

developments are expected to increase
foreign portfolio investments in the
country.
With headline inflation (year-on-year) at
12.0 per cent in December 2012, the real
rate of return for some tranches of FGN
Bonds was negative (Figure 15). This
development might negatively impact
Figure 14: FGN Bonds' Yield Curve
Source: Financial Markets Dealers Association
the market in the short term as prices
adjust. However, given the global
appeal of the FGN Bonds, it is expected
that the bonds would continue to attract
FPIs as yields remained relatively
competitive when compared with other
sovereign bonds.
Figure 15: Bond Yields on December 28, 2012 versus December Inflation Rate
Source: Financial Markets Dealers Association and National Bureau of Statistics
CBN FINANCIAL STABILITY REPORT December 2012

2.5.4
The Equity Market
The introduction of a robust information
and communications technology has
deepened financial integration,
enhanced client access to information,
and lowered transaction costs. These
developments have further boosted
investor confidence as evidenced by
the sharp rise in FPIs, the rise in market
capitalization, the increase in the value
of shares traded as a percentage of
GDP, an increase in the number of listed
domestic companies, the timeliness and
reasonable cost of dealings, and
efficient trade settlements.
The Nigerian Stock Exchange (NSE) AllShare Index (ASI) closed at 28,078.21 at
end-December 2012, representing an
increase of 12.40 per cent, from
24,980.20 at end-June. The increase was
due to the measures taken to revive the
market, which included forbearance of
22.64 billion by the Federal
Government to 84 stockbrokers with
margin loans worth
42.60 billion,
backed by underlying assets valued at
19.96 billion. The forbearance was
accompanied with sanctions that would
be applied to defaulting stockbrokers
going forward. These include:
·
Prohibition from providing services
to AMCON for a period of not less
than 3 years;
·
Requirement to reveal to the SEC,
dealings in securities valued at a
minimum of 25 million in single or
multiple deals on the same day;
·
Limiting of their aggregate
indebtedness to 100 per cent of net
capital;
·
Prohibition from proprietary trading
for a period of one year; and
·
Imposing the separation of assets
and control for brokerage services
through the use of custodians.
In addition, the FG waived the 0.075 per
cent stamp duties payable on
transaction consideration and value
added tax (VAT). The NSE also
introduced market makers in order to
deepen the market and enhance
investor confidence. These measures
have impacted positively on the market.
The Bank acquired the Central Securities
Depository (CSD) to be integrated with
the new Real-Time Gross Settlement
(RTGS) System to facilitate Delivery versus
Payment (DvP) of government securities.
When fully operational, the CSD system
would reduce inefficiencies in financial
and securities settlements and facilitate
effective implementation of monetary
policy, improve efficiency of the
payments system and, ultimately,
enhance stability of the financial system.
At end-December 2012, 59 insurance
c o m p a n i e s , t w o r e - i n s u r a n c e
companies, 579 brokers, 48 loss adjusters
and 2,250 agents were in operation.
Significant developments in the industry
included the issuance by the National
Insurance Commission (NAICOM) of the
“No Premium, No Cover” directive,
which barred insurance companies from
accepting policies on their books except
where the premium had been received.
Also, the NSIA of Ivory Coast, the Old
Mutual of South Africa, and a private
equity fund from Europe took majority
stake in various insurers. NAICOM also
carried out AML on-site inspection of
insurance companies and implemented
the local content regulation which
resulted in about 48 per cent of oil & gas
2.5.5
The Central Securities Depository
2.6
The Insurance Sector
CBN FINANCIAL STABILITY REPORT December 2012

risk being covered by leading Nigerian
insurance companies.
In continuation of efforts to ensure a
strong and virile pension industry that
can guarantee the sustainability and
safety of pension assets, the Nigerian
Pension Commission (PENCOM)
increased the minimum paid-up capital
r e q u i r e m e n t o f P e n s i o n F u n d
Administrators (PFAs) from 150 million to
1 billion. The PFAs were given a
maximum period of one year to comply
with the new capital requirement. The
revised paid-up share capital regime is
expected to promote healthy
competition in the industry, enhance the
presence of the PFAs around the
Country, as well as promote the
deployment of state-of-the-art
information and communications
technology. At the expiration of the
deadline, 20 out of the 24 PFAs had
recapitalized, three were acquired and
the operating licence of one was
withdrawn.
In order to strengthen the administration
of pensions in the public service, the
Federal Government inaugurated an
Inter-Ministerial Committee (IMC), in
2012, to work out the operational
modalities of the Pension Transitional
Arrangement Department (PTAD), in
accordance with the provisions of
Section 30 of the Pension Reform Act
2004. The first phase of the project was
concluded by the IMC and a Blueprint
f o r w a r d e d t o t h e M i n i s t e r o f
Finance/Coordinating Minister for the
Economy.
In order to promote real sector growth
and entrepreneurship development, the
Bank sustained the initiatives described
in sub-sections 2.8.1 to 2.8.7 during the
2.7
The Pension Sector
2.8
Real Sector Intervention Initiatives
review period:
NIRSAL is designed to promote the
provision of affordable financial
products to the agricultural value-chain,
reduce the risk of financial institutions
that grant agricultural loans, build
capacity of banks to lend to agriculture,
as well as encourage banks to invest in
the sector. The initiative is a
75 billion
programme hinged on five pillars,
namely:
·
A risk sharing facility (RSF),
·
A technical assistance facility (TAF),
·
A bank-incentive mechanism
(BIM),
·
A bank rating system (BRS), and
·
An insurance facility (IF).
The notable achievements of the NIRSAL
initiative, thus far, include the following:
·
Establishment of NIRSAL Plc as a
non-bank financial institution;
·
I s s u a n c e o f 8 C r e d i t R i s k
Guarantees (CRGs) valued
5.31
billion; and
·
E n g a g e m e n t o f 3 0 s t a t e
g o v e r n m e n t s t o p r o m o t e
aquaculture, the production,
processing and marketing of rice,
tomato, cotton, and beef.
The Commercial Agriculture Credit
Scheme (CACS) was established in 2009
to finance large ticket projects along the
agricultural value-chain. The cumulative
amount disbursed since its inception to
269 projects stood at
199.12 billion at
end-December 2012. The Scheme
recorded the following achievements in
2.8.1
The Nigeria Incentive-based Risk
Sharing System for Agricultural
Lending (NIRSAL)
2.8.2
The Commercial Agriculture
Credit Scheme (CACS)
CBN FINANCIAL STABILITY REPORT December 2012

the second half of 2012:
·
Released the sum of 752.00 million
to DMBs for 8 projects;
·
Created more jobs and increased
the capacity utilization of existing
projects; and
·
Commenced the recycling of
16.83 billion repayment proceeds,
with the disbursement of 3.5 billion
to 2 projects.
A total of 13,869 loans, valued at
3.24
billion, were guaranteed in respect of
seven (7) DMBs and some Microfinance
banks during the review period,
compared with 15,910 loans valued at
2.43 billion guaranteed during the first
half of 2012. Cumulatively from 1978, a
total of 803,264 loans amounting to
62.05 billion were guaranteed. The
cumulative number and value of claims
paid from its inception to date stood at
14,582 claims, valued 450.86 million.
U n d e r t h e I n t e r e s t D r a w b a c k
Programme (IDP) of the ACGS, 10,139
claims, valued at
98.85 million, were
paid during the review period, bringing
the total IDP claims paid from its
inception to 181,078, valued at
2.78
billion.
The ACSS was established to finance
large ticket agricultural projects, with an
interest rebate of 6 per cent, upon the
timely repayment of the facility. During
the review period, no rebate was paid.
However, the total rebate paid from its
inception stood at
876.89 million to 46
projects.
2.8.3
T h e A g r i c u l t u r a l C r e d i t
Guarantee Scheme (ACGS)
2.8.4
The Agricultural Credit Support
Scheme (ACSS)
2.8.5
The SME Credit Guarantee
Scheme (SMECGS)
2.8.6
T h e P o w e r a n d A i r l i n e
Intervention Fund (PAIF)
2.8.7
Entrepreneurship Development
Centres (EDCs)
The 200 billion SMECGS was established
in April 2010 to fast-track the
development of the manufacturing
sector and SMEs by providing
guarantees for bank credits. In the review
period, twenty (20) applications, valued
877.2 million were guaranteed, bringing
the total number of applications
guaranteed under the Scheme from its
inception to forty six (46), valued 2.054
billion.
The
300 billion PAIF was approved for
investment in power and airline projects.
It was designed to address the paucity of
long-term credit to the two sectors. In the
review period, four (4) applications
valued at
5.53 billion were approved
and disbursed (three power projects
received
4.757 billion while one airline
project
received

million).
Cumulatively, the sum of
181.42 billion
for 36 projects had been disbursed by BOI
from the inception of the Fund (21 power
projects received
90.50 billion while 15
airline projects received 90.92 billion).
The CBN supports capacity building for
entrepreneurs in the SME and
m i c r o f i n a n c e s u b - s e c t o r s . T h e
Entrepreneurship Development Centres
(EDCs) were established with the aim of
building the entrepreneurial spirit of the
country's youth to enable them
contribute effectively to the sustainable
development of the economy. In pursuit
of this initiative, 3 EDCs were established
in April, 2008 and located in Onitsha,
Kano and Lagos.
In the second half of 2012, the CBN
CBN FINANCIAL STABILITY REPORT December 2012

approved the establishment of 3 new
EDCs to be located in Makurdi,
Maiduguri and Calabar. In addition to
the existing six satellite EDCs located in 6
states, three new satellite centres were
approved.
Since the inception of the programme, a
total of 41,441 individuals have been
trained, 106,933 counselled, while 10,895
jobs had been created. In the same
period, 1,034 trainees were able to
obtain loans valued 220.04 million from
banks.
Gross external reserves rose to US$43.83
billion at end-December 2012, from
US$35.41 billion at end-June 2012,
representing an increase of US$8.42
billion or 23.78 per cent. A breakdown of
the total external reserves indicated that
84.33 per cent was held in US Dollars, 5.91
per cent in Euro, 5.87 per cent in IMF
SDRs, 1.94 per cent in Renminbi, 1.88 per
cent in Pound Sterling, and 0.07 per cent
2.9
The External Sector
in other currencies at end-December
2012.
Total foreign exchange inflow in the
second half of 2012 was US$24.56 billion,
compared with US$22.17 billion recorded
in the first half of 2012, representing an
increase of US$2.39 billion (10.78%).Total
outflow in the review period was
US$15.85 billion. This was lower by US$3.51
billion (18.13%) than the US$19.36 billion
recorded in the first half of 2012. The net
inflow in the review period was US$8.71
billion, compared to US$2.82 billion in the
first half of the year.
Foreign reserves at end-December 2012
was sufficient to finance 11.3 months of
imports, compared with the 9.2 months
at end-June 2012 and the internationallyaccepted benchmark of three months
of import cover. This level could mitigate
vulnerabilities to external shocks, thereby
increasing confidence in the domestic
currency.
CBN FINANCIAL STABILITY REPORT December 2012

3.0
REGULATORY AND SUPERVISORY
ACTIVITIES
3.1
Macro-Prudential Supervision

3.1.1
Financial Soundness Indicators
3.1.1.1 Assets-based Indicators
Banking sector soundness improved in
the second half of 2012. Aggregate
asset quality, measured by the ratio of
non-performing loans to total credit, at
3.5 per cent, trended downwards by 0.8
and 1.8 percentage points below the
levels at end-June 2012 and endDecember 2011, respectively. The ratio

of core liquid assets to total assets
increased by 1.2 percentage points to
24.7 per cent at end-December 2012,
from 23.5 per cent at end-June 2012.
Similarly, the ratio of liquid assets to shortterm liabilities rose by 0.8 percentage
point to 28.9 per cent at end-December
2012 (Figure 17). The improved liquidity
level of the sector reflected the increase
in holdings of liquid assets, such as shortterm government securities, and
indicates reduced systemic risk arising
from illiquidity.
Figure 16: Banking Industry NPLs to Total
Gross Loans (%)


End-Dec,

End-June,

End-Dec,

5.30

4.70
3.50
2Note that the FSIs are computed, based on the IMF
Compilation Guide.
3Core liquid assets are instruments of not more than 30 days
maturity.
Table 6: Selected Asset-based Indicators

(1)

(2)

(3)

(4)

(5)

(6)


EndJune

EndDec

EndJune

EndDec

EndJune

EndDec

EndJune
EndDec
EndJune
EndDec
Asset-based
Indicators


NPL to total gross
loans

4.0

6.3

8.5

27.6

28.8

15.7


Liquid assets (core)
to total assets

24.4

17.6

15.6

16.5

17.2

17.2


Liquid assets (core)
to short
-
term
liabilities

Return on assets
(ROA)

*Revised, **Provisional,
CBN FINANCIAL STABILITY REPORT December 2012

3.1.1.2 Capital-based Indicators
The ratio of regulatory capital to riskweighted assets stood at 18.3 per cent at
end-December 2012, indicating an
improvement of 0.6 percentage point
over its level at end-June 2012. The
corresponding ratio of Tier 1 capital to
risk-weighted assets also improved by 0.2
percentage point to 18.0 per cent at
end-December 2012, from 17.8 per cent
at end-June 2012 (Table 7). The
regulatory capital to risk-weighted assets
ratio was 8.3 percentage points above
the prudential requirement of 10.0 per
cent.
The ratio of non-performing loans (net of
provisions) to capital of the banking
system improved to 6.1 per cent at endFigure 17: Banking Industry Liquidity Indicators (%)

End-Dec, 2011
End-June, 2012
End-Dec, 2012
Liquid Assets (core) to total assets
Liquid Assets (core) to short-term liabilities
Table 7: Selected Capital-based Indicators

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)*

(10)
**
EndJune

EndDec

EndJune
EndDec
EndJune
EndDec
EndJune

EndDec

EndJune

EndDec
Capital-based
Indicators


Regulatory capital to
risk-weighted assets

23.7

21.9

22.4
4.1
1.5

1.8
4.2
17.9

17.7

18.3
Tier 1 capital to risk
-
weighted assets

23.2

21.5

21.9
4.9
2.4

2.2
4.5
18.1

17.8

18.0
NPLs net of provision s

to capital

3.5

9.1

12.5
106.8
289.8

192.7

74.3

10. 1

6.8

6.1
Return on equity
(ROE)
11.5

20.7

8.9

-
222.8

50.2

265.0

29.4

0.5

13.1

7.8
*Revised, **Provisional,
December 2012 from 6.8 per cent at
end-June.
The ratio of net interest income to gross
income declined to 46.0 per cent in the
review period, from 48.8 per cent at endJune 2012. Also, the ratio of non-interest
expenses to gross income increased by
0.6 percentage point to 51.5 percent
3.1.1.3 Income and Expense-based
Indicators
from 50.9 per cent at end-June 2012
(Figure 18). Conversely, the ratio of
personnel expenses to non-interest
expenses decreased by 1.7 percentage
point to 37.2 per cent at end-December
2012, from 38.9 percent at end-June 2012
(Table 8).
CBN FINANCIAL STABILITY REPORT December 2012

Figure 18: Banking Industry Income and Expense-based Indicators (%)

End-June, 2012
End-December, 2012


48.8


Interest margin to gross income
Non-interest expenses to gross income
Table 8: Selected Income and Expense-based Indicators

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)*

(10)**
EndJune

EndDec

EndJune

EndDec

EndJune
EndDec
EndJune

EndDec

EndJune

EndDec
Income and Expense
Based Indicators


Interest margin to
gross income

54.6

58.3


42.2

48.8

46.0
Non-interest
expenses to gross
income

57.8

59.6


75.4

50.9

51.5
Personnel expenses
to non
-interest
expenses

45.5

44.8

46.7

47.6

45.5

42.8

44.6

36.1

38.9

37.2
*Revised, **Provisional,
3.1.2
The Banking Industry Stress Test
3.1.2.1 The Liquidity Stress Test
The stress test was conducted in terms of
liquidity and solvency.
The liquidity stress test assessed the
resilience of the banking system to
substantial withdrawal of deposits,
wholesale and long-term funding in a 5day period and a cumulative 30-day
period, with specific assumptions on fire
sale of assets to generate liquidity. It also
assessed funding maturity mismatch and
rollover risk for assets and liabilities in the
less than 30-day and 31-90 day buckets,
with the assumption of some level of CBN
and intra-group funding.
The results showed that industry liquidity
ratio declined to 16.1 and 7.8 per cent,
after the 5-day and cumulative 30-day
shocks, from the pre-shock position of
68.0 per cent (Table 9). Most banks
recorded liquidity ratios below the
regulatory threshold of 30 per cent for the
5-day and cumulative 30-day run
scenarios, respectively. Similarly, five (5)
banks recorded negative liquidity ratios
following a cumulative 30-day shock.
These five banks are categorised as
'large banks', holding 40.3 per cent of the
total assets of the banking industry.
However, under the rollover risk, assets in
the 30-day buckets were adequately
funded, following the three scenarios
used for the test (Figure 19).
CBN FINANCIAL STABILITY REPORT December 2012


Although the test revealed vulnerability
in some banks, the overall banking
system was not at risk as it was wellpositioned to absorb any liquidity
pressures that might occur.
Table 9: Implied Cash Flow Analysis, System Level Results
Total Number of
Banks tested

Number of Banks with < 30%
liquidity ratio

December

Dec.

Sept.

June

March

System LR

(%)

Liquidity
Shortfall to
make 30% LR
(N’billion)
Pre-Shock LR


68.0


Test 1.1: Implied Cash
Flow Test ( 5 Days)


Day 1

34.4

Nil
Day 2

30.4

Nil
Day 3

26.1

388.87
Day 4

21.4

797.41
Day 5

16.1

1,188.85
Test 1.2: Implied Cash
Flow Test (30 Days)

7.8

1,849.11
Figure 19: Rollover Risk Pre- and Post-Shock
Less than 30
days
(N'billion)
31-90 days
(N'billion)
90 -180days
(N'billion)
180 360days
(N'billion)
1-3 years
(N'billion)
above 3 years
(N'billion)
Pre-Shock

Scenario 1

Scenario 2

Scenario 3


CBN FINANCIAL STABILITY REPORT December 2012

Figure 20: Industry and Individual Bank Pre-Shock Positions

Mar-12
Jun-12
Sep-12
Dec-12
Figure 21: Industry Position After 1-5 Day and Cumulative 30-Day Shocks
66.7

34.4

30.5

26.3


29.4

25.1

20.5


28.8

24.4

19.7

14.6
9.2
-1

34.4

30.4

26.1


Pre-Shock
After Day 1
After Day 2
After Day 3
After Day 4
After Day 5
After cum 30
days
Mar-12
Jun-12
Sep-12
Dec-12
Figure 22: Individual Bank Positions After 5-Day and Cumulative 30-Day Shocks
-15

Bank 1
Bank 2
Bank 3
Bank 4
Bank 5
Bank 6
Bank 7
Bank 8
Bank 9
Bank 10
Bank 11
Bank 12
Bank 13
Bank 14
Bank 15
Bank 16
Bank 17
Bank 18
Bank 19
Bank 20
LR %
Day 30
Day 5
Pre-shock
CBN FINANCIAL STABILITY REPORT December 2012

3.1.2.2 The Solvency Stress Test
The solvency stress test assessed the
resilience of the Nigerian banking
industry to plausible shock scenarios. The
scenarios were based on historical worst
case and hypothetically strained
macroeconomic situations. The test
assessed banks' balance sheet
deterioration from the baseline position
(steady state), which entailed a static
balance sheet approach (assumed no
response to the shocks). The assumptions
were built around credit, liquidity,
exchange and interest rate risks. The
resilience of the banks was assessed
against a benchmark defined with
reference to 10 per cent CAR, 30 per
cent liquidity ratio, 5 per cent NPL ratios,
as well as trend performance of return on
asset (ROA) and return on equity (ROE).
For systemic and peer assessment, the
banks were classified into three groups,
based on their asset size as follows: large
(≥
1 trillion); medium (<
1 trillion but

500 billion) and small (< 500 billion).
The baseline CARs for the banking
industry, large, medium and small banks
stood at 18.36, 18.06,
20.32, and 16.93
per cent, respectively. These represent
0.05, -0.26, 1.16 and 0.66 percentage
points change over the June 2012
positions. Similarly, the pre-shock banking
industry, large, medium and small banks
liquidity ratios were 68.02, 61.99, 47.22
and 79.77 per cent, respectively,
representing 29.24, 28.35, 4.76 and 22.41
p e r c e n t a g e p o i n t s c h a n g e ,
respectively.
≥
The Baseline Positions
Figure 23: Number of Banks in Each Bucket of CAR

Banks with CAR above 15% Banks with CAR above 10%
but < 15%
Banks with CAR below 10%
but> 5%
Banks with CAR below 5%
but> 0%
Banks with CAR above 15%
Banks with CAR above 10% but < 15%
Banks with CAR below 10% but> 5%
Banks with CAR below 5% but> 0%
Figure 24: Number of Banks in Each Bucket of LR
CBN FINANCIAL STABILITY REPORT December 2012

Figure 25: Baseline CAR and Liquidity Ratios (%)

18.36
18.31

68.02
38.78

18.06

18.32

61.99

33.64

20.32

19.16

47.22

42.46
16.93

16.27
79.77

57.36
Dec-2012 CAR
Jun-2012 CAR
Dec-2012 Liquidty Ratio
Jun-2012 Liquidity Ratio
Banking Industry
Large Banks
Medium Banks
Small Banks
Figure 26: Baseline ROA and ROE (%)
2.41

17.96

2.69

18.48

1.13

9.00

2.91
31.31

Dec-2012 ROA
Dec-2012 ROE
Banking Industry
Large Banks
Medium Banks
Small Banks
The pre-shock ROAs of the banking
industry, large, medium and small banks
were 2.41, 2.69, 1.13 and 2.91 per cent,
respectively at end-December 2012,
while their ROEs stood at 17.96, 18.48,
9.00 and 31.31 per cent, respectively.
Credit Risk
The banking industry resilience to credit
risk sustained an upward trend. The
impact of the most severe shock (200%
rise in NPLs) on capital resulted in a CAR
of 11.40 per cent. Large and medium
3.1.3
Stress Test Results
banks were less vulnerable to the shock,
maintaining CARs of 12.92 and 13.97 per
cent, respectively.
However, the small banks' CAR
deteriorated to -5.22 per cent, from 16.93
per cent. Thus, the affected banks would
require about
30 billion to raise their
CARs to the regulatory threshold of 10 per
cent. Under this scenario, 12 banks
maintained CARs above 10 per cent,
while 3, 1 and 4, banks had <0%, <5% but
≥0%, and ≤10% but ≥5%, CARs,
respectively.
Table 10: Stress Test Results – Credit Risk

Number of Banks with CAR Under
Respective

Scenarios

<0%

<5

<10

<15

>15

Total
Shock 1ai -10% NPLs increase

Shock 1aii-15% NPLs increase

Shock 1aiii-20% NPLs increase

Shock 1aiv-30% NPLs increase

Shock 1av-50% NPLs increase

Shock 1avi-100% NPLs increase

Shock 1avii-200% NPLs increase

CBN FINANCIAL STABILITY REPORT December 2012

The banking industry and all the
categorised banks showed significant
levels of concentration risk as indicated
by the speed of capital deterioration
resulting from a decline in the quality of
assets to the top obligors. If exposure to
“top five obligors” were to shift from
doubtful to lost, CARs for the industry,
large, medium and small banks would
deteriorate from 18.36, 18.06, 20.32 and
16.93 per cent to 6.04, 5.73, 8.87 and 3.15
per cent, respectively. Furthermore, only
five banks would achieve a CAR greater
or equal to 10 per cent, while the
remaining 15 banks would have either
Figure 27: Credit Concentration Risk
18.36

6.04

18.06

5.73

20.32

8.87

16.93

3.15
Baseline
Five biggest corporate obligor credit facilities shifted
from Doubtful to Lost (100%)
All banks (20)
Large banks (8)
Medium-sized banks(5)
Small banks (7)
less than 10 per cent or a negative CAR.
Interest Rate Risk
The results of the tests on the net position
of interest-sensitive instruments to
“returns on assets” and “returns on
equity” revealed that the entire banking
industry, “categorized banks” and
individual banks maintained a less
vulnerable position to interest rate risk as
their pre-shock positions (in terms of
capital impairment, ROA and ROE)
declined only marginally, even after
severe shocks were applied.


Severe Shocks (500bps to 1000bps)
Banking
Industry
Large
Banks
Medium
Banks
Small
Banks
Baseline CAR

18.36

18.06

20.32

16.93
Baseline ROA

2.41

2.69

1.13

2.91
Baseline ROE

17.96

18.48

9.00

31.31
Interest Rate Volatility (Impact on CAR)

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

18.08

17.88

19.84

16.37
Shock 5biv (1000bps downward parallel shift in yield
curve)

17.80

17.70

19.36

15.80


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


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

2.20

2.54

0.80

2.58
Shock 5biv (1000bps downward parallel shift in yield
curve)

2.00

2.40

0.46

2.25
Impact of Parallel Shift in Yield Curve Shocks on ROE

Interest Rate Volatility


Shock 5biii (500bps downward parallel shift in yield
curve)
16.42

17.50

6.34

27.74
Shock 5biv (1000bps downward parallel shift in yield
curve)

Table 11: Stress Test Results – Interest Rate Risk
CBN FINANCIAL STABILITY REPORT December 2012

Exchange Rate Risk
The test results showed that the impact of
exchange rate risk on the net foreign
assets of banks would bring about
deterioration in CAR if a 50 per cent
appreciation in exchange rate was
applied. Specifically, under this scenario,
twelve banks would fail to meet the
required 10 per cent minimum regulatory
mark. The position was largely due to a
high foreign exchange asset level
relative to total risk weighted assets.
Table 12: Stress Test Results - Exchange Rate Risk
Number of Banks with CAR Under Specified

Scenarios
<0%

<5%

<10%

<15%

>15%

Total
Baseline

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

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

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

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

Foreign Exchange Trading Risk
The banking industry is less vulnerable as
ROA and ROE would only change
marginally, even after an induced 100
per cent decline in foreign exchange
(FX) trading income. This is due to banks'
high level income positions from other
sources, relative to the size of their FX
trading income.
Table 13: Foreign Exchange Trading Risk


Number of Banks with ROA and ROE in Respective Buckets
<0%
<1%
<2%
<5%
>5%
Total
Impact of FX Trading Shocks on ROA


Baseline ROA

FX Trading Income Volatility


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

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

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

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

Impact of FX Trading Shocks on ROE

<0%
<5%

<10%

<15%

>15%

Initial ROE

FX Trading Income Volatility

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

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

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

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

CBN FINANCIAL STABILITY REPORT December 2012

3.1.4
Enhancement of the Specific
Tools and Framework for
Supervision
The CBN engaged a consultant to
develop a policy proposal for the
enhancement of specific tools and for
managing the stability of Nigeria's
financial system. During the period
covered by this Report, the policy
p r o p o s a l w a s p r e s e n t e d t o
Management. The policy proposal is
built around four modules as follows:
·
M a c r o - p r u d e n t i a l P o l i c y
Framework
·
Micro-prudential Policy Framework
·
Crisis Handling and Resolution
Framework; and
·
Legal Underpinnings.
The Macro-prudential Module addresses
the following areas:
·
Consideration of fiscal and
monetary policy instruments with
their potential impact on the
resilience of the financial system;
·
P o l i c y h a r m o n i z a t i o n a n d
resolution of conflict of objectives
between monetary policy and
financial policy;
·
The role of the CBN and other
regulatory authorities in ensuring
systemic stability; and
·
Quality of data gathering, quality
of data, capacity building, and
accountability.
The objectives of the Micro-prudential
Module are to:
·
Review and validate existing
banking supervision tools;
·
with those of other central banks in
terms of mandate, governance,
organization and resources; and
·
Review the existing risk-based
banking supervision mechanism
and the operation of holding
companies under the new banking
model.
The Crisis Handling and Resolution
Module is to enhance the existing
framework for crisis handling and
resolution in the financial system. The
scope covers the build up to crisis,
transition to crisis, early warning system,
contingency planning, prompt
corrective action arrangement and
coordination with other authorities.
The Legal Underpinning Module is to
identify any gaps in existing and pending
l e g i s l a t i o n t h a t m i g h t r e q u i r e
a m e n d m e n t s t o e n a b l e t h e
i m p l e m e n t a t i o n o f t h e
recommendations.
T h e i m p l e m e n t a t i o n o f t h e
recommendations will strengthen the
existing framework for supervision at the
micro- and macro-levels, enhance
coordination among regulators in the
supervision of the financial system as well
as in resolving crisis situations.
A commercial banking licence with
regional authorization was granted to
Heritage Banking Company Limited
following the restructuring and
recapitalisation of the erstwhile Societé
Générale Bank, during the review period,
Benchmark the supervisory tools
3.2
Supervision of Banks and Other
Financial Institutions
3.2.1
Banks
3.2.1.1 Commercial Banks
CBN FINANCIAL STABILITY REPORT December 2012

bringing the total number of licensed
commercial banks to 21.
In the review period, 17 of the 20
commercial banks in operation were
examined. The result of the examination
showed that three (3) banks had a
composite rating of High; eight (8),
Above Average; four (4), Moderate, and
two (2), Low. This was an improvement
over the previous exercise that rated five
(5) banks High; six (6), Above Average;
four (4), Moderate and one (1), Low. The
examination indicated that the direction
of risk was stable for most of the banks
(Table 14).
Table 14: Composite Risk Rating of Banks
Risk Rating
Number of Banks
Dec.

Dec.

High

Above Average

Moderate

Low

Total

G o o d c o r p o r a t e g o v e r n a n c e ,
enhanced internal controls and risk
management practices were the major
factors that influenced the improvement
in the risk rating of banks. The
improvement was also a reflection of the
impact of the on-going reforms in the
sector. The asset quality of banks
improved considerably since the
previous examination as the average
industry NPL ratio was within the
maximum prudential threshold of 5 per
cent, attributable partly to the sale of
NPLs to AMCON and partly to improved
credit risk management in banks.
It was also observed that the stringent
credit policy reduced the expansion in
credit to the economy. Consequently,
the credit risk profile of most banks
indicated a moderate risk rating, and an
improvement in the short-term outlook.
The earnings of most banks improved
over the previous period and were
generally assessed as “Acceptable”.
However, the business strategy of most
banks to hold huge amounts of bonds
and treasury bills, driven by the relatively
high interest rate margin, led to
increased market risk in the banking
industry. This is because changes in
monetary policy may result in low
treasury bill and bond yields, culminating
in a reduction in banks' income
margins/earnings.
Banks holdings of bonds, treasury bills,
cash and other eligible liquid instruments
provided the industry with adequate
liquidity, resulting in a low liquidity risk
profile, which is unlikely to change in the
short to medium term.
During the period under review, on-site
examination of eighteen foreign
subsidiaries of Nigerian banks was
carried out. Eight were jointly conducted
with host supervisors, while ten were
carried out solely by the CBN. Thirteen of
the examination reports were issued in
the period. The reports indicated that 4
subsidiaries had a composite risk rating of
“high”, 5 “above average” and 4
“moderate”.
The number of licensed, full-fledged,
non-interest banks remained at one, with
one other bank offering such services
through a window.
The first two merchant banks, under the
new banking model, were licensed
during the review period, namely, Rand
3.2.1.2 E x a m i n a t i o n o f F o r e i g n
Subsidiaries
3.2.1.3 Non-Interest Banks
3.2.1.4 Merchant Banks
CBN FINANCIAL STABILITY REPORT December 2012

Merchant Bank Nigeria Ltd (a subsidiary
of First Rand Bank of South Africa) and
F S D H M e r c h a n t B a n k L i m i t e d
(transformed from its discount house
status).
The number of discount houses dropped
to four (4) as one (1) converted to a
merchant bank. There was no
examination of the discount houses
during the review period as the
examination cycle had not fallen due.
At end-December 2012, the number of
licensed MFBs stood at 882, compared
with 870 at end-June, 2012. The increase
was attributable to the grant of 12 new
licences. There were no revocations of
MFB licences during the review period.
The examination of 792 of the MFBs in
operation was concluded in the second
half of 2012. The examination showed
that 68.3 per cent of the institutions met
the capital adequacy ratio (CAR) of 10
per cent, while 82.4 per cent complied
with the minimum liquidity ratio (LR) of 20
per cent. The average LR of the
institutions was 62.3 per cent, which
exceeded the prescribed minimum LR of
20 per cent.
Poor asset quality remained the bane of
MFBs, as their NPLs represented 61.9 per
cent of the total loan portfolio, as against
the regulatory benchmark of 5 per cent.
This was attributed to the fact that most
of the institutions were yet to articulate
their risk management frameworks.
Consequently the CBN had concluded
arrangements for all MFBs to attend an
enterprise risk management training in
the first half of 2013.
3.2.2
Discount Houses
3.2.3
Other Financial Institutions
3.2.3.1 Microfinance Banks (MFBs)
3.2.3.2 Primary Mortgage Banks (PMBs)
The number of licensed PMBs stood at 82
at end-December 2012, compared with
84 at end-June. The reduction was
accounted for by the absorption of 2
PMBs by their parent banks, under the
new Banking Model.
Seventy five (75) of the 82 licensed PMBs
were examined. Of this number, 32 or 43
per cent, met the extant minimum
shareholders' funds unimpaired by losses
of
100 million, while 43 or 57 per cent,
were undercapitalized. In contrast, 60.0
per cent of the PMBs met the prescribed
minimum capital adequacy ratio of 10
per cent, compared with 64.0 per cent in
2011. Also, 66.7 per cent of the institutions
met the minimum Liquidity Ratio of 20 per
cent, compared with 69.3 per cent in
2011. The exercise also revealed that one
year into the compliance period set for
PMBs to meet the new higher minimum
c a p i t a l r e q u i r e m e n t s , 9 h a d
shareholders' funds unimpaired by losses
of between 2 billion and 5 billion, 6 had
between 1 billion and 2 billion, while 17
had between 100 million and 1 billion.
The other 43 had capital bases below
100 million, with 21 of them posting
negative balances.
With respect to the prescribed prudential
requirements, including the measure of
their focus on the core function of
mortgage lending, only 19 met the
minimum mortgage to loanable assets
ratio of 60 per cent, while only seven (7)
met the minimum mortgage to total
assets ratio of 50 per cent. In addition, a
substantial portion of their investible
funds were held as placements and
related cash investments with DMBs.
It is expected that the on-going reform of
the mortgage/housing finance sector,
including the establishment of a
CBN FINANCIAL STABILITY REPORT December 2012

mortgage refinancing company and
the adoption of uniform underwriting
standards, would provide the impetus for
PMBs to increase their investment in
mortgage lending and housing finance.
The number of operating FCs at endDecember 2012 was 66, compared with
108 as at end-June. The reduction was
as a result of the revocation of the
licences of 43 FCs, while one FC was
licensed during the period.
Sixty-five FCs were examined in the
second half of 2012, and the result
showed that 52 of them were active, two
inactive, two slated for voluntary
liquidation, while nine were undergoing
restructuring. Further analysis of the
active FCs showed that 44.2 percent of
the companies met the prescribed
minimum capital adequacy ratio of 12.5
percent; 48.1 per cent met the
prescribed minimum capital of

million; while 55.8 percent met the
prescribed adjusted capital to net
credits ratio of 1:10. Although the nonperforming to total loans ratio improved
to 44.6 percent, from 53 percent as at the
previous examination, it was considered
too high to support sound and efficient
operations.
The five (5) DFIs were examined during
the period under review. The
examination revealed that three (3) of
the DFIs exhibited weak financial
conditions, largely attributable to poor
a s s e t q u a l i t y a n d c o r p o r a t e
governance.
There were 2,278 BDCs in operation at
end-December 2012, an increase of 11.0
3.2.3.3 Finance Companies (FCs)
3.2.3.4 Development Finance Institutions
(DFIs)
3.2.3.5 Bureaux de Change
percent over the position as at
December 31, 2011. The increase was
d u e t o t h e l i c e n s i n g a n d
commencement of operations of 226
BDCs during the year.
Spot-checks were conducted on 200
BDCs in the review period. The exercise
revealed the perpetration of several
regulatory infractions, including sales of
personal and business travel allowances
in excess of the approved limits; nonimplementation of anti-money
laundering controls; failure to maintain
basic accounting records; poor
documentation of sales; and rendition of
false and inaccurate returns to the CBN.
The CBN, in conjunction with other
stakeholders, continued to implement
the recommendations of the Financial
Action Task Force (FATF), the InterGovernmental Action Group Against
Money Laundering in West Africa
(GIABA) Mutual Evaluation (2008), and
the IMF technical assistance team
(2011). To this end, the Bank took the
following measures during the review
period:
·
Amended the AML/CFT Regulation
2009 to align it with the Money
Laundering (Prohibition) Act, 2011
and the Terrorism Prohibition Act,
2011;
·
Issued and gazetted the AML/CFT
Risk-based Supervision (RBS)
Framework;
·
Approved the use of INEC voters'
registration card as an alternative
means of identification for the
3.3
Compliance with International
Standards
3.3.1
A n t i - M o n e y L a u n d e r i n g /
Combating the Financing of
Terrorism
CBN FINANCIAL STABILITY REPORT December 2012

purpose of account opening;
·
I n a u g u r a t e d t h e A M L / C F T
Stakeholders' Consultative Forum;
and
·
Developed an AML/CFT Training
Manual for Bank Examiners and
Operators.
The CBN would continue to upgrade
and enforce regulations to safeguard
the Nigerian financial system from
money laundering, terrorism financing
and other illicit financial transactions.
The implementation of the IFRS and Basel
II/III gained additional traction during the
review period.
On IFRS, the CBN carried out follow-up
visits to confirm that the implementation
plans by the DMBs were on course. To
further streamline the implementation of
IFRS, in line with the existing Roadmap,
the Financial Reporting Council (FRC)
issued guidelines on mandatory
exceptions and optional exemptions for
first-time adoption of IFRS. (See Box 2 at
the end of this Report.)
Basel II/III implementation efforts during
the review period focused on the
conduct of a Quantitative Impact Study
(QIS) to ascertain the impact on the
operations of DMBs.
Furthermore, a draft Basel II/III Regulatory
Framework for Prudential Supervision of
the Nigerian Banking System was issued
as an exposure draft to the industry, in
December 2012. Comments from the
industry were being collated. It is
e n v i s a g e d t h a t t h e d e t a i l e d
implementation timelines would be
issued on the adoption of Basel II/III in the
3.3.2
International Financial Reporting
Standards (IFRS) and Basel II/III
Nigerian banking industry, in consultation
with stakeholders, early in 2013.
In the review period, AMCON acquired
additional eligible bank assets (EBAs) of
77.42 billion. The Corporation also
restructured EBAs amounting to
313.38
billion, while recoveries amounted to
23.61 billion. The balance of acquired
EBAs was 3.92 trillion at end-December
2012, compared with 3.28 trillion at endJune of the same year. At endDecember 2012, AMCON had issued
bonds with a total face value of
5.59
trillion, compared with
5.40 trillion at
end-June of the same year. The
proceeds of the bonds were used to
purchase EBAs, provide financial
accommodation to the recapitalized
banks, and to acquire the three bridge
b a n k s . M e a n w h i l e , A M C O N
commissioned a due diligence audit of
the three bridge banks, preparatory to
divestment from them by 2014.
In order to boost the Banking Sector
Resolution Cost Sinking Fund, the
contribution of banks to the Fund was
increased from 30 to 50 basis points of
their total assets at the end of each year.
The quality of bank assets improved
during the review period, as the NPL ratio
fell to 3.5 per cent, compared with 4.3
per cent at end-June 2012. The industry
NPL ratio remained within the regulatory
threshold of 5 per cent, though 6 banks
failed to meet the requirement (Figure
28).
At end-December 2012, the NPLs
declined by 16.76 per cent to
282.9
billion, from
339.88 billion at end-June
3.4
T h e A s s e t M a n a g e m e n t
Corporation of Nigeria (AMCON)
3.5
Key Risks in the Financial System
3.5.1
Credit Risk
CBN FINANCIAL STABILITY REPORT December 2012

Figure 28: Trend of Banking Industry NPLs
Nov.
'10
Mar.
'11
Jun.
'11
Sept.
'11
Dec.
'11
Mar.
'12
Jun.
'12
Jul.
'12
Aug.
'12
Sept.
'12
Oct.
'12
Nov.
'12
Dec.
'12
NPLs %


%
2012.
Total credits increased to 8.15 trillion at
end-December 2012, from
7.87 trillion
at end-June. The top 50 and 100 obligors
accounted for 32.44 and 40.86 per cent,
respectively, of the gross credit at endDecember 2012, signifying a high level of
concentration. This compares with 30.62
and 39.13 per cent respectively, of the
gross credit of
7.87trillion at end-June
2012.
3.5.2
Liquidity Risk
All the DMBs met the 30 per cent
regulatory liquidity ratio during the period
under review, although a large portion of
their liquid assets were held in
government securities with long-term
maturities. This development has the
potential for crowding out the private
sector.
Box 1: SDF/SLF/OBB/REPO Operations by Banks in Nigeria (January - December 2012)
This chart shows significant improvement in financial system liquidity - from the condition of liquidity
squeeze in the first half of the year to liquidity surfeit in the second half ended – December 2012. This was
clearly depicted by the prevalence of SDF spikes from August 2012 to end-December, 2012. It is
noteworthy, that Repo transactions were ceased in the same month, while a circular on “Revised
Guideline for Accessing CBN Lending Window and Repurchase Transactions” was concurrently issued to
promote greater transparency, fair play and market discipline.
CBN FINANCIAL STABILITY REPORT December 2012

3.5.3
Market Risk
3.5.4
Operational Risk
Buoyed by earnings from crude oil sales
and FPIs, exchange rates at the interbank, BDC and WDAS segments were
relatively stable in the review period.
Interest rates in the money market
recorded mixed results as the average
maximum lending rate increased
marginally against the consolidated
deposit rate which experienced a
decrease.
The capital market continued on an
inspiring note with positive strides as
equity market indicators improved
during the review period. The impressive
performance of the market was due
largely to the growing demand for the
stocks of blue-chip companies,
especially by portfolio investors,
following improvements in earnings and
investor-confidence. This trend is
expected to continue in light of the
positive rating of 'Ba3 with a stable
outlook' assigned to the Country by
Moody's and the inclusion of Nigeria in
the JP Morgan Global Bonds Index –
Emerging Markets (GBI – EM) and the
Barclays EMLC Index. However, the
market remained vulnerable to external
shocks that might arise from an
unexpected reversal of capital flows
and volatility in crude oil prices.
The reported cases of fraud and forgery
decreased by 3.04 per cent to 2,230
involving 7.76 billion in the second half
of 2012, from 2,300 cases involving 7.04
billion in the first half of 2012. Actual losses
declined by 25.31 per cent to
1.83
billion in the second half, from
2.45
billion, in the first half of 2012.
The security challenge in some parts of
the country remained a cause for
concern during the period. However, the
recent successes by the security
agencies in tackling insecurity would
create a more conducive environment
for businesses to flourish. Frauds, armed
robberies, kidnappings and terrorist
attacks may continue to be a challenge
for businesses and security agencies,
thereby posing a significant threat to
financial system stability.
The CBN continued to collaborate with
banks and other stakeholders to improve
operational risk management in order to
mitigate these risks.
Unethical practices as well as disputes
associated with banking operations,
including recent interventions in
distressed banks by the CBN, continued
to be a source of litigation in the second
half of 2012.
With regard to petitions by bank
customers, the resolution mechanism put
in place by the CBN resulted in the refund
of a total of 2.196 billion by banks to their
customers in the second half of 2012,
compared to 1.41 billion in the first half.
Furthermore, the CBN has developed a
Financial Literacy Framework aimed at
improving the level of awareness and
financial literacy in the Nigerian
populace.
In July 2012, the Bankers' Committee
adopted the Nigerian Sustainable
Banking Principles (NSBP), as well as the
key sector guidelines, to support
environmentally and socially responsive
economic development. It is expected
that the NSBP principles would
encourage banks to practise good
ethics in their lending decisions and
t h e r e b y e n h a n c e o v e r a l l r i s k
management. It would also improve the
image and reputation of banks.
3.5.5
Reputational Risk
CBN FINANCIAL STABILITY REPORT December 2012

3.6
Credit Information Bureaux
3.6.1
The Credit Risk Management

System (CRMS)
Registered borrowers in the CRMS
database rose by 2.7 per cent to 86,438
at end-December 2012, from 84,090 at
end-June 2012. Similarly, the number of
borrowers with outstanding facilities of
1 million and above increased by 18.4
per cent to 30,929 from 26,119. The
number of credits rose by 29.6 per cent to
43,866 at end-December 2012, from
33,833 at end-June. However, the value
of outstanding credits declined by 23.7
per cent to 3.53 trillion, from 4.65 trillion
at end-June, 2012.
CRMS-related complaints declined by
27.9 per cent to 31 in the second half of
2012, from 43 in the first half of the year.
The number of private credit bureaux
remained at three (3) in the review
period. The total number of borrowers in
their database increased to 19.71 million
at end-December 2012, from 18.64
3.6.2
Private Credit Bureaux (PCBs)
The CRMS is a depository of credit information on
borrowers of 1 million and above for individuals,
and 5 million and above for corporate customers.
Figure 29: Selected CRMS Statistics for end-December 2012
86,438

77,246


30,929


26,854


43,866


32,614


3,532

4,649
End-Dec 2012
End-Dec 2011
No. Of borrowers
No. Of Credit borrowers
No. Of Credits
Total outstanding Amount (N billions)
million at end-June 2012. The growing
patronage was attributed to increased
awareness of their services.
Following the intervention of the FSRCC,
the Federal Inland Revenue Service
(FIRS) granted tax concessions to banks
that adopted the Holding Company
3.7
The Financial Services Regulation
Co-ordinating Committee
(FSRCC)
(HoldCo) structure to support member
agencies' sectoral reforms. The
Corporate Affairs Commission (CAC)
also granted concessions to the HoldCo
banks to spread payments due to the
Commission over a period of three years.
The FSRCC web-site was restructured in
the review period to improve information
sharing among members in order to
minimize the risks that could arise in the
financial system as a result of inadequate
information.
The Bank received a total of 505 petitions
from customers against financial
3.8
Consumer Protection
CBN FINANCIAL STABILITY REPORT December 2012

institutions during the second half of
2012, compared with 444 received in the
first half of the year. The corresponding
value of refunds to petitioners amounted
to
2.196 billion, compared to
1.412
billion recorded in the first half of 2012.
The complaints were related to ATM
issues, excess charges, unauthorised
deductions, dishonoured cheques and
guarantees, fraudulent withdrawals,
non-crediting of accounts and cheque
conversion. The Bank also conducted its
m a i d e n c o n s u m e r p r o t e c t i o n
compliance examination to assess the
compliance level of the DMBs.
CBN FINANCIAL STABILITY REPORT December 2012

4.0
DEVELOPMENTS IN THE PAYMENTS
SYSTEM
Pursuant to the achievement of the
Payments System Vision 2020, the Bank
continued to update the guidelines and
implement policy measures during the
review period, the highlights of which
include the following:
·
Granting of commercial licences
to five (5) mobile payment scheme
operators, bringing the total
number of operators to 20;
·
Commencement of the pilot run of
the cheque truncation project in
the Lagos Clearing Zone, resulting
in a reduction of the clearing cycle
from T+2 to T+1 in the Lagos
Clearing Zone;
·
Removal of
100 charge on “noton-us” ATM cash withdrawals; and
·
Review of the guidelines on Stored
Value and Prepaid Card Issuance,
as well as on Transaction Switching
Services.
The volume and value of inter-bank
transfers through CBN's RTGS (CBN Interbank Funds Transfer System - CIFTS)
decreased to 213,825 and 57.29 trillion
in the second half of 2012 from 273,105
and 58.58 trillion respectively in the first
half, reflecting decreases of 21.7 and
2.20 per cent. The increasing use of
alternative payment platforms, such as
NIBSS Instant Payment and NEFT,
accounted for the decline.
4.1
The Real-Time Gross Settlement
(RTGS) System
Figure 30: CBN RTGS Transactions

100000
200000
300000
VALUE ( 'BILLION)
VOLUME
JAN-JUNE,2012
JUL-DEC,2012
4.2
NIBSS Instant Payment (NIP)
The volume and value of NIP transactions
increased to 3,293,216 and 2.87 trillion in
the second half of 2012, from 1,158,882
and 1.02 trillion in the first half, reflecting
increases of 184.17 and 182.13 per cent,
respectively. The increases were
attributed largely to the cashless policy
which commenced in Lagos in the first
half of 2012.
Figure 31: NIP Transactions (Value)

VALUE(
BILLION)
CBN FINANCIAL STABILITY REPORT December 2012

Figure 32: NIP Transactions (Volume)

VOLUME
4.3
NIBSS Electronic Fund Transfer
(NEFT)
The volume of NEFT transactions
increased to 15,143,752 at endDecember 2012, from 13,597,974 at endJune, reflecting an increase of 11.37 per
cent, while the value of NEFT transactions
decreased from 6.85 trillion at end-June
2012 to
6.81 trillion, indicating a slight
decrease of 0.45 per cent.
Figure 33: NEFT Transactions (Value)

JAN-JUN,2012
JUL-DEC,2012
VALUE ( ’BILLION)
Figure 34: NEFT Transactions (Volume)

VOLUME
4.4
Cheque Clearing
The volume of cheques cleared
increased by 4.59 per cent to 18,988,822
at end-December 2012, from 18,154,880
at end-June 2012. However, the value
decreased by 4.24 per cent to
9.65
billion, from 10.08 billion. The increase in
volume was attributed to the cashless
policy which limits the value of third party
cheques that could be cashed across
the counter to
150,000 and the ceiling
of cheques that could be passed
through clearing to 10 million.
Figure 35: Volume of Cheque
Transactions

JAN-JUN

JUL-DEC

VOLUME
Figure 36: Value of Cheque
Transactions

10000
10100
10200
JAN-JUN

JUL-DEC

VALUE ( ‘
Billion)
4.5
Electronic Card Payments
The volume and value of electronic card
(e-card) transactions rose to 201,793,172
and
1.13 trillion in the second half of
2012, from 185,044,221 and 1.03 trillion in
the first half of 2012, reflecting increases
of 9.05 and 9.2 per cent, respectively.
CBN FINANCIAL STABILITY REPORT December 2012

Automated Teller Machines (ATMs)
remained the most patronised echannel, accounting for 97.62 per cent
during the review period. Patronage of
other channels stood at 0.97 and 0.83
per cent for PoS terminal and mobile
payments, respectively. The web-based
(internet) mode was the least
patronized, accounting for only 0.58 per
cent of total e-payment transactions
(Figure 37).
Similarly, in value terms, ATM accounted
for 92.80 per cent, POS, 3.32 per cent,
mobile payments, 2.26 per cent, while
web-based (internet) payments
accounted for 1.62 per cent (Figure 38).
Figure 37: Volume of Electronic Card
Transactions, June - December 2012


ATM
POS
INTERNET
MOBILE
Figure 38: Value of Electronic Card
Transactions, June - December 2012
ATM
POS
INTERNET
MOBILE
4.5.1
ATM Transactions
4.5.2
Mobile Payments
The number of ATMs stood at 10,221 as at
end-December 2012. The volume and
value of ATM transactions increased
during the second half of 2012 to
196,995,507
and
1.05
trillion
respectively, from 178,421,958 and
937.39 billion in the first half of 2012,
representing respective increases of
10.41 and 12.01 per cent.
The volume of mobile payments
decreased by 30.41 per cent in the
review period to 1,668,113, from
2,397,062 in the first half of 2012, while the
value increased by 37.76 per cent to
25.50 billion, from 18.51 billion in the first
half of 2012.
The initiatives adopted in the review
period led to the positive developments
in the payments system recorded above.
However, the system continued to
experience a number of challenges,
such as an inadequate legal framework,
infrastructural constraints, and the
absence of a unique identifier.
CBN FINANCIAL STABILITY REPORT December 2012

5.0
OUTLOOK
5.1
The Macroeconomic
Environment
5.2
Monetary Policy
Debt concerns in the Euro zone, the slowdown in the Chinese economy, and slow
recovery in the US could negatively
affect demand for oil, with spill-over
effects on the domestic financial sector,
through the contraction of inflows.
Foreign portfolio inflow is expected to
remain stable in view of the world output
growth projection of the IMF. However,
there could be reversals in the event that
financial and economic conditions in
advanced and emerging economies
deteriorate in the months ahead,
resulting in adverse impacts on asset
prices and exchange rate. Credit lines
are likely to reduce as stricter and less
favourable terms may be imposed by
creditors. It is, however, expected that
investment returns would remain stable
into the first half of 2013, given that
central banks around the world continue
their commitment to work towards
recovery.
Given that domestic liquidity is primarily
driven by oil revenues, the likelihood of
lower oil prices would translate into lower
receipts and accretion to reserves. As a
major importer of oil, the inward-looking
stance of the US for its oil needs would
dampen oil prices. Indeed, the US in 2012
cut its oil import from Nigeria by 44.6 per
cent and projected a further cut to 50
per cent in 2013. Lower oil receipts and
reduced accretion to reserves could
adversely affect exchange rate, fiscal
deficit and FPIs.
Monetary policy stance is expected to
remain tight in the first half of 2013, given
the 12.00 per cent inflation (year-onyear) in 2012. Consequently, short-term
interest rates are likely to remain at their
2012 levels in the first half of 2013.
Furthermore, the high inflation rate is not
likely to impact negatively on the bond
market, as yields in Nigeria continue to
be relatively competitive amidst the
Euro-zone crisis and declining GDP in
developed economies. The equity
market is expected to continue to
improve following the impact of margin
loan forbearance, the waiver of stamp
duty and VAT on stock market
transactions, and continued in-flow of
FPIs, due to strong fundamentals of
quoted companies, based on their
current share prices.
In its release of November 7, 2012,
Moody's Investors Service assigned a 'Ba3
rating, with a stable outlook' to Nigeria.
Also, the planned inclusion of Nigeria in
the JP Morgan Global Bonds Index –
Emerging Markets (GBI – EM) in January
2013 and the inclusion of FGN Bonds in
the Barclays EMLC Index, from March
2013, will improve confidence.
The ongoing implementation of the new
RTGS/CSD applications will be
completed in the first half of 2013. The
improvement in the new RTGS system,
being the core settlement infrastructure
in the country, is expected to impact
positively on the operations of various
components of the payments system.
Specifically, the new system will interface
with the banking applications of all the
participants for straight-throughprocessing of customers' transfers. It will
also support the achievement of
5.3
The Payments System
CBN FINANCIAL STABILITY REPORT December 2012

simultaneous Delivery versus Payment of
securities trade to eliminate settlement
risk.
The nationwide implementation of a
cheque truncation system is expected to
commence in the first half of 2013. This
will facilitate a reduction of the clearing
cycle from T+2 to T+1. Furthermore, the
planned nationwide implementation of
a
150, 000 limit on third party cheque
encashment over the counter is
expected to reduce fraud associated
with paper-based instruments.
In order to benchmark the national
Financial Market Infrastructures (FMI)
against the BIS Core Principles, a
comprehensive assessment is planned
for the first half of 2013.
5.4
Banking Sector and Financial
Stability
The improved soundness of the banking
sector in 2012 is expected to be
enhanced with more measures put in
place to address current challenges in
the sector. The full implementation of the
new banking model in 2013 will help to
further strengthen the sector and ensure
financial system stability as banks focus
on their niche areas. The discount houses,
MFBs and PMBs, as well as other
operators in the financial system, such as
pension funds all indicate positive trends
in 2013.
Despite some challenges facing the
Nigerian financial system, it remained
stable over the review period as
evidenced by the stress tests on the
banking sector. A positive outlook is
envisaged over the short and medium
terms.
CBN FINANCIAL STABILITY REPORT December 2012

BOX 2
Regulatory Filter Issued by the Financial Reporting Council
of Nigeria on the Implementation of IFRS in Nigeria
Pursuant to the adoption of International Financial Reporting Standards (IFRS) in
Nigeria, effective January 1, 2012 for listed and Significant Public Interest Entities,
as defined by the National Road Map to the Adoption of IFRS, the Financial
Reporting Council (FRC) issued the following Regulatory Guidance relating to
MANDATORY EXCEPTIONS AND OPTIONAL EXEMPTIONS provisions/requirements
of IFRS 1 (First-Time Adoption of IFRS):
1.
All entities adopting IFRS must apply IFRS 1 in their first IFRS-based financial
statements and make an explicit and unreserved statement of compliance
with IFRS; and
2.
Apply all mandatory exceptions and consider all optional exemptions in IFRS
1, subject to the following limited applications:
a)
Mandatory Exceptions De-recognition of Financial Assets and Liabilities
A first-time adopter is not exempt from SIC-12 (Consolidation-Special Purpose
Entities), which requires consolidation of all Special-Purpose Entities (SPEs),
including “qualifying special-purpose entities”. In other words, SIC-12 contains no
specific transitional or first-time adoption provisions. Accordingly, the SIC-12
requirements with regard to the consolidation of SPEs are fully retrospective for
first-time adopters. As a result, not all previously derecognised assets and liabilities
will remain off-balance sheet upon adoption of IFRS. For example, if under
national GAAP an entity derecognised non-derivative financial assets and
financial liabilities which has been transferred to an entity treated as an SPE by
SIC-12 provisions, those assets and liabilities are required to be recognised on
transition to IFRS, and the financial statements of the SPE that is consolidated.
However, if the SPE itself has subsequently transferred the asset and achieved derecognition of the items concerned under the said previous GAAP (other than by
transfer to a second SPE or member of the entity's group), then the items remain
derecognised on transition.
Accordingly, the financial statements of all the SPEs so identified shall be
consolidated and the consolidation procedure shall be followed as provided for
in IAS 27 (Consolidated and Separate Financial Statements).
b)
Optional Exemptions
i.
Business Combinations (Option 1)
IFRS 1 requires first-time adopters to restate only those business combinations
occurring on or after the date of transition to IFRS, in line with IFRS 3R (Business
Combinations).
CBN FINANCIAL STABILITY REPORT December 2012

For business combinations that occur before the date of transition to IFRS which
have been accounted for using national GAAP, IFRS 1 allows the first-time
adopter to:
a.
Restate all those business combinations retrospectively applying IFRS 3R; or
b.
Restate particular business combination(s) retrospectively applying IFRS 3R
and thus all other business combinations thereafter up till the date of
transition must be restated accordingly; or
c.
Elect to retain previous GAAP.
Adopters in Nigeria should note that no restatement is permitted. The treatment
under the Nigerian GAAP is retained.
ii.
Fair Value or Revaluation as Deemed Cost (Option 2)
This applies to items of Property, Plant and Equipment (PPE), Investment Property
(only if cost model is used) and Intangible Assets. The permitted options are:
a.
To measure an asset at Fair Value at date of transition and elect to use as
deemed cost, or
b.
b) Treat a previous GAAP Revaluation of an Asset as deemed cost at date of
transition.
However, if Previous GAAP Revaluation value is to be used, such revaluation(s)
must be carried out by a duly certified and professionally qualified/registered
Valuer (such professional must be a holder of the FRC Registration Certificate in
accordance with Section 41 of the FRC Act, 2011).
iii.
On Lease: (Option 12)
First-time adopters may use the transitional provisions in IFRIC 4: Determining
whether an arrangement contains a Lease and by extension, based on the
existing facts and circumstances determine whether IAS 17: Leases, applies.
For the purpose of applying this option, only items of Property, Plant and
Equipment (PPE) are to be considered.
iv.
Borrowing Costs (Option 15)
The effective date for the application of the transitional provisions of paragraphs
27 and 28 of IAS 23 (Borrowing Costs) as revised in 2007, shall be the date of
transition to IFRS, i.e, no retrospective application is allowed.
1.
For the purpose of applying mandatory exceptions and considering
optional exemptions, effective date of application is the relevant date of
transition, in line with the National Road Map on Adoption of IFRS.
2.
Further guidance will be issued from time to time by Council.
CBN FINANCIAL STABILITY REPORT December 2012