i


FINANCIAL STABILITY
REPORT


June 2015


iii


Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Activities 67


iv


List of Tables


v


List of Figures


vi

Figure 3. 7: Number of Banks in CAR Buckets after Credit Shock of 100% & 200% Increase in NPL
Figure 3. 11: Banking Sector Liquidity Ratio after Period 1-5 and cumulative 30-day shocks (%) .... 62


vii

LIST OF ACRONYMS
ACL
Audit Command Language
AIPs
Approvals-in-Principle
AMCON
Asset Management Corporation of Nigeria
AML/CFT
Anti-Money Laundering and Combating the Financing of Terrorism
ASI
All Share Index (Nigerian Stock Exchange Index)
ATMs
Automated Teller Machines
BCEAO
Banque Centrale des Etats de l'Afrique de l'Ouest (Central Bank of West African
States)
BDCs
Bureaux de Change
BOA
Bank of Agriculture
BOFIA
Banks and Other Financial Institutions Act 1991 (as amended)
BOI
Bank of Industry
BRICS
Brazil, Russia, India, China, and South Africa
BVN
Bank Verification Number
CACS
Commercial Agriculture Credit Scheme
CAR
Capital Adequacy Ratio
CBN
Central Bank of Nigeria
CIBN
Chartered Institute of Bankers of Nigeria
CIFTS
CBN Inter-bank Fund Transfer System
COB
Currency Outside Bank
CR6
Concentration Ratio (of the six largest banks)
CRMS
Credit Risk Management System
DAX
Deutscher Aktienindex (German stock index of 30 major German companies)
DFIs
Development Finance Institutions
DMBs
Deposit Money Banks
EBAs
Eligible Bank Assets
ECB
European Central Bank
EDC
Entrepreneurship Development Centre
eFASS
Electronic Financial Analysis and Surveillance System
EGX CASE 30
Egypt Stock Exchange (Cairo and Alexandria Stock Exchange) 30 Stock Index
EVD
Ebola Virus Disease
FAO
Food and Agriculture Organisation
FATF
Financial Action Task Force
FCs
Finance Companies
FCT
Federal Capital Territory
FGN
Federal Government of Nigeria
FMBN
Federal Mortgage Bank of Nigeria
FMDQ-OTC
Financial Market Dealers Quotation – Over the Counter Plc
FMF
Federal Ministry of Finance
FRACE
Financial Regulation Advisory Council of Experts
FSIs
Financial Soundness Indicators
FSR
Financial Stability Report
FSRCC
Financial Services Regulation Co-ordinating Committee
GDP
Gross Domestic Product
GIZ
Deutsche Gesellschaft fur Internationale Zusammenarbeit (German Society for

viii

International Cooperation)
GSE
Ghanaian Stock Exchange
HHI
Herfindahl-Hirschman Index
HMF
Housing Microfinance
ICAAP
Internal Capital Adequacy Assessment Process
ICE
Intercontinental Exchange
ICFA
Implied Cash Flow Analysis
IFRS
International Financial Reporting Standards
IFSB
Islamic Financial Services Board
IMF
International Monetary Fund
IOSCO
International Organisation of Securities Commissions
KYC
Know Your Customer
L/C
Letter of Credit
M1
Narrow Money Supply
M2
Broad Money Supply
MCP
Microfinance Certification Programme
MENA
Middle East and North African Countries
MFBs
Microfinance Banks
MICEX
Moscow Interbank Currency Exchange
MoUs
Memoranda of Understanding
MPR
Monetary Policy Rate
NAICOM
National Insurance Commission
NBS
National Bureau of Statistics
NDC
Net Domestic Credit
NDIC
Nigeria Deposit Insurance Corporation
NERFUND
National Economic Reconstruction Fund
NEXIM
Nigerian Export-Import Bank
NFIU
Nigerian Financial Intelligence Unit
NGAAP
Nigerian Generally Accepted Accounting Principles
NGL
Non-Gas Liquids
NIBOR
Nigeria Interbank Offered Rates
NIBSS
Nigerian Inter-bank Settlement System
NIRSAL
Nigerian Incentive-based Risk Sharing System for Agricultural Lending
NMRC
Nigeria Mortgage Re-finance Company Plc
NPLs
Non-Performing Loans
NSBP
Nigeria Sustainable Banking Principles
NSE ASI
Nigerian Stock Exchange All Share Index
NSE 20
Nairobi Stock Exchange 20-Share Index
NYMEX
New York Mercantile Exchange
OBB
Open Buy Back
OFIs
Other Financial Institutions
OPEC
Organisation of Petroleum Exporting Countries

ix

ORB
OPEC Reference Basket
PAIF
Power and Aviation Infrastructure Fund
PCBs
Private Credit Bureaux
PENCOM
National Pension Commission of Nigeria
PFAs
Pension Fund Administrators
PFCs
Pension Fund Custodians
PMBs
Primary Mortgage Banks
PoS
Point of Sale
PSV 2020
Payments System Vision 2020
RDAS
Retail Dutch Auction System
ROA
Return on Assets
ROE
Return on Equity
RTGS
Real-Time Gross Settlement System
S&P/TSX
Standards and Poor’s Composite Index of the Toronto Stock Exchange
SEC
Securities and Exchange Commission
SMEs
Small and Medium Enterprises
SMECGS
Small and Medium Enterprises Credit Guarantee Scheme
WAMZ
West African Monetary Zone
WDAS
Wholesale Dutch Auction System
WEO
World Economic Outlook
WTI
West Texas Intermediate


x

GOVERNOR’S STATEMENT

The period, January to June 2015, which this 11th edition of the CBN’s FSR covers,
witnessed divergent growth trajectories in the global economy. While in advanced
economies, output growth was projected at 2.1 per cent in 2015 compared with the 1.8 per
cent for 2014, in emerging and developing economies, growth is projected at 4.2 per cent in
2015, marginally lower than the growth rate of 4.6 per cent attained in 2014. The growth in
advanced economies reflected the strong growth in the US and improved recovery in the
euro area, as well as gains of lower oil prices. The slow growth in emerging and developing
markets reflected slower growth in China, a weaker output growth in Russia as well as
downward expectations of potential growth in commodity exporting countries. Growth in
Sub-Saharan Africa dropped to 4.4 per cent in 2015 from 5.0 per cent in 2014. This was
attributable to the sharp and continued decline in oil prices and the impact of the Ebola
Virus disease in the West African Sub-region.

The slow recovery from the 2008 financial crises persisted even in the face of the marginal
improvement in global output; while across mature markets, the strengthening of the US
Dollar and the weakening of the Euro and Yen dominated market expectations. The Greek
bailout crisis also headlined financial markets in the euro area during the period. Currency
devaluations and large foreign reserve fluctuations characterised most of the oil producing
countries, as low oil revenue drove huge fiscal deficits. Rising interest and exchange rates
featured across emerging and developing markets during the period. Overall, as a
consequence of these developments, global growth expectations for 2015 were revised down
from 4.6 to 4.2 per cent (July World Economic Outlook).

For an emerging economy, such as Nigeria, the challenge arising from these developments
centred on the need to strike a delicate balance between conventional and unconventional
measures in the choice of policy tools and strategies for responding to the situation. The
major financial system stability issues that faced Nigeria in the reporting period were: the
continued pressure on the naira in the foreign exchange market, leading to significant
depletion of the external reserves, and the devaluation of the naira by 8.42 per cent during the
reporting period. Although inflation remained within the single digit threshold; inflationary
pressures persisted.

This 11th edition of the FSR, like the earlier editions, highlights the key developments in the
Nigerian financial system during the reporting period and the associated macro-prudential
and economic stability issues. It details the efforts of the Central Bank of Nigeria to curb the
pressure on the naira and stabilise the exchange rate as well as facilitate the strengthening of
the economy through real sector intervention schemes. These measures include the review of
the foreign exchange market windows and the inclusion of additional items to the Forex
exclusion list.


xi

The Report aptly notes that headwinds remain, given that oil exports from Iran and lower
global demand will further dampen oil prices, thus portending continued decline in oil
revenue accruing to Nigeria. There is, therefore, the need to sustain and enhance the existing
collaborative endeavours, particularly with the fiscal authorities which have so far proved
most helpful in combating the emerging challenges. I am confident that with this support and
the continued understanding from our international partners, the growth and development of
the Nigerian financial system and the larger economy would be sustained on a stable
trajectory.

It is on this note that I commend this 11th FSR for the use of all stakeholders in the Nigerian
project.


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


xii

FOREWORD
In the first half of 2015, the stability of the global financial system was threatened by a
combination of macroeconomic and social disruptions in various countries. In particular,
commodity exporting countries have been faced with dwindling earnings culminating in
fiscal contractions. Also, the strengthening of the US dollar has had a negative impact on the
macroeconomic developments in many emerging market economies.

The June 2015 Financial Stability Report reviews developments in the global and domestic
economy. In the reporting period, the decline in the international price of oil led to a
dwindling of government revenue, an increase in non-performing assets in banks and a slowdown in general economic activity. Inflation, though within single-digit, increased in the
review period. Regulatory actions during the period were taken to ensure that the financial
system remained safe and sound, and continued to contribute to economic growth. In this
regard, the CBN would continue to use both macro- and micro-prudential instruments in its
oversight of the banking sector.

The goal of financial system regulators remains the enhancement of the stability of the
financial system and its resilience to withstand unanticipated adverse shocks while
contributing to the growth of the real economy. A stable financial system should facilitate
economic growth and development necessary for improved standard of living. This edition of
the FSR has highlighted the need for effective coordination among fiscal, monetary and
regulatory authorities, which would help in the achievement of policy goals and targets while
ensuring sustainable economic growth.

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

We continue to welcome stakeholder feedback on the Report.

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


xiii

EXECUTIVE SUMMARY
Global growth in 2015 was projected at 3.3 per cent, a 0.1 percentage point decline from the
2014 figure. The slowdown in growth was attributed to the sustained fall in oil and
commodity prices, and the mixed impacts of a strengthening US dollar and weakening of the
euro and yen on emerging markets. Inflationary pressure was generally low across countries
in the first half of 2015, arising from the dampening effects of declining commodity prices
and slow output growth. In sub-Saharan African countries, inflation was largely contained
owing to low global food and fuel prices.

Generally, international stock markets recorded positive performance during the first half of
2015. In Africa, the Ghanaian GSE All-share and South African JSE All-Share indices
increased, while the Nigerian NSE ASI, Kenyan NSE 20 and Egyptian EGX CASE 30
indices all decreased. These outcomes arose from developments in the global economy,
especially with the appreciation of the US dollar and expectations about the Federal
Reserves’ quantitative easing.

During the first half of the year, the US dollar appreciated against most emerging market
currencies. This was attributed to various factors: including the continued decline in energy
prices; turmoil in financial markets; slow recovery in advanced economies and the impact of
normalization on US monetary policy. The dollar appreciation further increased capital flow
volatility and signalled financial system vulnerabilities in some of the emerging market
economies.

In Nigeria, provisional data indicated an 8.74 per cent decline in output growth in the first
half of 2015. Inflation increased despite the Bank’s contractionary monetary policy, as the
year-on-year headline inflation increased to 9.2 per cent from 8.0 per cent at end-December
2014. The Monetary Policy rate was retained at 13.0 per cent. In the review period, average
interest rates remained relatively stable owing to regulatory liquidity management measures.

Key monetary aggregates declined in the first half of 2015. Broad money supply (M2) fell by
0.5 per cent relative to the level at end-December 2014. The decrease in broad money supply
reflected the decline in net foreign assets arising from the fall in foreign exchange earnings
and other assets (net) of the banking system. Narrow money supply also fell by 5.3 per cent at
end-June 2015, from the position at end-December 2014, due to the decline in currency
outside banks and in demand deposits.

Net domestic credit of the banking system continued to grow, though at a slower pace than in
the preceding and corresponding periods of 2014. The development reflected the increase in
net claims on the Federal Government and private sector credit. The structure of credit
indicated the continued dominance of short-term maturities. The banking industry deposit and
asset structure remained dominated by few banks.


xiv

During the review period, the CBN continued to monitor developments in the banking
system, and carried out supervisory activities aimed at ensuring that domestic banks remained
resilient and sound. It continued to promote the stability of the banking system through
effective micro and macro supervision of banks and the industry, respectively.

In the review period, the reform in the mortgage sector continued with the issuance of the
license for the Nigeria Mortgage Refinance Company and the launching of uniform
underwriting standards for the mortgage industry.

Towards enhancing the safety and soundness of financial groups, the FSRCC commenced
pilot consolidated risk-based examination of one of the financial groups in the Country.
Examiners for the exercise were drawn from the agencies with supervisory responsibilities
for entities in the group.
The CBN continued to evolve new initiatives and policies to engender safety and confidence
in the payments system. Meanwhile, the registration of bank customers under the Bank
Verification Number (BVN) scheme continued as the deadline for the use of BVN in banking
transactions was extended from June 30, 2015 to October 31, 2015.

In addition to the traditional banking risks, insecurity in some parts of the Country remained a
concern for the system. Also, rising inflation, slow output growth, dwindling government
revenue and the growing non-performing loans (NPLs) portend challenges for the financial
system.

Overall, the Nigerian economy presents potential opportunities to investors in view of the
expected benefits of on-going reforms, and the activities of the CBN in mitigating emerging
system.

1.0
MACROECONOMIC DEVELOPMENTS AND FINANCIAL SYSTEM
STABILITY
1.1
Global Economic and Financial Developments
1.1.1
Output
Macroeconomic and financial developments during the first six months of 2015 produced
mixed results. The slow pace of economic recovery following the 2008 global financial crisis
continued during the review period, resulting in a marginal1 improvement in global output.
Growth in global output was projected at 3.3 per cent in 2015, representing a marginal
decline of 0.1 percentage point from the 3.4 per cent in 2014. The moderation in growth was
attributed to the sustained fall in oil and commodity prices, diverging growth trajectories in
major economies and the redistributive effects of a strong US dollar as well as the weak euro
and yen. The financial stability risks around these developments were both rising and rotating
as “continued financial risk-taking and structural changes in credit markets kept shifting the
locus of financial stability risks from advanced to emerging markets economies, from banks
to shadow banks, and from solvency to market liquidity risks”2.

In advanced economies, output growth was projected at 2.1 per cent in 2015, compared
with 1.8 per cent for 2014. Growth was affected by contractions in the US in the first
quarter of 2015, occasioned by harsh winter weather and reduction in oil investments.
Output growth in the US was projected to be marginal at 2.5 per cent in 2015 compared
with 2.4 per cent in 2014. However, output in the euro area was projected to grow at 1.5 per
cent, up from 0.8 per cent in 2014. Economic recovery in Europe broadened, due largely to
low oil prices boosting domestic demand and corporate profitability. Meanwhile, growth in
the UK was projected to decline by 0.5 per cent while Japan’s was expected to improve by
0.9 per cent from a negative of 0.1 per cent in 2014.

In emerging market and developing economies, there was a slowdown as the projected output
growth was estimated at 4.2 per cent for 2015, compared with 4.6 per cent in 2014. The
downward trend was attributable to low growth in China and its implications for emerging
Asia, weak output growth in Russia and the downward revision to potential growth in
commodity exporting countries. China’s economy which grew by 7.4 per cent in 2014 was
expected to slow down to 6.8 per cent in 2015, owing to decline in manufacturing output and
property investments.

Growth in India was projected at 7.5 per cent in 2015, up from 7.3 per cent in 2014. This
would be supported by a strong expansion in the manufacturing and services sectors. In
Brazil, growth was projected to decelerate to negative 1.5 per cent in 2015, down from 0.1
per cent in 2014. Similarly, in the Middle East and North Africa (MENA) area, output was

1This was in spite of the expansionary monetary policies implemented by several central banks.
2 IMF GFSR, April 2015

projected to decline slightly to 2.6 in 2015 from 2.7 per cent in 2014 which was due to low
oil prices and political instability in several countries of the region.

Growth in sub-Saharan Africa was projected to decline to 4.4 per cent in 2015, down from
5.0 per cent in 2014. This was attributed largely to the fall in crude oil prices, which affected
oil exporting countries like Nigeria and Angola as well as the impact of the Ebola Virus
disease that slowed economic activities in some parts of West Africa. GDP growth in South
Africa was estimated at 2.0 per cent in 2015, compared with 1.5 per cent growth in 2014,
while growth in Nigeria was expected to slow down to 4.5 per cent in 2015, from 6.3 per cent
in 2014.

In general, the level of financial stability risk has risen since October 2014, due largely to
increased volatility in financial markets, shifts in asset prices, lower growth in output and
lower commodity prices in low income developing economies.

Table 1. 1: Global Economic Outlook


Year-on-Year


Region/Country

2015*
2016 *
World

Advanced Economies

United States

Euro Area

Japan

United Kingdom

Canada

Emerging Market and Developing
Economies

China

MENA Region

Sub-Saharan Africa

Nigeria

* Projections
Sources:
i. WEO April 2015 and WEO Update July 9, 2015
ii. Global Economic Prospects, June 2015
1.1.2
Global Inflation
Inflationary pressures across countries eased during the first half of 2015, reflecting the
dampening effect of declining oil prices, sliding output growth and falling commodity prices.
Inflation in advanced economies, which was projected at 1.8 per cent in 2015, compared to
the 1.6 per cent achieved in 2014, was low and in some cases deflationary. In the US,
although the inflation rate declined from negative 0.09 per cent in January to negative 0.2 per
cent in April 2015, it rose to 0.12 per cent in June 2015, which was still below the Federal
Reserve Bank’s target of 2.0 per cent. In the euro area, the inflation rate was, for most of the
review period, low as it moved from 0.5 per cent in December 2014 to 0.60 per cent in
January 2015. It then dropped to 0.01 per cent in April, before inching up to 0.20 per cent in

June 2015. It however remained within the ECB’s target of 2.0 per cent. In the United
Kingdom, the inflation rate declined from 0.32 per cent in January to 0.08 per cent in both
May and June 2015. The rates were significantly below the Bank of England’s target level of
2.0 per cent. Overall, the inflation rate in most advanced economies remained low and below
their respective Central Banks’ targets during the first half of 2015.

Inflation in China and India remained subdued, while in Brazil and Russia, inflation was
elevated as currency depreciations pushed up import prices. China’s annual inflation rose
from 0.90 per cent in January to 1.70 per cent in April before easing to 1.50 per cent in June
2015. The inflation rate in India eased from 7.17 per cent in January to 5.79 per cent in April
and 5.74 per cent in June 2015. In Brazil, inflation assumed an upward trajectory in the first
half of 2015, as the rate moved from 7.70 per cent in January to 8.17 per cent in April and
8.89 per cent in June 2015. During the review period, the average inflation rate of many
emerging and developing market economies, at 5.6 per cent, was higher than the 3.0 per cent
lower band of many of their central banks’ policy rates and 5.5 per cent achieved in 2014.

In sub-Saharan African countries, inflation remained largely contained owing to low global
food and fuel prices, albeit with a small uptick towards the end of the first half of 2015. The
inflation rate in sub-Saharan Africa rose from 6.7 per cent achieved in 2014 to an estimated
7.0 per cent in 2015, reflecting the pickup of inflation in Nigeria and Angola, the region’s
largest oil exporters. However, among oil importers, the impact of falling oil and commodity
prices is expected to drive inflation down marginally by the end of the year.

Overall, it is expected that global inflation would rise gradually by end-2015 and that,
although previous declines in commodity prices would contribute to low global inflation in
the short to medium- term, once the lag effects fade out, inflation might assume an upward
trend.

Table 1. 2: Global Consumer Prices/Inflation (per cent)
Sources: WEO October 2015 & July Update 2015
1.1.3
Global Commodity Prices

1.1.3.1 Oil Prices
The OPEC Reference Basket (ORB) averaged US$60.21/b in June 2015 owing to increased
demand, strong refined product markets, inventory draw-downs, and the on-going
geopolitical turmoil in some oil producing countries. The ORB was down by US$1.95 from
the US$62.16 pb in recorded in May 2015 month-on-month (m-o-m), but remained
significantly lower, compared with the corresponding period of 2014.

Crude oil futures prices were mixed during the review period, with the ICE Brent falling by
US$1.86 to end at US$63.75 pb and the Nymex/WTI gaining 46 cents to reach US$59.83 pb.
Stronger-than-expected demand growth and signs of a slowdown in US crude supply boosted
oil futures during the review period. The fundamentals pointed to oversupply which
continued to put pressure on prices. The ICE Brent contract was up by US$4.47 month-onmonth at US$65.61 pb, while the Nymex/WTI contract rose by US$4.74 to US$59.37 pb.
Both contracts were down year-to-date. The Trans-Atlantic spread narrowed from US$6.25
pb in May to US$3.92 pb in June amid stronger US refinery margins and higher crude intake
compared with Europe or Asia3. The Brent premium to WTI decreased to around US$6.25
pb.


3 OPEC Monthly Oil Market Report, July 2015
Region/Country

Second
Quarter

Forecast
Advanced Economies

US

Euro Area

Japan

UK

Emerging and Developing
Economies/

MENA Region

Sub-Saharan Africa

Nigeria


Global oil demand was expected to grow by 1.28 mbd in June 2015, higher than 0.96 mbd in
2014. Total oil consumption was estimated to pick up in the second half of 2015, leading to a
total oil demand of 92.50 mbd for 2015. Non-OPEC oil supply in 2015 was projected at 0.86
mbd, in line with the previous forecast and below strong growth of 2.17 mbd in 2014. OPEC
NGLs are forecast to grow by 0.19 mbd to average 6.02 mbd in 2015, following a growth of
0.18 mbd in 2014. In June, OPEC production averaged 31.38 mbd.
1.1.3.2 Food Prices
The Food and Agricultural Organization (FAO) Food Price Index stood at 165.1 points in
June 2015, down from the 166.6 in May. Cereals and dairy products accounted for much of
the month’s decline, although meat quotations also fell. On the other hand, oil and sugar
markets firmed. The June 2015 level puts the FAO Food Price Index at its lowest level since
September 2009.
The FAO Cereal Price Index stood at 163.2 points in June 2015, indicating continued decline
since December 2014. Ample stocks, combined with generally favourable crop outlook,
continued to keep international prices under downward pressure. In addition, the FAO Dairy
Price Index stood at 160.5 points in June, down by 7 points from the 167.5 in May 2015.
Milk powders and butter were the main commodities affected, while cheese remained stable.
Furthermore, the FAO Meat Price Index stood at 169.8 in June compared with 170.9 points in
May and 170.8 in April 2015. Generally, lower prices for meat exports from the United States
have continued to weigh down on the index.

The FAO Vegetable Oil Price Index stood at 156.2 in June 2015 up from the 154.1 points in
May, but up by 3.9 points or 2.6 per cent from April. However, driven by rising quotations
for both palm and soya oils, the index was 41 points or 21 per cent below the figure for the
corresponding period of 2014. Similarly, the FAO Sugar Price Index was 176.8 in June, down
from the 189.3 points recorded in May, reflecting an increase of 3.7 points or 2.0 per cent
from April 2015, due largely to a slow start of the crushing season in Central/South Brazil, as
raw sugar prices remain under the pressure of large supplies and growing surpluses in
2014/15.

Table 1. 3: Global Food Price Indices, 2011-June 2015
FAO Price
Index

Yearly
Avg.

Yearly
Avg.

June

Dec.

June

Change
Dec 2014 –
June 2015
Food

Meat

Dairy

Cereals

Vegetable oil

Sugar

Source: Food and Agriculture Organization of the United Nations

1.1.4
International Financial Markets
1.1.4.1 International Stock Markets
During the first half of 2015, stock markets recorded mixed performance in most regions. In
North America, the Mexican Bolsa and S&P 500 indices increased by 10.0 and 3.4 per cent,
between end-January and end-June 2015, respectively, while the Canadian S&P/TSX
Composite decreased marginally by 0.8 per cent during the same period.

In Asia, conditions in China exacerbated the pressure on other emerging market equities,
given that as the second largest in the world, the Chinese economy could be the main driver
of global output growth. Except for India and Japan, most equity markets in Asia reported
losses in June 2015, although in Malaysia, Indonesia, Thailand, Korea and Taiwan, equities
recorded strong inflows. During the period under review, China’s Shanghai Stock ExchangeA and Japan’s Nikkei 225 indices increased by 33.2 and 14.5 per cent, respectively, while
India’s BSE Sensex index decreased by 4.8 per cent.

In Latin America, the Argentine Merval and Brazilian Bovespa indices increased by 43.2 and
13.2 per cent, respectively, while the Columbian IGBC General index lost 4.2 per cent.

In Africa, the Ghanaian GSE All-share and South African JSE All-Share indices increased by
4.0 and 4.1 per cent, respectively, while the Nigerian NSE ASI, Kenyan NSE 20 and
Egyptian EGX CASE 30 indices decreased by 3.5, 4.0 and 6.2 per cent, respectively. In
addition to domestic conditions, most of these stocks were responding to developments in the
international economy, especially with the appreciation of the US dollar and expectations
about the Federal Reserves’ monetary easing.

In Europe, France’s CAC 40, Germany’s DAX and Russia’s MICEX indices increased by
4.0, 2.3 and 0.4 per cent, respectively, while UK’s FTSE 100 decreased by 3.4 per cent
(Table 1.4).

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

End-Dec.

End-June

YTD %
Change


AFRICA
Nigeria
NSE All-Share
Index

South Africa
JSE All-Share
Index

Kenya
Nairobi NSE 20
Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share
Index


NORTH AMERICA

US
S&P 500

Canada
S&P/TSX
Composite

Mexico
Bolsa


SOUTH
AMERICA


Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP

1,512.98
1,331.35
-12.0


EUROPE


UK
FTSE 100

France
CAC 40

Germany
DAX

Russia
MICEX


ASIA


Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex


1.1.4.2 International Foreign Exchange Markets
During the first half of 2015, currencies of major emerging markets depreciated against the
US dollar. This largely arose from the continued decline in international crude oil prices,
turmoil in financial markets, slow economic recovery in advanced economies and the
expected impact of normalization in US monetary policy. The already moderating growth in
advanced countries was weakened by the strengthened US dollar, volatile capital flows and
financial system vulnerabilities. At end-June 2015, the US dollar continued to strengthen
against other currencies on expectations that the US Federal Reserve would raise interest
rates.
In Asia, divergent monetary policy stances in China and Japan worsened the fragility of
financial markets and currency risks in developing economies. In Latin America and African
markets, uncertainties in commodity prices have added pressures on domestic currencies.
Exchange rate developments in the first half of 2015 are summarised as follows:
North America: The Canadian dollar appreciated against the US dollar by 38.02 per
cent, while the Mexican Peso depreciated by 17.27 per cent.

South America: The Brazilian real, Argentine peso, and Colombian peso depreciated
against the US dollar by 28.71, 10.56, and 27.96 per cent, respectively.

Europe: The pound sterling, euro and Russian ruble depreciated against the US dollar by
7.81, 18.89 and 38.50 per cent, respectively.

Asia: The Japanese yen and Indian rupee depreciated against the US dollar by 17.06 and
5.44 per cent, respectively. The Chinese yuan remained unchanged against the US dollar.

Africa: The Nigerian naira, South African rand, Kenyan shillings, Egyptian pound and
Ghanaian cedi, depreciated against the US dollar by 20.14, 12.51, 11.74, 6.29 and 22.99
per cent, respectively (Table 1.5).

Table 1. 5: Exchange Rates of Selected Currencies (Value in Currency Units to US$)
Economy
Currency
30-Jun-

31-Dec-

30-Jun-

YTD
%
Change
AFRICA

a
b
c

Nigeria
Naira

South Africa
Rand

Kenya
Shilling

Egypt
Pound

Ghana
Cedi


North America
Canada
Dollar

Mexico
Peso


South America
Brazil
Real

Argentina
Peso

Colombia
Peso
1877.44
2376.51

-8.81


Europe
UK
Pound

Euro Area
Euro

Russia
Ruble


Asia
Japan
Yen

China
Yuan

India
Rupee

Source: Bloomberg

1.1.5
International Monetary Policy Rates
Monetary policy rates of most central banks were fairly stable during the first half of 2015.
The Bank of England, US Federal Reserve, Bank of Canada, and the European Central Bank
maintained their rates at 0.50, 0.25 and 0.75 and 0.05 respectively, while the Banks of Japan,
South Korea, Australia and New Zealand lowered their rates to 0.01, 1.75, 2.00 and 3.25
respectively, during the review period. The Bank of Indonesia which maintained its rate at
7.75 per cent for the first five months of the year reduced it to 7.5 per cent in June 2015. The
Bank Negara Malaysia left its rate unchanged at 3.25 per cent during the first half of 2015.
Similarly, rates were kept constant in Chile, Colombia and Mexico.

In the BRICS, monetary policy rates varied during the period. Russia and South Africa kept
their rates; Brazil raised its rate; while India and the Peoples Bank of China (PBC) reduced
their rates during the review period. The rates remained the same in Nigeria (Table 1.6).


Table 1.6: Policy Rates Across Selected Countries (July 2014 – June 2015)
Country
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
March
April
May
June
Japan

Euro Zone

UK

US

Canada

South Korea

New Zealand

Australia

Indonesia

Malaysia

BRICS
Brazil

Russia

India

PBC Base rate

South Africa

Mexico

Chile

Colombia

Egypt

Ghana

Kenya

Nigeria


Developed Economies
ASEAN
Other Emerging Economies & South America
Africa

Source: Bloomberg Monthly Policy Rates
1.2
Domestic Developments
1.2.1
Output
Data from the National Bureau of Statistics (NBS) indicated that the real Gross Domestic
Product (GDP), at 2010 constant basic prices, declined by 8.7 per cent in the first half of
2015, in contrast to the growth of 13.0 per cent in the second half of 2014. It was, however,
negative 2.6 percentage points below the 6.1 per cent decline recorded in the corresponding

period of 2014. The non-oil GDP continued to be the main driver of the total GDP growth
during the period under review.

Figure 1.1: Share of Oil and Non-oil Sectors to total GDP (%)

H1 2014
H2 2014
H1 2015
Oil
Non-oil

Growth in non-oil real GDP declined by 9.2 per cent in the first half of 2015, compared with
the 7.0 per cent decline in the corresponding half of 2014. The development in the non-oil
sector was attributed to the 26.0 per cent decline in agriculture. However, the non-oil GDP
contribution to real GDP grew by 1.2 percentage points when compared with the level in the
corresponding period of 2014.
Figure 1.2: Sectoral Share in Total GDP (%)

H1 2014
H2 2014
H1 2015
Agriculture
Crude Petroleum, Nat. Res. and Solid Min.
Manufacturing
Building and Construction
Trade
Services
Percentages

In terms of sectoral contribution, the services sector accounted for the largest share (37.48%)
of real GDP. This was followed by agriculture (20.5%), industry (20.2%), trade (17.5%) and
construction (4.4%). The oil sector contribution to real GDP improved slightly by 0.4
percentage point to 10.1 per cent, compared with 9.7 per cent recorded in the second half of
2014. It, however, fell by 1.2 percentage points when compared with the level recorded in the

corresponding period of 2014. The global decline in the price of crude oil and other domestic
challenges in the oil sector continued during the first half of 2015.


Figure1.3: Gross Domestic Product by Sector (N’ billion)


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

1.2.2
Inflation
National Bureau of Statistics (NBS) data showed that the all-items composite Consumer Price
Index (CPI) stood at 173.2 in June 2015 (November 2009 = 100), compared with 164.4 and
158.6 at end-December 2014 and end-June 2014, respectively. The index for the first half of
2015 was higher than the levels in the second half of 2014 and the corresponding half of 2014
by 5.4 and 9.2 per cent, respectively. The rise in the price index was accounted for by
increases in the prices of food and non-alcoholic beverages; housing, water, electricity, gas
and other fuels; clothing and footwear; transport; furnishing, household equipment and
maintenance; health; and education.

Headline inflation rose by 1.2 and 1.0 percentage points to 9.2 per cent in June 2015 above its
levels in December 2014 and June 2014, respectively. The relative stability of the headline
inflation (which had been in single digit since the second half of 2014) continued throughout
the first half of 2015. The Twelve-Month Moving Average inflation rate at end-June 2015
was 8.4 per cent, compared with 8.0 per cent apiece recorded at end-December 2014 and the
corresponding period of 2014. At end-June 2015, core inflation rose by 2.2 and 0.3
percentage points to 8.4 per cent above its respective levels of 6.2 and 8.1 per cent at endDecember and end-June 2014. However, food inflation rose to 10.00 per cent at end-June
2015, compared with its levels of 9.2 and 9.8 per cent at end-December and end-June 2014,
respectively. The increase was attributed to decreased food production occasioned by the
insurgency in the North Eastern part of the Country (Figure 1.4).

Figure 1.4: Inflationary Trend (Year-on-Year)

1.2.3
Interest Rates
Money market rates moved largely in tandem with the level of liquidity and were generally
stable in the first half of 2015. The increase in spending towards the 2015 general elections,
the fiscal injections through statutory revenue allocation and OMO maturities, made the
interbank money market highly liquid during the period. The market experienced occasional
spikes in rates, especially during the pre- and post-election periods, reflecting the liquidity
conditions in the system. For instance, the secured Open-Buy-Back (OBB) rate rose by 18.13
and 8.89 percentage points to 27.2 and 23.2 per cent in February and April 2015. Similarly, in
February and April 2015, the unsecured interbank rate rose by 10.4 and 15.14 percentage
points to 20.62 and 29.11 per cent, respectively. However, the sale of CBN bills and
government securities as well as foreign exchange interventions by the Bank moderated and
stabilized the rates in the first half of 2015.

The impact of maintaining the policy rate at 13.00 per cent with a symmetric corridor of ±200
basis points and the harmonization of both public and private sector CRR in May 2015,
sustained the relative stability in market rates. The average OBB rates rose by 3.36
percentage points to 16.41 per cent, while inter-bank call rates averaged at 16.18 per cent,
representing 1.68 percentage points above the level in the second half of 2014. The NIBOR
closed at an average of 17.36 and 15.05 per cent for the call and 30-day segments,
representing an increase of 3.7 and 2.4 percentage points, above the levels in the second half
of 2014, respectively (Figure 1.5).

Figure 1.5: Money Market Interest Rates and MPR

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

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

With the exception of the 7-day, 12- and over 12-month deposit rates, all other rates
increased in the first half of 2015, compared with the levels in the second half of 2014.
Available data indicated that both the average prime and maximum lending rates increased
by 0.25 and 0.71 percentage points to 16.63 and 26.43 per cent, in the first half of 2015 above
the levels in the second half of 2014, respectively. The rise in lending rates reflected
increased demand for credit by the non-bank public.

The average term deposit rate fell by 0.17 percentage point to 8.22 per cent, indicating that
banks were liquid in the review period. The spread between the average term deposit and the
average maximum lending rates widened by 0.88 percentage point to 18.21 per cent above
17.32 per cent recorded in the second half of 2014.

The average savings rate of the banks improved slightly by 0.19 percentage point to 3.59 per
cent in the first half of 2015, compared with its level in the second half of 2014. Average
rates on deposits of various maturities fell from a range of 4.4 – 9.8 per cent in the second
half of 2014 to a range of 4.3 – 9.5 per cent at the end of the first half of 2015. The
developments in interest rates were attributed to the tight monetary policy stance of the Bank.

With the actual inflation rate at 9.2 per cent for June 2015, the lending rates (prime and
maximum) and the 3- and 6-month deposit rates were positive in real terms (Figure 1.6).

Figure 1.6: Lending and Deposit Rates

1.2.4
Fiscal Operations
The Federal Government Retained Revenue for the first half of 2015 declined to N1,583.19
billion below N1,870.71 billion and N1,881.04 billion in the second and first halves of 2014,
respectively. It also fell by 14.8 per cent below the first half of 2015 budget estimate of
N1,858.99 billion. An analysis of the retained revenue revealed that the share from the
Federation Account was N1,180.11 billion or 74.5 per cent, Federal Government Independent
Revenue N290.93 billion or 18.4 per cent, VAT Pool Account N57.43 billion or 3.6 per cent,
and “others”, N54.72 billion or 3.5 per cent. The share from the Federation Account included
current federation revenue, N1,031.80 billion (87.4%); exchange rate gain, N96.44 billion
(8.2%); NNPC refunds, N44.71 billion (3.8%); and Excess Crude, N7.16 billion (0.6%).

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

Federal Government expenditure fell by 8.1 per cent to N2,259.66 billion in the first half of
2015, compared with N2,128.70 billion recorded in the second half of 2014. However, it
grew by 6.2 per cent, relative to the level in the corresponding period of 2014. Recurrent
expenditure constituted 82.88 per cent of the total expenditure during the first half of 2015.

The fiscal operations of the Federal Government resulted in an overall deficit of N676.47
billion or 2.1 per cent of Gross Domestic Product at 2010 Constant Basic Prices. This was
much higher than the proportionate budget deficit of N520.51 billion for the first half of 2015
and the N587.98 billion recorded in the second half of 2014. The deficit was financed mostly
from domestic sources (Figure 1.7).

Figure 1. 7: Federal Government Fiscal Operations


The decline in international oil prices which started in the second half of 2014 continued
throughout the first half of 2015, with serious negative impact on government revenue in
2015. The stock of Federal Government consolidated debt at end-June 2015 (1st half 2015)
was N10,428.49 billion or 32.0 per cent of GDP. This reflected an increase of 9.1 per cent
over the level at the end of the second half of 2014. The breakdown showed that the domestic
debt was N8,396.59 billion or 80.6 per cent of the total, while the external debt amounted to
N2,021.10 billion (US$10.32 billion) or 19.4 per cent of the total. The domestic debt charges
on the Federal Government instruments at the end of the first half of 2015 was N528.54
billion or 1.63 per cent of GDP. This represented an increase of 23.9 per cent over the level at
end-December 2014. The development was attributed to the rise in the stock of FGN
domestic debt during the review period. The external debt service amounted to N30.91 billion
(US$0.16 billion) or 0.10 per cent of GDP and indicated an increase of 13.0 per cent over the
level at end-December 2014.


-1,000

1,000
2,000
3,000
Fist Half 2014
Second Half 2014
First Half 2015
Revenue
Expenditure
Deficit

2.0
DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.1
Monetary and Credit Developments4

The CBN sustained its tight monetary policy stance in the first half of 2015, keeping the
policy rate at 13.00 per cent throughout the period. Consequently, growth of monetary
aggregates was sluggish and fell below the levels at end-December 2014. Currency-incirculation and currency outside bank fell below the levels at the end of the second half of
2014, though both remained stable throughout the review period. Aggregate credit to the
domestic economy grew by 11.1 per cent owing, largely, to the significant growth in net
claims on the Federal Government, while consumer credit slowed in tandem with the growth
in credit to the private sector.

Provisional data indicated that broad money supply (M2) fell by 0.5 per cent to N18,811.4
billion at end-June 2015, below the level at end-December 2014. The position was in contrast
to the growth of 12.0 per cent in the first half of 2014. The decline in broad money supply
reflected the drop in net foreign assets and other assets (net) of the banking system, which
suppressed the growth in aggregate credit. The decline in net foreign assets, in turn, reflected
the fall in foreign exchange earnings.

Narrow money supply fell by 5.3 per cent to N6,542.39 billion at end-June 2015, compared
with 1.8 per cent at end-December 2014. This development reflected the 17.6 and 1.99 per
cent respective decline in currency outside bank (COB) and demand deposits, respectively.
Currency outside bank, as a ratio of narrow money supply, fell from 20.8 per cent at endDecember 2014 to 18.1 per cent at end-June 2015 as a result of growth in e-payments.

2.1.1
Aggregate Credit to the Economy
Net domestic credit (NDC) of the banking system grew by 11.1 per cent to N21,409.77
billion at the end of the first half of 2015, compared with the growth of 32.6 and 14.8 per cent
at the end of the preceding and the corresponding period of 2014. The development reflected
the increase in net claims on the Federal Government and the private sector credit.

2.1.1.1 Claims on the Federal Government
Net credit to the Federal Government rose by 118.45 per cent to N2,512.46 billion at the end
of the first half of 2015, compared with the growth of 169.44 per cent or N1,150.11 billion
recorded at the end of the second half of 2014. The development reflected, wholly, the rise in
investment in treasury securities by the banking system, particularly Nigerian Treasury Bills,
which grew by 10.4 per cent. Persistent increase in credit to government deprives the private
sector of needed credit to boost economic growth.


4 The analysis is based on the revised July 2015 CBN Monetary Survey.

Table 2.1: Growth in Monetary Aggregates
% Change (Over preceding half year)
Jun 13
revised
Dec 13
revised
Jun 14
revised
Dec 14
revised
Jun 15
provisional
Domestic Credit (Net)

Claims on Federal Government (Net)

Claims on Private Sector

Foreign Assets (Net)

Other Assets (Net)

Total Monetary Assets (M2)

Quasi-Money

Money Supply (M1)

Currency Outside Banks

Demand Deposits

Total Monetary Assets (M2)


2.1.1.2 Claims on the Private Sector
Credit to the private sector at end-June 2015 grew by 4.3 per cent, compared with the growth
rate of 11.9 and 4.5 per cent in the preceding and corresponding periods, respectively. The
development reflected the 4.6 per cent increase in claims on the core private sector5,
compared with the 14.1 per cent growth at the end of the second half of 2014. The
contribution of claims on the private sector to the growth of total monetary assets stood at 4.1
percentage points, compared with the 12.3 percentage points at the end of the second half of
2014.

Figure 2.1: Distribution of Credit to the Economy


5Excludes the state and local governments

Dec 12
Jun 13
Dec 13
Jun 14
Dec 14
Jun 15
N Billion
Claims on Private Sector
Claims on Federal Government (Net)

2.1.1.3 Consumer Credit
Consumer credit, at N768.67 billion, fell by 9.6 per cent at end-June 2015 below the level at
the end of second half of 2014, in contrast to the growth of 4.8 per cent at end-December
2014. It constituted 4.2 per cent of total credit to the core private sector, compared with 4.8
per cent at the end of the preceding half year (Figure 2.2). This was attributed to increased
risk aversion for consumer credit.

Figure 2.2: Consumer Credit


2.1.2
Sectoral Credit Utilization
Total bank loans and advances to the private sector of the economy grew by 4.2 per cent to
N13,804.2 billion at the end of the first half of 2015, 2.7 percentage points lower than the
level recorded at the end of the second half of 2014. The decline in private sector credit
reflected the tight monetary policy stance of the Bank. Of the total loans outstanding, credit
to the oil and gas sub-sector accounted for the highest share (23.78%), followed by
manufacturing (13.98%) and general commerce (13.84%). The share of agriculture, forestry
and fishery (3.8%) was 0.1 percentage point lower than the level recorded at the end of the
second half of 2014 (Figure 2.3).

Figure 2.3: Sectoral Allocation of Credit


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


N Billion

2.1.3
Reserve Money
Reserve money fell by 0.3 per cent to N5,945.97 billion at end-June 2015, below the level at
end-December 2014. The fall in reserve money reflected mainly the 9.3 per cent decline in
net foreign assets of the CBN, following low foreign exchange inflow. The corresponding
decline in the uses of reserve money was attributed, largely, to the 13.1 per cent fall in
currency-in-circulation as bank reserves at the CBN increased by 5.2 per cent in the review
period.
2.1.3.1 Currency-in–Circulation/Banks’ Deposits with the CBN
Currency-in-circulation, which constituted 26.3 per cent of the uses of reserve money at the
end of the first half of 2015, fell by 13.1 per cent to N1, 562.6 billion. Bank deposit with the
CBN grew by 5.2 per cent at end-June 2015, compared with 26.7 per cent at the end of the
second half of 2014. The growth in deposits with the CBN reflected an increase of 104.9 and
23.3 per cent in merchant banks and non-interest banks’ demand deposits, respectively.

Figure 2.4: Reserve Money and its Components - Sources


Jun-12
Dec-12
Jun-13
Dec-13
Jun - 14
Dec -14
Jun -15
N'Billion
NFA
NDA
Oin
RM

Figure 2.5: Reserve Money and its Components - Uses

Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec 14
Jun 15
N' Billion
CIC
Bank reserves
RM


Currency Outside Bank
Currency Outside Banks (COB) fell by 17.6 per cent to N1,183.99 billion at end-June 2015,
compared with the decline of 18.6 per cent at end-December 2014. As a ratio of broad money
supply, COB constituted 6.3 per cent in the first half of 2015, a slight decline from 6.9 per

cent recorded at the end of the corresponding period of 2014, reflecting the growth in the use
of e-payment channels.

2.1.4
Maturity Structure of Bank Deposits and Credit
The structure of bank credit in the first half of 2015 indicated that short-term credit remained
dominant. Credit maturing within one year accounted for 44.5 per cent, compared with 49.6
per cent at the end of the second half of 2014. The medium-term (≥1yr and <3yrs) and longterm (3yrs and above) credit stood at 18.8 and 36.7 per cent, compared with 19.5 and 30.9 per
cent at the end of the second half of 2014, respectively (Figure 2.6).

Figure 2.6: Distribution of Credit by Maturities


Similarly, deposits of below one-year maturity constituted 95.5 per cent (of which 73.0 per
cent had maturity of less than 30 days), compared with 96.3 per cent at end-December 2014.
Further analysis showed that the medium and long-term deposits constituted 1.8 and 2.7 per
cent, compared with 2.7 and 1.0 per cent recorded at end-December 2014, respectively
(Figure 2.7).

Figure 2.7: Maturity Structure of Bank Deposits

Jun 12
Dec 12
Jun 13
Dec 13
Jun 14
Dec 14
Jun 15
Per cent
Short term
Medium-term
Long-Term

Dec 12
,Jun 13
,Dec 13
Jun 14
Dec 14
Jun 15
per cent
Short term
Medium-term
Long-Term

Although some improvements were observed, especially with the credit structure, the
consequences of a maturity mismatch remained a constraint to the ability of banks to create
long-tenored assets, including lending to the real sector.

2.1.5
Market Structure of the Banking Industry
The banking system remained largely oligopolistic in the first half of 2015. Available data
showed that the average market share of assets and deposits of the five largest banks
(concentration ratio –CR5) stood at 44.4 and 54.3 per cent, compared with 50.7 and 51.9 per
cent at the end of the second half of 2014, respectively. The market share of the largest bank,
with respect to assets and deposits, stood at 15.6 and 14.1 per cent, compared with 13.2 and
14.1 per cent at the end of the second half of 2014, respectively. During the period under
review, a total of 17 banks had market shares ranging between 0.16 to 7.8 per cent in assets
and 0.14 to 7.06 per cent in deposits, reflecting low level of competition in the market. This is
supported by the Herfindahl-Hirschman Index (HHI) of the industry (on a scale of 100 to
10,000) at 778.07 and 814.53 for assets and deposits, respectively.

Figure 2.8: Market Concentration Ratios of Banks (Assets and Deposits)

Jun 12
Dec 12
Jun 13
Dec 13
Jun '14
Dec 14
Jun 15
CR
CR5(Deposits)
CR5( Assets)
CR( Largest-Deposits)
CR (Largets-Assets)

Figure 2.9: Herfindahl-Hirschman Index for the Nigerian Banking Industry

2.2
Other Financial Institutions
There were 3,733 Other Financial Institutions (OFIs) at end-June 2015, compared with the
3,538 institutions at end-December 2014, reflecting an increase of 195 OFIs or 5.5 per cent.
The increase was attributed to the net effect of 201 new OFIs (165 BDCs, 2 FCs and 34
MFBs) and the exit of six (6) PMBs, during the review period. The breakdown of the OFIs is
given in Table 2.2.

Table 2. 2: Institutions in the OFI Sub-sector
Institution-Type
Number
June 2015 Dec 2014
Development Finance Institutions

Primary Mortgage Banks

Nigeria Mortgage Refinance Bank

Microfinance Banks

Finance Companies

Bureaux de Change
2,688
2,523
Total
3,734
3,539

The total assets of the sub-sector increased by 11.73 per cent to N1,889.21 billion at end-June
2015, from N1,690.8 billion at end-December 2014. The total paid-up capital, however,
decreased by 0.80 per cent to N441.22 billion at end-June 2015, from N444.8 billion at endDecember 2014, while the total net loans/advances increased by 13.46 per cent to N1,189.62
billion at end-June 2015, from N1,048.5 billion at end-December 2014. Total deposits
decreased by 14.41 per cent to N305.56 billion at end-June 2015, from N357.0 billion at endDecember 2014.

2.2.1
Microfinance Banks
The provisional data for microfinance banks (MFBs) showed that total assets increased to
N356.03 billion at end-June 2015, from N300.73 billion at end-December 2014, reflecting an

Jun 12
Dec 12
Jun 13
Dec 13
Jun '14
Dec 14
Jun 15
HHI
HHI (Deposits)
HHI (Assets)

increase of 18.39 per cent. Paid-up capital decreased by 0.61 per cent to N81.94 billion from
N82.44 billion at end-December 2014, while shareholders’ funds of MFBs increased by 6.61
per cent to N97.03 billion at end-June 2015, from N91.01 billion, at end-December 2014. The
decrease in the industry paid-up capital was attributed to non-rendition of returns by some
MFBs operating in the North East.

Table 2. 3: Key MFB Financial Highlights6

June 2015
(N’ billion)
Dec. 2014
(N’ billion)
% Change
Total Assets
356.03
300.73
18.39
Paid up Capital
81.94
82.44
(0.61)
Shareholders’ Funds
97.03
91.01
6.61
Deposit Liabilities
159.40
145.83
9.31
Loans and Advances
178.12
162.91
9.34

Total deposit liabilities and net loans & advances increased by 9.31 and 9.34 per cent to
N159.40 billion and N178.12 billion at end-June 2015, compared with N145.83 billion and
N162.91 billion at end-December 2014, respectively. Reserves also increased by N6.52
billion to N15.09 billion at end-June 2015, from N8.57 billion at end-December 2014. The
continued improvement in the operations of functional MFBs was attributed to the sustained
regulatory oversight and improved compliance by operators.

2.2.1.1 Housing Microfinance Project
During the period under review, the Bank received Expressions of Interest (EOIs) from 14
MFBs in the pilot Housing Microfinance (HMF) Scheme. A final review report on the EOIs
was submitted. The Nigeria Housing Finance Programme (NHFP) is expected to select a
maximum of eight (8) MFBs to pilot the scheme and engage a firm as the Task Manager to
implement the Report on the selected MFBs, as well as prepare a draft technical agreement
for execution of the pilot scheme by the selected MFBs.

2.2.1.2 Unified Core Banking System for MFBs
The Bank collaborated with development partners and other stakeholders to establish a
Unified Core Banking System for the MFB sub-sector. Consequently, the National
Microfinance Banks Unified IT Platform (NAMBUIT) was inaugurated during the period
under review. The unified platform would enable the CBN to have adequate oversight of the
assets and liabilities of the subsector, provide an early-warning system, foster pro-active
regulatory intervention, and ultimately lead to improved soundness and stability of the
microfinance sub-sector.


6 The financial highlights cover the data for fully operational MFBs.

The expected benefits of the unified IT platform for the MFBs are as follows:
i.
Reduction in the cost of acquisition of IT software arising from economies of
scale and savings in annual maintenance cost derivable from shared services;
ii.
Harmonization of disaster recovery and business continuity processes;
iii.
Promotion of effective back-end processes;
iv.
Centralization of the web-based platform for MFBs;
v.
Facilitation of access to MFB data from both on-site and off-site locations;
vi.
Integration of payment systems for ease of interface with commercial banks’
platforms;
vii.
Enhancement of data quality and integrity.
2.2.2
Primary Mortgage Banks
The number of primary mortgage banks (PMBs) in operation decreased from 42 at endDecember 2014 to 36 at end-June 2015, comprising 10 PMBs with national authorization and
26 with state authorization. The decrease was attributed to the failure of six (6) PMBs with
state authorization to meet the recapitalization deadline of 31st December, 2014.
Consequently, the aforementioned six PMBs were categorized as non-operational following
the approval of the CBN Committee of Governors for their revocation, subject to the
approval by the Board.

Total assets of PMBs increased by 7.48 per cent to N418.1 billion at end-June 2015 from
N389.0 billion at end-December 2014. Similarly, total loans and advances, and deposit
liabilities and liquid assets of PMBs increased by 13.3, 7.6 and 20.9 per cent from N133.03
billion, N135.82 billion and N81.89 billion to N150.72 billion, N146.16 billion and N99.01
billion, at end-June 2015 respectively. However, the paid-up capital and aggregate reserves
declined from N121.69 billion and N24.10 billion at end-December 2014 to N113.31 billion
and N22.77 billion at end-June 2015 respectively. Consequently, shareholders’ funds
declined by N9.71 billion from N145.79 billion at end-December 2014 to N136.08 billion at
end-June 2015, reflecting a decrease of 6.66 per cent.

2.2.2.1 Nigeria Housing Finance Programme
The Nigeria Housing Finance Programme (NHFP), a collaborative initiative involving the
CBN, the World Bank, and Federal Ministries of Finance; Lands, Housing and Urban
Development; Justice; continued with the pursuit of its four cardinal deliverables during the
period under review, namely:
(a) Establishment and funding of a mortgage refinance company;
(b) Introduction of a housing microfinance programme;
(c) Introduction of a mortgage guarantee scheme; and
(d) Provision of technical assistance to mortgage stakeholders.

Establishment and Funding of a Mortgage Refinance Company
The Nigeria Mortgage Refinance Company Plc (NMRC) was granted a licence to operate as a
mortgage refinance company on 18th February 2015. The NMRC has published the Uniform
Underwriting Standards for mortgage originators as a precondition for refinancing, and
appointed four (4) audit firms to evaluate the legacy mortgages for refinancing.

The CBN processed and obtained the “No-objection” from the World Bank for the
disbursement of a second tranche of US$100 million to the NMRC. As at 30th June 2015, a
cumulative sum of US$120 million had been disbursed by the Bank to the NMRC, with the
first tranche of US$20 million transferred to NMRC in June 2014. The CBN also approved a
request from the NMRC for “No-objection” to raise N140 billion through issuance of bonds.
The first series of N10 billion was issued during the period under review, paving the way for
the refinancing of legacy mortgages by the NMRC.
Introduction of a Housing Microfinance Programme
The Housing Microfinance Programme (HMFP) was designed as a window to finance
housing development for low income earners who have limited access to mortgages. The
Nigeria Housing Finance Programme (NHFP) is expected to support the development of new
and/or emerging HMF products. During the period under review, the sum of US$5 million
was provided by the World Bank7 as soft loans to MFBs for tested HMF products.

Introduction of a Mortgage Guarantee Scheme
The Mortgage Guarantee component of the NHFP was designed to address gaps in respect of
equity down payments by mortgage beneficiaries. During the review period, NHFP
developed the Terms of Reference (TOR) and obtained a “No-objection” from the World
Bank for the Business and Feasibility Plan to introduce a Mortgage Guarantee and Insurance
Product. The mortgage guarantee is expected to be rolled out in 2016 to provide insurance
cover to those eligible for mortgage payment, including adequate cash flow but inadequate
equity down payment under the NHFP as specified in the Project Operational Manual (POM).

Provision of technical assistance to mortgage stakeholders
This component of the NHFP is designed to provide industry-wide capacity building, timely
and reliable market related information as well as support and development of electronic
Mortgage Asset Registry System (eMARS).

2.2.2.2 Cash Reserve Requirement for PMBs
During the review period, the policy on CRR for PMBs was maintained. Following the
extension of the cash reserve requirement facility to PMBs, each PMB now maintains two
accounts with the CBN: the Current and CRR accounts. To this end, PMBs are now granted
access to the CBN discount window. Accordingly, legacy CRR balances of relevant PMBs
were credited to their CRR accounts at the CBN. Also, the CRR is used to warehouse on

7 The US$5 million was part of the US$300 million World Bank Housing Finance Facility.

monthly basis 2.0 per cent of the adjusted deposit liabilities of private sector deposits and
75.0 per cent of all public sector deposits held by the PMBs in line with the MPC decision.

2.2.2.3 Uniform Underwriting Standards
The Uniform Underwriting Standards (UUSs) issued was adopted as published by the NMRC
in conjunction with the Mortgage Bankers’ Association of Nigeria (MBAN).

2.2.3
Finance Companies
The number of Finance Companies (FCs) in operation increased to 66 at end-June 2015, from
64 at end-December 2014, owing to the licensing of 2 new FCs. The provisional total
assets/liabilities of FCs increased to N128.32 billion at end-June 2015, from N119.60 billion
at end-December 2014, reflecting an increase of 7.29 per cent. Similarly, paid-up capital
increased by 6.51 per cent to N17.17 billion from N16.12 billion at end-December, 2014.
Reserves decreased by 21.37 per cent to N1.84 billion at end-June 2015, from N2.34 billion
at end-December 2014. Borrowings also increased by 9.73 per cent to N75.08 billion from
N68.42 billion at end-December 2014, while, loans and advances increased by 12.85 per cent
to N55.08 billion at end-June 2015, from N48.81 billion at end-December 2014. During the
review period, the CBN issued circulars to remind all FCs of their recapitalization deadline of
September 30, 2015 in line with the Revised Guidelines for Finance Companies in Nigeria.

2.2.4
Bureaux de Change
During the review period, the directors of 103 BDCs were blacklisted for sundry infractions
of extant rules and regulations. Similarly, 75 of the 100 BDCs examined in
October/November 2014 were penalized. Two (2) BDCs were suspended as their registered
office addresses could not be located, while the licence of one (1) BDC was revoked for noncompliance with regulatory directives.

2.2.5
Development Finance Institutions
The total assets of the six (6) reporting Development Finance Institutions (DFIs) increased by
11.95 per cent to N986.8 billion at end-June 2015, compared with N881.5 billion at endDecember 2014. Similarly, the net loans and advances of the institutions increased by 14.50
per cent to N805.70 billion at end-June 2015, from N703.7 billion at end-December 2014.

2.3
Financial Inclusion
Pursuant to the implementation of the National Financial Inclusion Strategy, the following
activities were executed during the review period:

Financial Inclusion Governing Committees
Financial Inclusion Governing Committees (Technical and Steering Committees) were
inaugurated in January 2015 to support the implementation of the National Financial
Inclusion Strategy. Four (4) Working Groups namely, Product, Channels, Special
Intervention and Financial Literacy Groups were set up to develop necessary work plans for

the period of July 2015 to June 2016. Membership of the governing committees was also
expanded to include key associations in the financial services sector.

Digital Finance Project
The CBN collaborated with the Federal Ministry of Finance and the Bill and Melinda Gates
Foundation in strengthening digital payment systems in Nigeria. To achieve this goal, the Bill
and Melinda Gates Foundation commissioned a consulting firm to develop a roadmap,
highlighting the key interventions required for an end-to-end digital financial services
infrastructure in order to improve financial inclusion in Nigeria.

Geo-Spatial Mapping Survey
The second round of the Geo-spatial Mapping Survey which began in November 2014 was
completed in April 2015. A total of 50,838 financial access points were geo-tagged during the
survey. Analysed data from the survey would be uploaded to Financial Services for the Poor
(FSP) maps by the end of September 2015.

Engagement with Internal and External Stakeholders
In furtherance of its engagement with relevant stakeholders, the Financial Inclusion
Secretariat (FIS) met with seven industry associations during the period under review. The
discussions focused on the National Financial Inclusion Strategy implementation and their
expected roles and responsibilities. The agencies were invited to the Governing Committees
on Financial Inclusion to strengthen the working groups and integrate them into the
implementation process.

A status update on the progress of financial inclusion was presented to the Bankers
Committee at its 316th meeting. The Committee was acquainted with the focus of the
Strategy and the roles it was expected to play.

The Bank was represented at the 7th Annual G-24/AFI Roundtable which was a high-level
platform for engaging Emerging Countries’ policymakers in discussions on globally relevant
financial inclusion policy issues. It also participated in the 6th Financial Inclusion Strategy
Peer Learning Group meeting. Both meetings afforded the Bank the opportunity to share
knowledge with peer countries on concrete ways by which the National Financial Inclusion
Strategy objectives would be achieved.

Impact of the Financial Inclusion Strategy
Implementation of the National Financial Inclusion Strategy has impacted positively on the
lives of the citizens of Nigeria as it has improved their access, usage and quality of financial
services and products. Recent data from the Access to Financial Services Survey conducted
by the Enhancing Financial Innovation and Access (EFInA) showed that the number of
banked adults increased from 32.5 per cent in 2012 to 36.3 per cent in 2014; the number of

financially excluded adults improved slightly from 39.7 per cent in 2012 to 39.5 per cent in
2014. Existing micro insurance products provided low income earners income insurance
opportunities.

2.4
Financial Markets

2.4.1 Money Market
The Bank retained its Monetary Policy Rate (MPR) at 13.00 per cent during the review
period. Cash Reserve Requirement (CRR) on private and public sector deposits from 15.00
and 75.00 per cent was harmonized in May 2015 to 31.00 per cent for both sectors. The net
foreign currency trading position limit was reviewed in January 2015, from 0.1 to 0.5 per cent
of total shareholders’ fund unimpaired by losses.

Movements in money market rates were influenced largely by liquidity conditions in the
banking system. Both the OBB and inter-bank call rates traded occasionally outside the MPR
corridor and peaked at 27.19 per cent in February 2015, and 29.11 per cent in April 2015.
The monthly weighted average inter-bank call rate ranged from 10.22 to 29.11 per cent, while
the OBB rate ranged from 9.06 to 27.19 per cent. The monthly weighted average OBB and
inter-bank call rates closed at 12.32 and 11.72 per cent at end-June 2015, compared with
23.46 and 26.15 per cent recorded at end-December 2014, respectively.

Figure 2. 10: Money Market Rates Movements, July 2014 – June 2015


July
August
September
October
November December
January
February
March
April
May
June
Inter-bank

OBB

SDF

MPR

SLF


Inter-bank, OBB, SDF, MPR and SLF Rates (%)

2.4.1.1 Nigerian Treasury Bills
Nigerian Treasury Bills (NTBs) for 91-, 182- and 364-day tenors totalling N2,233.80 billion
were issued and allotted during the review period. This indicated an increase of 35.40 per
cent compared with N1,649.75 billion between July and December 2014. Total public
subscriptions stood at N5,213.20 billion in the first half of 2015, reflecting a significant
increase when compared with N2,434.19 billion in the preceding period. This increase was
traceable to renewed investors’ interest in the market.

A review of the holding structure of investments in NTBs indicated that banks and discount
houses took up N1,605.09 billion, representing 71.85 per cent of total NTBs issued, while
non-bank investors took up the balance of N628.71 billion. Average marginal rates ranged
from 9.7990 to 11.2000 per cent for the 91-day, 12.7000 to 14.4500 per cent for the 182-day,
and 12.8000 to 15.8990 per cent for the 364-day tenors.

At end-June 2015, investment in NTBs by banks and discount houses accounted for 36.97 per
cent of the NTBs outstanding; the non-bank investors accounted for 54.44 per cent, while the
CBN took up the balance of 8.59 per cent.

2.4.2
Foreign Exchange Market
In the first half of 2015, the Bank’s effort at maintaining a stable foreign exchange rate
regime was sustained. The combined effect of the US economic growth, tapering of
quantitative easing and prospect of a higher interest rate regime led to the strengthening of
the US dollar. In addition, the continued fall in commodity prices, declining foreign portfolio
inflows and capital reversals, resulted in a fall in accretion to foreign reserves. Consequently,
increased foreign exchange demand pressure led to the depreciation of the naira against the
US dollar at both the inter-bank and bureaux de change (BDC) segments.

In February 2015, the naira further depreciated against the US dollar, following the closure of
the rDAS window. The closure was due to the need to curtail undue market arbitrage.
However, the CBN continued to intervene in the inter-bank segment to moderate the rates.

The average exchange rate at the inter-bank and BDC segments depreciated by 8.42 and
13.94 per cent to close at N196.9159/US$ and N218.9773/US$ at end-June 2015,
respectively.

Figure 2. 11: rDAS, Inter-bank and BDC Rates, July 2014 – June 2015


2.4.3 The Capital Market
The Nigerian Stock Exchange (NSE) activities remained bearish during the review period as
both All Share Index (ASI) and Market Capitalization (MC) declined. The decline was due to
a combination of factors, including the mixed performance of listed companies, domestic
macroeconomic concerns, decline in foreign reserves, as well as equities sell-off by investors.
These combined to drive down asset prices and erode investors’ confidence.
2.4.3.1 The Bond Market
Total bonds outstanding at end-June 2015 stood at N5,762.41 billion, of which FGN, agency,
sub-national and corporate bonds constituted N4,838.17 billion (83.96%), N297.52 billion
(5.16%), N448.65 billion (7.79%) and N178.07 billion (3.09%), respectively. The total endJune 2015 figure reflected a 1.18 per cent increase over the end-December 2014 figure of
N5,695.37 billion, comprising FGN, agency, sub-national and corporate bonds valued
N4,783.63 billion (83.99%), N325.97 billion (5.72%), N461.14 billion (8.10%) and N124.63
billion (2.19%), respectively.

Table 2.4: Outstanding Bonds

December 2014
(N’ billion)
June 2015
(N’ billion)
% Change
Proportion
of Total
(%)
FGN

Agency

Sub-National

Corporate

Total
5,692.41
5,762.41

Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
March
April
May
June
W/DAS-SPT (incl. 1% comm.)

Inter-Bank

BDC


Exchange Rate (N/US$)

FGN Bonds
New issues and re-openings of FGN Bonds series 1, 2 and 3 were auctioned during the
review period. The total value of FGN Bonds offered for sale was N468.22 billion, while
public subscriptions and sales stood at N872.12 billion and N449.72 billion, respectively. The
over-subscription was attributed to the increased level of liquidity in the banking system.

The price of FGN Bonds at the secondary market declined as a result of investors’ sell-off
over concerns on crude oil price decline and exchange rate policy reviews. Consequently,
yields on the Bonds at end-June 2015 increased, compared with the position at end-December
2014 (Figure 2.10).

Figure 2. 12: Yield Curves for Nigeria


Agency Bonds
During the review period, no agency bond was issued. However, Federal Mortgage Bank of
Nigeria (FMBN) bonds valued at N25.45 billion were redeemed. Consequently, total
outstanding agency bonds stood at N297.52 billion.

Sub-National Bonds
In the first half of 2015, there was no new issue, as in the preceding period. However, nine
(9) state governments amortised part of their bonds valued N12.49 billion. The total
outstanding bonds held by 15 state governments stood at N448.65 billion.

Corporate Bonds
Two (2) corporate bonds valued N56.50 billion were issued in the review period compared
with two (2) corporate bonds worth N15.50 billion issued in the preceding period.
Meanwhile, bonds valued N3.10 billion were amortised by eight (8) companies.

Yield %
Time to Maturity (Years)
Jun-2015
Dec-2014
Jun-2014

Table 2. 5: Corporate Bonds Issued in the first half of 2015
Company
Description
Value (N Billion)
FCMB
14.25 FCMB 1 20-NOV-2021
26.00
UBA
16.45 UBA 1 30-DEC- 2021
30.50
Total

56.50

2.4.3.2 The Equities Market
At end-June 2015, the NSE ASI closed at 33,456.83, reflecting a decrease of 3.46 per cent
below the 34,657.15 at end-December 2014. Market capitalisation closed at N11,421.02
billion, reflecting a decrease of 0.61 per cent below the N11,490.75 billion recorded at the
end of the preceding period. The decline was attributable to sell-off by investors. However,
the market had witnessed a steady rise at the beginning of the year up to April. Foreign
portfolio investments in the market were valued N285.40 billion, while divestments
amounted to N303.59 billion, reflecting a net outflow of N18.19 billion at end-June 2015.
Overall, total foreign portfolio transactions (inflow and outflow) accounted for 52.87 per cent
of the total equity transactions (inflow and outflow) during the review period.

During the first half of 2015, two (2) new equities (one each on Main Board and Exchange
Trust Fund) were listed, while three companies voluntarily requested to be delisted from the
Exchange. In efforts to deepen the Nigeria capital market, the Securities and Exchange
Commission (SEC) took the following initiatives and made amendments to some of its basic
rules, which included:
Approval of the Par Value Rule in June 2015. The Rule states that "notwithstanding
its par value, the price of every share listed on the Exchange shall be determined by
the market, save that no share shall trade below a price floor of one Kobo per unit
(N0.01)".
Release of six (6) new rules to the capital market. These are: Code of Conduct for
Rating Agencies; Code of Conduct for Underwriters; Code of Conduct for Trustees;
Rules on Securitization; Rules on National Investors Protection Fund and Rules on
Trading Unlisted Securities on Over the Counter (OTC) markets in Nigeria.
Development of a Corporate Governance Scorecard for listed companies in the
Country. The Scorecard will assess the level of compliance with the SEC Code of
Corporate Governance by public companies on an annual basis.

2.5
Real Sector Interventions
The achievement of price and financial stability objectives provides the context for central
banks’ involvement in the real sector. This often takes the form of dedicating credits to the
real sector, subsidizing the prices of such credits, supporting capacity building, establishing
and regulating development finance institutions and some types of emergency interventions.

Over the years, the CBN has made efforts to support the real sector to enable it to contribute
to the overall development of the economy. The largely informal nature of the real sector,
coupled with a relatively inefficient financial system, had hampered effective resource
mobilization as a result of low output, wide interest margins as well as high transaction costs,
among others. In order to achieve the core objective of price stability, there must be monetary
stability and a sound financial environment with unhindered access to capital. These
requirements informed the need for the CBN to initiate the various intervention funds
discussed below.

2.5.1
Risk Mitigation and Insurance Schemes

2.5.1.1 The Nigeria Incentive-based Risk Sharing System for Agricultural Lending
As part of its function to de-risk lending to the agricultural value chain in Nigeria, the Nigeria
Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL) during the period
approved six (6) Credit Risk Guarantees (CRGs) valued N700.46 million as against 11 CRGs
valued N3.089 billion in the second half of 2014. This indicated a decreases in number and
value of 5 CRGs (45.45%) and N2.39 billion (77.32%), respectively, under the regular
NIRSAL framework. The cumulative CRGs for 66 projects amounted to N21.327 billion. It
also paid Interest Draw Back (IDB) claims valued N50.46 million in the review period. This
brings the cumulative IDB claims under NIRSAL to N295.22 million in respect of twenty-
five (25) projects.

Under the Growth Enhancement Scheme (GES)/NIRSAL framework the cumulative sum of
N32.99 billion was approved as CRGs for 158 projects. NIRSAL also paid IDB under the
GES/NIRSAL framework valued N90.26 million for 18 projects. The cumulative GES IDB
stood at N439.08 million.

The CRG covers provided to over 158 agro dealers across the Country during the review
period has enabled the supply of subsidized inputs to a target 6 million farmers during the
rainy season. In terms of capacity building, a total of 27,142 farmers selected for commodity
value chains including cocoa, tomato, cotton and rice were trained in collaboration with GIZ -
German Society for International Cooperation.

2.5.1.2 The Agricultural Credit Guarantee Scheme Fund
In the first half of 2015, the Fund guaranteed 28,702 loans valued N5.44 billion granted by
five (5) commercial and 85 microfinance banks as against 36,909 loans valued N7.07 billion,
granted by 8 commercial and 42 microfinance banks in the second half of 2014. This
indicated a decrease of 22.24 per cent in number of loans and 23.01 per cent in value of
loans. Cumulatively, 960,565 loans valued N89.91 billion were guaranteed from inception to
June 2015. In addition, a circular on procedures for guarantee processing and Interest
Drawback Programme (IDP) filling was issued to participating banks.

2.5.1.3 National Collateral Registry
The CBN in conjunction with other relevant stakeholders sustained the work towards the
launching of the Secured Transactions and National Collateral Registry and its subsequent
take-off. Consequently, the Inter-Agency Committee finalized and submitted a draft Bill on
Collateral Registry to the Federal Executive Council for consideration and enactment.

2.5.2
Credit Support Schemes

2.5.2.1 The Commercial Agriculture Credit Scheme
During the period under review, the Commercial Agriculture Credit Scheme (CACS)
Guidelines were reviewed and a memorandum on re-pricing of its interest rate was approved.
The number of focal commodities under the Scheme was also expanded to include dairy and
oil palm produce.

The sum of N24.47 billion was released to 10 banks for 26 projects in the first half of 2015,
compared with N28.74 billion in favour of 52 projects in the second half of 2014. This
showed a decrease of N4.27 billion (14.86%) and 26 projects (50%) in value and number,
respectively. The cumulative amount released to the real sector under CACS from inception
to June 2015 stood at N287.49 billion to 333 private and 37 state government projects. Out of
the 333 private projects financed under CACS, eight (8) were owned and managed by
women. The total repayments stood at N23.676 billion by 15 banks for 247 projects, bringing
the cumulative repayments to N128.88 billion.

About 1,294 additional jobs were created (324 skilled and 970 unskilled) owing to CACS
intervention.This has brought the cumulative number of jobs created to 1,131,600 from
inception to end-June 2015.

2.5.2.2 The SME Restructuring and Refinancing Fund
The N235 billion Small and Medium Enterprises-Refinancing and Restructuring Facility
(SME-RRF) which was established in March 2010 with an original terminal date in 2025,
was discontinued in December 2014 and replaced with the Real Sector Support Facility
(RSSF). This Facility was conceived to succeed the RRF with the objective of ensuring sound
financial system stability through vibrant SMEs contribution to the economy. The cumulative
amount disbursed at end-June 2015 by BOI under SME-RRF stood at N360.73 billion for 602
projects. The repayment proceeds at end-June 2015 stood at N113.72 billion, while total jobs
created under the scheme was 2.11 million.

2.5.2.3
N300 Billion Real Sector Support Facility
At end-June 2015, a total of 219 applications were received under the Real Sector Support
Facility (RSSF), of which five (5) applications valued N152.0 billion were approved.
However, only N3.5 billion had thus far been disbursed for one (1) of the projects. The
specific sectors targeted to benefit from the Facility included manufacturing, agricultural
value chain and services.

2.5.2.4
Micro, Small and Medium Enterprises Development Fund
During the period under review, activities carried out by the CBN under the Micro, Small and
Medium Enterprises Development Fund (MSMEDF) included:
(1) The review of the Guidelines to address some key issues including: reduction of
interest rate for PFIs from 3 per cent to 2 per cent; reduction of the financial asset
collateral requirement from 75 per cent to 50 per cent; removal of corporate
governance structure from the checklist for PFIs; and reduction of the required
audited accounts from two to one year.

(2) Post-disbursement verification exercises in collaboration with Development Finance
Officers (DFOs) on Special Purpose Vehicles (SPVs) in 13 States. This revealed
several infractions which are being addressed, including improper communication of
repayment schedules to beneficiaries/borrowers; charging of upfront interest charges
and excessive commission on turn over (COT); multiple borrowings and nondisbursement of balances ranging from N15 million to N50 million.

(3) Collaboration with the Bankers’ Committee to organize a workshop that addressed the
issue of low access to MSMEDF by banks. The learning points from the workshop
included: the need to increase the list of eligible activities provided for in the
Guidelines; annual bank performance survey report on lending to SMEs; excellence
awards to deserving banks under the MSMEDF; and the need for review of SME
credit policies in banks.

As part of the efforts to improve outreach to MSMEs and increase liquidity to fund providers
nationwide, an additional sum of N45.42 billion was released. Specifically, 9,663 male and
15,547 female micro enterprise owners and 67 SMEs benefitted from the Fund during the
review period. In addition, the Scheme elicited the participation of 24 State Governments, 13
Deposit Money Banks (DMBs) and 56 microfinance banks (MFBs)

2.5.5
Power and Aviation Intervention Fund
The Power and Aviation Intervention Fund (PAIF) was introduced to stimulate and sustain
investment in the power and airlines sub-sectors through the provision of long-term credit.

In the first half of 2015, total disbursement was N13.26 billion in favour of one (1) airline
and one power project. The sum of N249.61 billion was released to BOI and disbursed
through banks to 55 projects for 39 power projects (valued N128.85 billion) and 16 airline
projects (valued at N120.76 billion). Also the sum of N11.71 billion was repaid by 46
obligors through BOI under the PAIF during the review period.

Table 2. 6: Loans Repayment in N’ Billions at end-June, 2015
Type
Airline
Power
Total
No of projects

Amount received by CBN as
PAIF repayment in January-June
2015 (N)
4.74
6.98
11.71
Cumulative as at Dec , 2014
24.58
16.80
41.39
Cumulative from inception to
June, 2015
29.32
23.78
53.10

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

2.5.2.5 Nigeria Electricity Market Stabilization Facility
The CBN invested N213 billion in a special purpose vehicle - NESI Stabilization Strategy
Ltd - to provide refinance for the NEMSF. The sum of N64.76 billion was disbursed to 18
participants within the reporting period as set out below:

Table 2. 7: NEMSF Disbursements from Feb. – Jun. 2015

S/No
NESI Participants
No
Cumulative Amount Disbursed
(February – June, 2015) N’ Billion
1.
DISCOs

41.06
2.
GENCOs

18.46
3.
GASCOs

5.24

TOTAL

64.76

The facility is aimed at putting the Nigerian electricity supply industry on a path of viability
and sustainability, including facilitating the settlement of legacy gas debts and payment of
outstanding obligations due to market participants, service providers and gas suppliers that
accrued during the Interim Rules Period (IRP Debts).

The intervention in the Nigerian electricity supply industry has contributed to the
improvements recorded, which included resolution of problems relating to revenue shortfalls,
debt overhang, illiquidity and poor gas pricing mechanism. Thus the industry was able to
move its pricing mechanism from the Interim Rules Period (IRP) to a Transition Electricity
Market (TEM) Regime.

2.5.2.6 Entrepreneurship Development Centres
The Bank, at end-June 2015, had five (5) entrepreneurship development centres (EDCs)
operating in North-West (Kano); North-East (Maiduguri); North Central (Makurdi); SouthWest (Ibadan); South-South (Calabar); and one (1) Outreach Centre for the North-Central
(Minna). During the period under review, the Bank developed a portal to showcase the

achievements of the EDCs from inception in 2008 to date. The aim of the portal was to
expose graduates of the EDCs to financial institution and development partners and to enable
them to access funds from prospective financial institutions. The key performance indicators
for the implementing agencies of the EDCs were also reviewed to include people living with
disabilities.

The number of participants trained by the EDCs during the review period was 5,830,
representing 97.1 per cent of the target as against a total of 3,260 participants trained in the
second half of 2014. This represents an increase of 2,570 in the number of participants
trained. 2,361 (40.4%) of the participants were female and 3,469 (59.5%) were male. A total
of 4,102 jobs were created within the period and 1,805 participants accessed loans, while the
sum of N496.43 million was accessed by the graduates.

Figure 2. 13: Figure 2. 14: Analysis of Number of Participants and Jobs Created


2.6
External Reserves
Gross external reserves stood at US$28.33 billion at end-June 2015, compared with
US$34.24 billion at end-December 2014, representing a decrease of 17.3 per cent. The endJune 2015 level of reserves was equivalent to 5.8 months compared with 7.0 months of
imports at end-December 2014. The fall in reserves was due to the sharp decline in foreign
exchange inflow from US$23.66 billion in the second half of 2014 to US$15.28 billion at
end-June 2015. The development reflected a decrease of US$8.38 billion or 35.4 per cent.
Total foreign exchange outflow was US$21.07 billion in the first half of 2015, compared with
US$26.33 billion in the second half of 2014, indicating a decrease of 20.0 per cent.
Thus, there was a net outflow of US$5.79 billion from the external reserves, compared with
US$2.61 billion at end-December 2014. The net position, coupled with the unrealized
exchange rate loss of US$0.12 billion, accounted for the US$5.91 billion decrease from the
level at end-December 2014 to US$28.33 billion at end-June 2015.
Measures adopted by the CBN to manage the external reserves in the review period, in the
face of the collapse of oil prices and consequent sharp decline in petro-dollar receipts,
included the discontinuation of the Dutch Auction System (DAS) sales window and
rechannelling of all eligible transactions to the inter-bank window. Further measures included


Number of Participants Trained
Number of Jobs Created
June, 2015
December, 2014

the restriction of the utilization of export proceeds for eligible transactions and the inclusion
of 41 items in the list of items not valid for foreign exchange in all the segments of the
Nigerian foreign exchange markets.

3.0
REGULATORY AND SUPERVISORY ACTIVITIES
3.1
Macro-Prudential Supervision
3.1.1
Financial Soundness Indicators
3.1.1.1 Asset-Based Indicators
The quality of assets in the banking sector deteriorated in the first half of 2015, compared
with the position at the end of December 2014. The ratio of non-performing loans (NPLs) to
Gross Loans increased by 1.77 percentage points to 4.65 per cent at end-June 2015. The fall
in asset quality could be attributable mainly to the devaluation of the naira and the rising
inflationary trend. While the naira exchange rate has fallen from N169.69/US$ in December
2014 to N196.91/US$ at end-June 2015, headline inflation rose from 8.0 per cent at endDecember 2014 to 9.2 per cent in June 2015. These adverse macroeconomic developments
increased the cost of production for most businesses; thereby, curtailing their capacity to
service outstanding obligations. The ratio of core liquid assets to total assets decreased by 0.7
percentage points to 10.7 per cent at end-June 2015 from 11.4 per cent at end-December
2014. Also, the ratio of core liquid assets to short-term liabilities decreased by 0.90
percentage points to 15.8 per cent at end-June 2015 as compared with 16.7 per cent at endDecember 2014.

Figure 3. 1: Banking Industry NPLs to Gross Loans

End June 2014
End Dec 2014
End June2015
Per cent


Figure 3. 2: Banking Industry Liquidity Indicators

3.1.1.2 Capital-Based Indicators
Most indicators of capital adequacy showed marginal improvement. The ratio of regulatory
capital to risk weighted assets stood at 17.52 per cent at end-June 2015, showing increases of
0.3 and 1.1 percentage points above the levels at end-December 2014 and end-June 2014
respectively. Similarly, the ratio of tier 1 capital to risk weighted assets, which stood at 16.3
per cent at end-June 2015 was 0.8 and 0.2 percentage points above the level achieved at endDecember 2014 and at end-June 2014, respectively.
The industry ratio of non-performing loans (net of provisions) to capital increased to 11.9 per
cent at end-June 2015 from 4.1 per cent at end-December 2014, showing increased
vulnerability to credit risk.

End June 2014
End December 2014
End June 2015
Per cent
Liquid assets (core) to total assets
Liquid assets (core) to short-term liabilities

Figure 3. 3: Banking Industry Adequacy Indicators


3.1.1.3 Income- and Expense-Based Indicators
The ratio of interest margin to gross income declined to 43.32 per cent in the review period,
from 51.2 per cent at end-December 2014. Also, the ratio of non-interest expenses to gross
income and personnel expenses to non-interest expenses decreased by 10.8 and 0.1
percentage points to 46.1 and 37.3 per cent at end-June 2015 from 56.9 and 37.4 per cent at
end-December 2014, respectively. The decreases in these ratios reflected improvements in
cost management measures by banks.

End June 2014
End December 2014
End June 2015
Per cent
Regulatory capital to risk-weighted assets
Regulatory Tier 1 capital to risk-weighted assets

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


3.2
Banking Industry Stress Tests
3.2.1
Baseline (Pre-shock) Position
Overall, there was an improvement in the baseline CAR of the Nigerian banking industry at
end-June 2014 compared to the December 2014 position. The baseline CAR rose by 0.23
percentage point over the December 2014 position to 17.38 per cent at end-June 2015. This
was driven mainly by improvements in the baseline CAR of the large banks which rose by
1.03 percentage points over their December 2014 position to 18.56 per cent at end-June 2015.
Equally, the number of banks with CAR greater than the 15 per cent prudential hurdle rate for
international banks increased from 13 at end-December 2014 to 16 at end-June 2015.
However, the number of banks with CAR less than 5 per cent also increased from 0 to 3 over
the period. The three banks are not among the domestic systemically important banks (DSIBs).

Liquidity ratio (LR) of the Nigerian banking industry decreased by 6.5 percentage points to
39.3 per cent from the 45.8 per cent December 2014 position. The decline in the LR position
was driven mainly by the large and medium banks with 6.5 and 7.4 percentage points
decrease respectively from their December 2014 LR position to 36.9 per cent and 45.5 per
cent respectively. This decline may be traced to the sustained tight monetary policy stance of
the CBN.


Indicators


End
Jun
End
Dec
End
Jun
End
Dec
End
Jun
End
Dec
End
Jun
End
Dec
End
Jun
End
Dec
End
June
1. Assets Based Indicators
Nonperforming loans to
total gross loans *


Liquid assets (core) to
total assets*

Liquid assets (core) to
short-term liabilities*

2. Capital Based Indicators
Regulatory capital to riskweighted assets*

Regulatory Tier 1 capital
to risk-weighted assets*

Nonperforming loans net
of provisions to capital *

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

Noninterest expenses to
gross income*

Personnel expenses to
noninterest expenses

Note: All figures are in percentages, except otherwise indicated
Note: *FSIs are computed based on IMF guidelines. The indicators for the period End June 2010 to End December
2014 are revised
** Provisional

Furthermore, the number of banks in the LR bucket greater than 40 per cent decreased from
18 as at December 2014 to 12 in June 2015. On the other hand, the number in the LR bucket
less than 40 per cent but greater than 30 per cent and less than 30 per cent but greater than 20
per cent increased from 4 to 8, and 1 to 2 respectively.

Figure 3. 4: Baseline CAR Highlights


Figure 3. 5: Number of Banks in CAR Buckets

The banking industry return on assets (ROA) fell from 3.13 per cent as at December 2014 to
0.34 per cent at end of June 2015, a 2.8 percentage point decrease. The decline in ROA is
attributable to the increase in average assets, particularly for large banks, and sharp decline in
net income of the industry. This trend was similar across the three bank categories except for
the average assets of small banks which marginally declined over the period.

Industry
Large Banks
Medium Banks
Small Banks
Dec. 2014
Mar. 2015
Jun. 2015

≥15%
<15% but ≥ 10%
<10% but ≥5%
<5%
Dec. 2014
Mar. 2015
Jun. 2015

On the other hand, the industry return on equity (ROE) increased by 1.9 percentage points
from the 21.23 per cent position in December 2014 to 23.14 per cent in June 2015. This
positive change was driven solely by the large banks. The large banks ROE grew by 27.4
percentage points from 21.12 per cent to 48.52 per cent. The ROE of the medium and small
banks declined by 6.6 and 10.1 percentage points from 25.18 and 16.22 per cent to 18.58 and
6.12 per cent, respectively.

3.2.2
Solvency Stress Test
The Top-down (TD) balance sheet stress tests were conducted covering all 22 licensed
deposit money banks in the Nigerian banking industry8. The solvency TD stress tests assessed
the resilience of the Nigerian banking system to a wide range of risk factors including credit,
interest rate, foreign exchange rate, and liquidity risks.

The stress tests quantified the impacts that large but plausible negative shocks on these risk
factors, based on historical antecedents and expert judgements, could have on the capital
positions of the banks. Resilience of the banking system to these shocks was assessed against
defined prudential hurdle rates.

The TD stress tests are usually applied on a bank-by-bank basis and on an aggregate basis to
determine the impact of specific stress scenarios on the banking industry. Furthermore, banks
were classified into three broad groups for systemic and peer assessment. Banks in the
“large” category had assets greater than or equal to N1 trillion. The “medium” category
comprised of banks with assets less than N1 trillion but more than N500 billion while the
“small” category comprised of banks with assets less than N500 billion.

The banking industry witnessed credit growth of 29.5 per cent to N13.5 trillion compared to
that of December 2014. The oil and gas sector continued to dominate credit allocation with
23.8 per cent of the total sectoral credit (24.4% in December 2014). Although the proportion
of credit to the sector declined by 0.6 percentage points when compared to that of December
2014 position, credit to the sector grew by 26.3 per cent in absolute terms, similar to the rate
of the total credit growth. Nonetheless, the banking industry showed resilience to the impact
of a shock of 50 per cent credit default in the oil and gas sector. Under this scenario, industry
CAR remained above the prudential hurdle rate at 13.55 per cent. However, this CAR is 0.52
percentage points lower than the end-December 2014 position under the same scenario.

Vulnerability to credit concentration in the oil and gas sector manifested under the shock
scenario of a 100 per cent credit default. Under this shock scenario, industry CAR declined to
negative 0.45 per cent, reflecting 3.68 percentage point decrease compared to the same
situation in December 2014. This deterioration in the industry resilience was driven by the
increased vulnerability of the large and medium banks to credit concentration in the oil and

8 The number of banks decreased to 22 from 23 in December 2014 following acquisition of one bank by another
during the review period.

gas sector. Under this shock scenario, the large and medium bank’s CAR decreased to
negative 0.42 and negative 0.35 per cent respectively while that of the small banks fell to
3.34 per cent.

Figure 3. 6: CAR after General Credit Shocks of 100% & 200% Increase in NPL


Figure 3. 7: Number of Banks in CAR Buckets after Credit Shock of 100% & 200% Increase
in NPL


Industry
Large
Banks
Medium
Banks
Small
Banks
Industry
Large
Banks
Medium
Banks
Small
Banks
Percent
Dec 2014
Jun 2015

≥15%
<15% but ≥10%
<10%, but ≥5%
<5%
≥15%
<15% but ≥10%
<10%, but ≥5%
<5%
Dec 2014
Jun 2015
100%
200%

Figure 3. 8: Sectoral Credit Allocations

Figure 3. 9: CAR after Shock of 50% & 100% Oil and Gas Credit Default


3.2.2.1 Credit Concentration Risk – 5 Largest Single Obligors
Total credit exposure to 5 largest single obligors as a proportion of the total credit exposure
of the industry decreased from 19 per cent in December 2014 to 13.4 per cent. Consequently,
the industry showed more resilience to credit concentration risk to the 5 largest single

Public sector
General commerce
General
Manufacturing
Oil & Gas
Others
Percent
DEC 2014
JUN 2015

Industry
Large
banks
Medium
banks
Small
banks
Industry
Large
banks
Medium
banks
Small
banks
per cent
Dec 2014
Jun 2015
50%
100%

obligors. Under the shock scenarios of 50 per cent default of the 5 largest single obligors,
industry CAR remained above the prudential hurdle rate at 13.03 per cent. However, under
the 100 per cent default shock scenario, industry CAR fell below the hurdle rate to 8.19 per
cent. This reflected a corresponding 0.78 and 1.47 percentage points improvement in CAR
compared to the situation in December 2014 under the two shock scenarios, respectively. The
picture was similar for the large, medium and small bank categories.

Figure 3. 10: CAR after Shock of 50% & 100% Default of 5 Largest Single Obligors


3.2.3
Liquidity Stress Test
Liquidity stress test was conducted using the Implied Cash Flow Analysis (ICFA) and the
Maturity Mismatch/Rollover Risk approaches to assess the resilience of the banking industry
to liquidity and funding shocks.

The ICFA approach assessed the ability of the banking system to withstand unanticipated
substantial withdrawal of deposits, as well as short-term wholesale and long-term funding
over a 5-day and cumulative 30-day periods, with specific assumptions on the fire sale of
assets. The test assumed a gradual average outflow of 3.8, 5.0 and 1.5 per cent of total
deposits, short-term funding and long-term funding respectively, over a 5-day period (Test
1.1) and cumulative average outflow of 22.0, 11.0 and 1.5 per cent of total deposits, shortterm funding and long-term funding respectively, on a 30-day balance (Test 1.2). It also
assumed that the assets listed in Table 3.2 would remain unencumbered after a fire sale:

Table 3. 2: Assets Unencumbered after a Fire Sale
S/N
Assets
%
Unencumbered

Cash and cash equivalent

Current account with CBN

Government Bonds & Treasury Bills and other assets

Industry
Large
banks
Medium
banks
Small
banks
Industry
Large
banks
Medium
banks
Small
banks
Percent
Dec 2014
Jun 2015
50%
100%

with 0% risk-weighting exposure

Certificates of deposit held
66.5

Other Short-term investments

Collateralized placement and money at call

7.
CRR

The Maturity Mismatch/Rollover Risk approach assessed the funding maturity mismatch and
the rollover risk for assets and liabilities in the 0-30 and 31-90 day buckets, with the
assumption on the availability of funding from the CBN and intra-group sources, as described
below:
i. Test 2a: Descriptive Maturity Mismatch: This assumed that the baseline mismatch
remained, but 5.0 per cent of total deposits would be made available from the CBN and intragroup funding;

ii. Test 2b: Static Rollover Risk: This assumed that 80.0 and 72.0 per cent of the funding in
the 0-30 day and 31-90 day buckets would be rolled over with no possibility of closing the
funding gap from other buckets. However, 5.0 per cent of total deposits would be available
from the CBN and intra-group funding; and

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


Analysis of Liquidity Stress Test Results
After a one-day run, the liquidity ratio for the industry decreased to 31.5 per cent from the
39.3 per cent pre-shock position, and to 6.1 per cent after a cumulative 30 days run. A 5-day
and cumulative 30-days-run on the banking system resulted in a liquidity shortfall of N2.38
trillion and N2.59 trillion, respectively. The test revealed that 18 and 19 banks recorded
liquidity ratio below the prudential threshold of 30.0 per cent, following the 5-days and
cumulative 30-days runs, respectively.

Figure 3. 11: Banking Sector Liquidity Ratio after Period 1-5 and cumulative 30-day shocks (%)


The test results revealed that the industry liquidity ratio declined to 9.30 and 6.10 per cent,
from 39.3 per cent baseline position after the 5-day and cumulative 30-day shocks,
respectively (Table 3.3). The result of the stress tests indicated potential vulnerability to
liquidity risk in the event that these scenarios crystallized.

Table 3. 3: ICFA System Level Results

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

June

June 2015 (22
DMBs)
Dec 2014
(23
DMBs)
System
LR
Liquidity Shortfall
to 30% LR (N’
billion)
Test 1.1: Implied
Cash Flow Test ( 5
Days)


Day 1

31.5
248.66
Day 2

26.8
806.25
Day 3

21.6
1,350.28
Day 4

15.7
1,882.32
Day 5

9.3
2,381.65
Test 1.2: Implied
Cash Flow Test (30
Days)

6.1
2,585.97

-5

Pre-Shock
After Day 1
After Day 2
After Day 3
After Day 4
After Day 5
After cum 30 days
Sep-14
Dec-14
Mar-15
Jun-15

Figure 3. 12: Industry Position after 1-5 day and Cumulative 30-day Shocks


Figure 3. 13: Individual Bank Positions after a 5-day and Cumulative 30-day Shocks

N.B: Bank 23 was excluded from Figure 3.13 because of its outlier effect.

Maturity Mismatch
At end-June 2015, the industry pre-shock position revealed that the shorter end of the market
(<30 days and 31-90 days buckets) were adequately funded. However, within the less-than 30
-20
-10

Pre-shock
Day 5
-10

Pre-shock
After 30 days

days bucket, two banks were not adequately funded, while in the 31-90 days bucket, 10 had
funding gaps. The cumulative position for the industry showed an excess of N2.5 trillion
assets over liabilities.

Table 3. 4: Maturity Mismatch at end-June 2015

Liabilities
(N Billion)
Assets
(N Billion)
Mismatch
(N Billion)
Cumulative
(N Billion)
Less than 30 days

31-90 days
2,711.88

1,493.96
1,217.92
6,460.63
91-180 days
936.16

1,822.59
-886.43
5,574.20
181-365 days

1-3 years

Above 3 years

Total
19,840.93
22,365.53


There was a slight improvement in the post-shock result for Descriptive Maturity Mismatch
test (Test 2A) arising from the assumption of availability of funds from the CBN and intragroup. Although the 90-180 day bucket, which was adequately funded under Test 2a, showed
a mismatch of over N1 trillion under Test 2b, the position deteriorated in the Static Rollover
Analysis (Test 2B) and the Dynamic Risk Rollover Tests (Test 2C).

Table 3. 5: System Wide Maturity Mismatch

Test 2aDescriptive
Maturity
Mismatch
(N’ billion)
No of
banks
with
mismatch
Test 2b- Static
Rollover risk
Analysis (N’
billion)
No of
banks with
mismatch
Test 2c-
Dynamic
Rollover
risk test (N’
billion)
No of
banks with
mismatch
Less than 30
days
7,477.55

4,732.08

622.10

31-90 days
3,447.42

447.56

(191.55)

91-180days
1,395.48

(1,041.24)

(51.47)

181-365days
1,932.90

(589.77)

(231.34)

1-3 years
(245.35)

(2,672.29)

(1,219.08)

Above 3 years
(2,990.29)

(5,240.97)

(3,708.10)

Total
11,017.71

(4,364.63)

(4,779.44)

Figure 3. 14: Maturity Mismatch Position (Pre- & Post-Shocks)


3.2.4
Contagion Risk Analysis through Interbank Exposures
During the review period, the analysis conducted on banks with unsecured interbank
exposures revealed that three (3) banks were central in the network, as they were exposed to
more than two counterparties in the system. A review of secured transactions showed that six
(6) banks were central in the network as they had three or more bilateral exposures. Overall,
as indicated in the analysis, there was no contagion risk through unsecured interbank
exposure as there was no undercapitalized bank after the shock at baseline position (Table
3.6).
Table 3. 6: Result of Net Interbank Uncollateralized Exposures
Lending
Banks
Bank 2
Bank 4
Bank 7
Bank 16
Bank 17
Bank 19
Bank 21
Industry
Pre-Test
CAR

Post-Test
CAR(%)

Net
Placement
(N’ Billion)


Less than
30 days
(N'billion)
31-90 days
(N'billion)
91 -
180days
(N'billion)

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

Test 2a

Test 2b

Test 2c


Figure 3.15: Tiered Structure of Unsecured Placements at end-June, 2015

Note: Node colour representation (Blue= Lenders; Red= Borrowers; Purple= Borrowers
and Lenders)

3.3
Supervision of Banks

3.3.1
Routine and Target Examinations
Risk assets examination of all banks and discount houses was carried out to ascertain the
quality of bank assets and the adequacy of loan loss provisioning to facilitate the approval for
publication of banks’ 2014 annual accounts.

Monitoring and follow-up of the banks’ responses to major observations of the Risk Based
Examination Reports as at September 30, 2014 was conducted during the first half of the
year. The aim was to facilitate the implementation and enforcement of Examiners’
recommendations.

Also, the risk based examinations of AMCON and the private credit bureaux were conducted
during the review period. Similarly, the Bank, in collaboration with host supervisors,
conducted routine examination of a Nigerian bank’s off-shore subsidiary. The outcome of the
examination was being awaited.

3.3.2
Foreign Exchange Examinations
The first quarterly review of foreign exchange activities of all the banks for 2015 was
conducted, mainly to ascertain compliance with foreign exchange laws and regulations. The
review covered foreign exchange operations for the period October 1, 2014 to March 31,
2015. Infractions observed were failure to issue certificates of capital importation to
beneficiaries within the prescribed time limit of 24 hours of receipt of funds, incorrect
rendition of returns to regulators, failure of banks to monitor the repatriation of export
proceeds and non-compliance with approved Net Open Positions. There were also instances

of inadequate documentations of importations. Appropriate regulatory actions were taken on
the contraventions.

Following the sustained decline in crude oil prices, the depreciation of the naira and sustained
demand pressures in the foreign exchange market, a special investigation was undertaken in
the first half of 2015 to ascertain the role of authorised dealers in the persistent depreciation
of the currency. The report was being finalized.

3.3.3
Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT)
Activities
The CBN, in conjunction with the IMF, developed Off-site Risk Assessment Tools, including
the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) risk
assessment matrix. These regulatory tools provided the platform for implementation of the
AML/CFT off-site Risk Based Supervision (RBS) in compliance with Financial Action Task
Force recommendations.

The CBN carried out AML/CFT compliance examination of banks at end-May 2015 which
included a review of foreign currency deposits in banks pre- and post- 2015 General
Elections. The exercise revealed that there were cases of inaccurate rendition of Foreign
Transaction Reports, Suspicious Transaction Reports, poor and inadequate Customer Due
Diligence and non-identification of Politically Exposed Persons. The affected banks were
penalised for the infractions.

3.3.4
Spot Checks/Special Investigations
In the review period, the Bank carried out spot checks on utilization of Eurobonds and onlending as well as other foreign loans received by banks in Nigeria. Also, a special
investigation was carried out to ascertain the degree of compliance by banks with extant rules
on collections and remittances of statutory government revenue into the Federation Account.

3.3.5
Cross-Border Supervision
In January 2015, joint AML/CFT examinations were conducted on subsidiaries of three (3)
Nigerian banks in three (3) West African countries, in line with the Basel Core Principles for
Effective Banking Supervision and FATF Recommendations 19 and 40.The examinations
revealed that the host requirements for AML/CFT in some countries were not stringent
enough and the foreign subsidiaries were required to make improvements by complying with
the more stringent home-Country requirements. Concerns were also expressed on the
independence of the AML/CFT oversight function in some countries, while others were
cautioned on the inadequacy of AML/CFT self -assessment and the lack of board oversight
on the AML/CFT programme.

3.3.5.1 Supervisory Collaborations
a. Supervisory College for Ecobank
The CBN in its efforts to ensure effective collaboration and exchange of information on the
Ecobank Group, jointly championed the formation of a College of Supervisors of Ecobank

Transnational Incorporated with Banque Centrale des Etats de l'Afrique de l'Ouest (Central
Bank of West African States, BCEAO). The Secretariat of the College is hosted in Abidjan
by BCEAO which is also saddled with the responsibility of the lead regulator for the Group.
The inaugural meeting took place in April 2015 in Abidjan, Cote D’Ivoire.

b. College of Supervisors of WAMZ
A meeting of the College of Supervisors for the West African Monetary Zone (CSWAMZ)
took place in Ghana from April 15 – 17, 2015. The meeting provided an opportunity for
discussion of issues affecting the banking industry in the Zone, including the need to: build
effective partnership and collaboration in cross-border banking supervision; develop a crisis
management framework, strengthen measures for combating money laundering and the
financing of terrorism; and build capacity for bank examiners, among others. On AML/CFT
the following resolutions were reached at the meeting:
Improve compliance with the 40 FATF Recommendations;
Conduct rigorous examination of financial institutions and enhance/ facilitate strong
cooperation among national agencies;
Introduce a strong sanctioning regime which is critical for deterring infractions and
offences; and
Embark on continuous training to build capacity and prevent infractions.

The draft Crisis Resolution Framework for the West African Monetary Zone (WAMZ) which
was championed by the CBN was presented to member countries during the meeting.

c. Community of African Bank Supervisors
A Working Group (WG) on Cross Border Banking Supervision was established by the
Community of African Bank Supervisors (CABS) to develop a better understanding of crossborder banking in Africa, strengthen information sharing and regional co-operation among
supervisors as well as discuss other issues affecting the supervisory authorities. The inaugural
meeting of the Group was held in South Africa in May 2015. The South African Reserve Bank
(SARB) serves as the Chair of the Working Group.

One of the major outcomes of the meeting was the resolution that SARB should articulate the
terms of reference for the WG and develop a template on information sharing for members to
populate on a quarterly basis.

3.3.5
Framework for the Regulation and Supervision of D-SIBs
The implementation of the Framework for the Regulation and Supervision of Domestic
Systemically Important Banks in Nigeria (D-SIBs) commenced on March 1, 2015. However,
compliance with the additional 1 per cent capital surcharge for banks in this category was
rescheduled to July 1, 2016.

3.3.6
The Asset Management Corporation of Nigeria
The AMCON during the review period continued the resolution of its eligible bank assets
(EBAs) acquired following the 2008/2009 banking crisis. Net EBAs stood at N1.82 trillion at
end-June2015, from N1.86 trillion at end-December 2014. On the other hand, assets under its
management amounted to N228.34 billion at end-June 2015, compared with N206.57 billion
at end-December 2014.

The Corporation’s total recoveries during the review period were valued N54.1 billion,
comprising cash of N33.6 billion and assets forfeiture of N20.5 billion. The assets forfeited
consisted of securities of N2.5 billion and other forfeitures of N18 billion. At end-June 2015,
the total recoveries of AMCON amounted to N560.60 billion, representing 30.80 per cent of
the total outstanding EBAs.
The Banking Sector Resolution Cost Trust Fund, established under the AMCON Amendment
Act 2015 to support the Corporation in the redemption of its liabilities, generated N176.99
billion in the review period as contributions by banks and the CBN based on their assets at
end-December 2014.

3.3.7
Update on Basel II Implementation
Towards the implementation of Basel II, the CBN issued revised Guidance Notes on credit,
market, and operational risks, regulatory capital, Pillar 3 disclosure requirements and the
reporting template for submission of capital adequacy ratio returns, in June 2015.

The review addressed challenges observed in the first year of Basel II implementation and
clarified expectations from reporting institutions. Consequently, the reporting template for
regulatory capital adequacy ratio was reviewed to incorporate changes to the Guidance Notes.
Among other things, the revised regulations and reporting requirements clarified the capital
adequacy ratio requirement of 10 or 15 per cent for banks, based on a bank’s level of
authorization or systemic significance; clarified the computation rules to ensure that banks do
not recognize the regulatory risk reserve as a component of qualifying capital; and refined the
computation rules for market risk exposures to take into account horizontal and vertical
disallowances.

The revised Guidance Notes introduced a requirement for Pillar 3 disclosures to be published
by banks on a bi-annual basis. The Guidance Notes further required D-SIBs to publish
information on a more frequent basis in recognition of their level of business, international
affiliations and other financial sector dynamics.

At end-June 2015, all the 10 banks with international authorization met the minimum capital
adequacy ratio requirement of 15 per cent, while 3 out of 14 banks with national and regional
authorization could not meet the minimum capital adequacy ratio of 10 per cent. The affected
banks were given up to June 30, 2016 to recapitalize. The efforts of these banks to implement
their recapitalization plans are being monitored.

During the review period, 21 banks and two discount houses submitted reports on their
Internal Capital Adequacy Assessment Process (ICAAP) while four (4) banks that were
involved in integration could not meet the June 30, 2015 deadline for submission.

3.4
Supervision of Other Financial Institutions

3.4.1
Microfinance Banks
During the review period, 110 microfinance banks (MFBs) were examined. Regulatory letters
were issued to 63 MFBs that infringed prudential requirements.9 These institutions were
required to take corrective actions, including injection of funds to regularize their capital
positions, maintenance of sufficient liquid assets and recovery of non-performing credits,
especially insider-related credits. The boards of these institutions were further directed to
address observed lapses before July 31, 2015.

3.4.2
Finance Companies
During the period under review, the Bank concluded the analysis of the RBS examination of
64 finance companies (FCs) at end-December 2014, which showed that 50 FCs were active
with composite risk ratings of Low (2), Moderate (9), Above Average (7), and High (32),
respectively. Of the 14 remaining, six (6) were restructuring, seven (7) inactive, while one (1)
went into voluntary liquidation.
3.4.3
Bureaux de Change
During the review period, 102 bureaux de change (BDCs) were examined to assess their
compliance with regulations on foreign exchange acquisition and utilisation. The reports
revealed that 30 BDCs had clean bills of health, while the rest had various infractions, such as
gaps in their accounting systems, non-submission of annual audited accounts to the CBN,
unauthorised relocation of business addresses and documentation lapses. The erring
institutions were appropriately penalised.

3.4.4
Development Finance Institutions (DFIs)
Routine Risk-Based Examination of the six (6) Development Finance Institutions (DFIs) was
conducted during the period under review. The Examination Reports revealed that the
Composite Risk Rating of two (2) of the institutions was High, two (2) Above Average and
two (2) Moderate. Earnings of 2 of the institutions were rated “acceptable” while the
earnings of the remaining four institutions were rated “weak”, arising from significant
deterioration in asset quality, high provisions for loan losses, and high and increasing
overheads. Each of the four institutions sustained losses over the last three years ended
December 2014, indicating the need to institute improved enterprise risk management
practice, among other corrective measures, in these institutions.

9 These included maintaining negative adjusted capital, portfolio-at-risk exceeding the permissible 5.0 per cent
benchmark, liquidity ratio below the stipulated minimum of 20.0 per cent and non-performing insider-related
credit facilities.

Issues of regulatory concern in the DFIs included: board instability leading to weak
oversight; high expenditure profile; poor asset quality; loss of focus on their core mandates;
low level of IT utilization; and regulatory breaches. These issues were being addressed
through heightened surveillance.
Guidelines for Development Finance Institutions
Regulatory and Supervisory Guidelines for Development Finance Institutions in Nigeria were
issued during the review period. The Guidelines were designed to ensure that DFIs operate in
a safe and sound manner. Provisions under the Guidelines include, sanctions and
questionnaires for major shareholders and appointees to board and management positions in
banks and other financial institutions. Under the Guidelines, the existing DFIs established by
Acts of the National Assembly and listed in BOFIA (as amended) are not required to obtain
fresh licenses from the CBN. However, other DFIs established under any other law or
arrangements are required to obtain the CBN licence.

3.5
Financial Services Regulation Coordinating Committee

3.5.1
Consolidated Examination of Group Structures in the Nigerian Financial Sector
During the review period, member agencies of the FSRCC, with supervisory responsibilities
for the entities in FBN Holdings10 (one of the three licensed financial holding companies11)
commenced a pilot run of the consolidated examination of the group. The process started
with the Risk Assessment Summary (RAS) session for the entities in the group. This was
with a view to ensuring seamless conduct of the consolidated examination of the group
structures in the Nigerian financial sector. The on-site examination is scheduled for second
half of 2015.

3.5.2
Illegal Fund Managers/‘Wonder Banks’
As part of efforts to sanitize the system during the period under review, the Inter-agency
Committee on Illegal Fund Managers closed down a total of 56 Illegal Fund Managers
(IFMs) and transferred the balances in their bank accounts to an escrow account with the
CBN, pending the appointment of liquidators by the Federal High Court. The Committee also
released a total of N340 million to liquidators of IFMs for onward payment to customers.

3.6
Nigeria Sustainable Banking Principles

3.6.1
Compliance with the NSBP Reporting Template
The CBN continued to review and monitor quarterly reports from banks in line with the
reporting template issued to the industry. The review focused on the implementation progress
of the Nigeria Sustainable Banking Principles (NSBP), including adequacy of the
Environmental and Social risk policies.

10 These include CBN, NDIC, PenCom, NAICOM, SEC and the NSE.
11 The three licensed financial holding companies are FCMB, Stanbic IBTC and FBN Holdings.

The review revealed that some banks had not kept pace with the expected implementation
plan. The affected banks were advised to address gaps in their respective environmental and
social policies and procedures as well as improve capacity of employees, amongst others.

3.7
Consumer Protection
3.7.1
Complaints Management Activities
A total of 747 complaints involving the sums of N8.09 billion and US$751,744.26 were
received in the review period. Also, during the period, a total of 481 cases, including some
outstanding cases from previous periods, were resolved or closed. The refunds effected with
respect to these cases amounting to N1.87 billion and US$963,920.05 were made to
customers. The value of cumulative claims by complainants against banks and other financial
institutions (OFIs) amounted to N8.09 billion, while cumulative refunds to complainants
totalled N2.38 billion, US$957,920.00 and GB£6,000.00.

Table 3.7: Summary of Complaints Management Activities from January to June 2015
S/N
Description
January
February
March
April
May
June
Total

Number of
Complaints
received

Number of
Complaints
resolved/closed

Amount claimed
(N’ Billion)


Amount
refunded (N’
Billion)


Amount claimed
(US$)
7,500
738,244.26
-
GBP 6,000

751,744.26

Amount
refunded (US$)
250,827.65
707,092.40
-
GBP 6,000

963,920.05

Mediation
meetings held

In comparison to the second half of 2014, the number of complaints received reflected a
decrease of 35 or 4.48 per cent. Also, the number of resolved/closed complaints decreased by
23 or 4.56 per cent. Similarly, cumulative claims by complainants in the review period
decreased by N7.58 billion or 48.37 per cent compared with the second half of 2014. Refunds
by the banks to complainants declined by N510.37 million or 21.46 per cent.

A summary of the comparative analysis between reports for first half of the year 2015 and
second half of the year 2014 is presented in Table 3.8:

Table 3. 8: Summary of Complaints
S/No
Description
1st Half 2015
2nd Half 2014
Difference
%

Number of
Complaints
received

-35
(4.48)

Number of
Complaints
resolved/closed

-23
(4.56)

Amount claimed
(N’ Billion)


Amount refunded
(N’ Billion)*


Amount claimed
(US$)


Amount refunded
(US$)*

* The amount includes complaints from previous periods that were resolved during the reporting period.

3.8
Key Risks in the Financial System

3.8.1 Credit Risk

Risk Rating

There was a decline in the quality of bank assets in the period under review as NPLs
increased by approximately 70.0 per cent to N628.54 billion at end-June 2015, from N363.31
billion at end-December 2014. At 4.65 per cent from 2.88 per cent, the NPL ratio remained
within the prudential limit of 5.0 per cent, though trended closer to the regulatory threshold,
reflecting greater levels of stress in the banking industry.

Falling crude oil prices impacted adversely on government revenues and overall fiscal
operations. The development resulted in dwindling revenue to State Governments and oil and
gas operators. In view of the significant exposure of banks to these sectors, NPLs are likely to
increase, leading to higher credit risk.

Further dimensions of credit risk that may arise in the second half of 2015 include NPLs
resulting from foreign currency exposures; thus, straining banks’ capacity to meet their
foreign currency obligations.

The Bank will continue to monitor the developments while requiring banks to strengthen
their contingency plans and to conduct regular stress tests to mitigate the impact of the crash
in oil prices on their balance sheets.

Figure 3.16: Non-Performing Loans at end-June 2015


3.8.2 Liquidity Risk

Risk Rating


The liquidity ratio for the industry was 39.3 per cent at end-June 2015, compared with 45.68
per cent at end-December 2014, indicating a 6.36 percentage points decline. The drop in
liquidity ratio was attributable to increased withdrawals from banks in the run-up to the 2015
elections. Despite the decline, the industry liquidity ratio met the prescribed minimum of 30.0
per cent. The unification of public and private sector deposits’ CRR at 31.0 per cent doused
the decline. Overall, the Nigerian banking industry was exposed to minimal liquidity risk
during the review period.

3.8.3
Market Risk
Risk Rating


Interest rates trended upwards during the review period, except interbank and time deposits
(over 12-months maturity), which declined. Interbank rates peaked at 24.24 per cent in April
2015 but dipped to 10.85 per cent in June 2015. Average savings deposit rate was 3.60 per
cent at end-June 2015 compared with 3.46 per cent at end-December 2014, reflecting a 0.14
percentage point growth.

Nov-10
Feb-11
May-11
Aug-11
Nov-11
Feb-12
May-12
Aug-12
Nov-12
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15

The growth in total deposits decreased from 7.60 per cent to 1.67 per cent at end-June 2015.
The decline could be attributed to the high yield on government securities and uncompetitive
savings rates offered by the banks.

The CBN adjusted the official exchange rate in February 2015 to N194.48/US$ from
N169.68/US$ and discontinued the rDAS window to stabilise the exchange rate. Towards
that end, the Bank introduced other demand management measures, including the exclusion
of 41 import items from accessing funds from any of the foreign exchange windows.

The premium between the interbank and BDC rates widened from N14.34 in January 2015 to
N22.06 at end-June 2015, as the BDC exchange rate depreciated by 22.85 per cent from
N196.12/US$ to N218.97/US$.

The impact of exchange rate depreciation on banks was reflected in the increasing cost of
servicing foreign currency obligations. The situation also underscored the need to sustain the
measures already in place to mitigate the market risks linked to volatility in oil price,
potential reversals of foreign portfolio investments (FPIs) and inadequate supply of foreign
exchange to meet the increasing demand.

3.8.4 Operational Risk
Risk Rating


Key operational risks reported were incidents of fraud and forgeries, disruption of banking
activities during the fuel crisis, slow implementation of the unique identifiers (BVN) Scheme
and insecurity in some parts of the Country. Cases of fraud and forgeries decreased to 5,917
at end-June 2015 from 6,250 at end-December 2014. However, the amount involved
increased to N11.98 billion at end-June 2015 from the N9.0 billion recorded in the second
half of 2014. Actual losses from these incidents decreased to N1.89 billion at end-June 2015
from N3.04 billion in the second half of 2014.

Banks experienced operational challenges owing to protracted fuel shortages and epileptic
power supply. These challenges emphasized the need to fast-track the implementation of the
Shared Services Scheme. Meanwhile prolonged insecurity in the North-East continued to be
affect the operations of banks in that region.

4.0
PAYMENTS SYSTEM

During the review period, the payments system witnessed a number of developments relating
to agent banking and other payment channels as highlighted below.

4.1
Oversight of the Payments System
During the review period, an on-site verification of compliance by banks with the various
directives on the payments system was undertaken. The exercise revealed that 16 out of the
24 banks fully complied with the Bank’s directives while the remaining banks were at
different levels of compliance. Meanwhile, off-site monitoring of banks and other institutions
continued. In order to improve the level of compliance with the directives, the Bank will
continue to carry out spot checks on the banks.

4.1.1 Agent Banking
The Guidelines for Agent Banking were reviewed during the reporting period to incorporate
licensing requirements for super agents.

4.1.2
Payments System Governance in Nigeria
In line with the implementation of the Payments System Vision (PSV) 2020 Strategy
Document Release 212, the CBN inaugurated the Payments System Strategy Board, Payments
Scheme Boards and Initiatives Working Groups during the review period.

4.1.3 Regulatory Framework for Mobile Payment Services in Nigeria
The Regulatory Framework for Mobile Payment Services in Nigeria was revised during the
review period with the objective of streamlining standards and requirements for mobile
money services. The revised framework recognised only two (2) models for the
implementation of the mobile payment services, namely bank-led and non-bank led. It
excluded the Telco-led model (where the main initiator is a mobile network operator). This
exclusion will enable the CBN to have greater control of its monetary policy operations,
minimize risk and ensure that the service is only provided by institutions licensed by the
CBN.

4.1.4
Bank Verification Number Scheme
The deadline for enrolment of bank customers for the have Bank Verification Number (BVN)
was extended from June 30 to October 31, 2015 with a view to facilitating the smooth
completion of the project. The Scheme is expected to provide a unique identifier for all bank
customers, and minimize fraud.

12 The document can be accessed on www.cbn.gov.ng/icps2013.

4.1.5
Sanction Screening
In its bid to combat the financing of terrorism and money laundering through the banks, the
CBN, in the review period, mandated all Nigerian banks to adopt the SWIFT Sanction
Screening Service for transfers originating from them.

4.1.6
International Money Transfer
In the review period, the Bank issued Guidelines for the licensing and regulation of
international money transfer service.

4.2
Large Value Payments
The volume and value of inter-bank transfers through the CBN RTGS System increased to
368,519 and N188,348.46 billion at end-June 2015, from 251,004 and N137,498.46 billion at
end-December 2014, reflecting increases of 46.82 and 36.98 per cent in volume and value,
respectively.

4.3
Retail Payments

4.3.1
Cheque Clearing
The volume and value of cheques processed decreased to 6.41 million and N3,194.74 billion,
respectively, at end-June 2015, from 8.22 million and N3,558.41 billion at end-December
2014; reflecting decrease of 22.06 and 10.22 per cent, in volume and value, respectively. This
development was attributed to growing preference for e-payment channels.

Figure 4. 1: Volume and Value of Cheque Clearing


4.3.2
Instant Payment Options
The instant payment options remained attractive to users during the review period. NIBSS
Instant Payment (NIP) transaction volume increased to 29.96 million in the first half of 2015


End June 2015
End Dec 2014
Volume
Value in thousands

from 23.99 million in the second half of 2014 and the value increased to N12,055.34 billion
in the first half of 2015, from N10,783.74 billion in the second half of 2014. The increases
were due to customer preference for instant settlement.

4.3.3
Nigeria Electronic Funds Transfer Transactions
The volume of transactions through Nigeria Electronic Funds Transfer (NEFT) decreased
from 15.57 million at end-December 2014 to 14.00 million at end-June 2015, while the value
decreased to N6,771.57 billion from N7,259.68 billion, at end-December 2014. The decline
was due to preference for the NIP alternative payment platform.

4.3.4
Electronic Cards
Electronic card (e-card) transactions, other than cash withdrawals at ATMs, increased in
volume and value from 31.22 million and N402.53 billion at end-December 2014 to 37.03
million and N 432.73 billion at end-June 2015, respectively. On the other hand, the volume
and value of ATM transactions decreased to 206.61 million and N1,900.39 billion in the first
half of 2015 from 224.60 million and N2,043.47 billion in the second half of 2014. The
decreases could be attributed to the growing awareness of customers of other existing epayment channels.

Table 4. 1: Electronic Card Transactions Highlights


During the period under review, the CBN, in its effort to minimize e-payment frauds directed
banks, switches and payments service providers to set up anti-fraud desks to manage
electronic payments fraud. Also, banks were directed to adopt the two-factor authentication
procedure designed to further enhance their internal banking control processes.

In addition, the CBN directed banks to implement the following measures on Nigerian Issued
Card-Present Fraud in Non-EMV Environments;
Collate data on card frauds abroad and forward to CBN not later than January 31,
2015. Subsequently, all data on card fraud occurring abroad should be rendered on
the NIBSS Fraud portal;
Implement Anti-Fraud solution on their cards management system, not later than
January 30, 2015;
Payment
Channel
Number of
Terminals
Number of Transactions
%
Change
(Volume)
Value of Transactions
%
Change
(Value)
Dec

Jun

Dec 2014
Jun 2015
Dec 2014
(N Billion)
Jun 2015
(N Billion)
POS

Mobile

Internet
(Web)

Sub-Total


ATMs

Total


255,820,046
243,631,218

2,446.00
2,333.12

Ensure that from the February 1, 2015, only customers that expressly indicated
their intention of travelling to non-EMV jurisdictions would have their cards
default to the magnetic stripe and for the period indicated by the cardholder only.
To this end, banks should ensure that their customers are adequately educated;
Carry out regular awareness campaigns for cardholders on tips to avoid fraud in
non-EMV environment;
Ensure strict compliance on PCIDSS by their vendors/partners involved in card
processing activities.

5.0
OUTLOOK
Output growth in the second half of 2015 is expected to be subdued owing to a combination
of factors, including dwindling oil revenue inflow and security challenges. Also, inflationary
pressures is projected to raise headline inflation in the second half of the year to 9.3, 9.3, 9.8,
10.0 and 10.0 per cent in July, August, September, October and November 2015,
respectively. The persistent dwindling oil receipts and falling demand for Nigerian crude will
pose significant challenges to the Country in various areas, particularly the financing of the
desired infrastructural development programmes and job creation.

However, the on-going reform efforts by the present administration, including the
diversification of the economy, fiscal and monetary policy transparency measures are
expected to moderate volatility in domestic prices and improve growth prospects.

As market operators watch developments in the economy amidst positive sentiments that
heralded the new administration, the second half of the year is expected to experience an
elevated tempo of activities in the money market. This optimism is expected, not only to
subsist, but also to facilitate the direction of policies aimed at enhancing real sector
development. Recent monetary policy measures are expected to moderate excess liquidity
and strengthen exchange rate stability to attract foreign capital inflow.

Overall, the Nigerian economy presents potential opportunities to investors in view of the
likely benefits of the on-going reforms which would augur well for financial stability.

Appendix 1: Institutions licensed in the First Half of 2015
The following category of banks and other financial institutions (OFIs) were granted the
authorizations indicated against their classes during the period under review:

S/N
Type of Institution
Number of
Institutions
Authorization

Microfinance Bank

Licensed

Bureau De Change

Licensed

Primary Mortgage Bank (Mortgage
Refinancing Company Ltd)

Primary Mortgage Banking Licence with
National Authorization

Merchant
Bank
(Coronation
Merchant Bank Ltd and Kakawa
Merchant Bank

Merchant Banking Licence with National
Authorization

Commercial Bank (Suntrust Savings
& Loans Ltd)

Approval-In-Principle (AIP) for Regional
Commercial Banking Licence

Other relevant details about the institutions that were granted final approval and A-I-P in the
period under review are provided below:

a) Institutions that were granted final licence:

1. Nigeria Mortgage Refinance Company (NMRC) Plc, on February 18, 2015;
2. Coronation Merchant Bank Ltd, on April 30, 2015;
3. Kakawa Discount House Ltd to operate as a Merchant Bank, on May 18, 2015.

b) Institutions granted Approval-In-Principle:

1. SunTrust Savings & Loans Ltd, on January 19, 2015.

ACKNOWLEDGEMENT

List of Major Contributors
S/N
Name
Department

I. R. Yusuf
Financial Policy and Regulation Department

H. Mahmud (Dr.)
Ditto

M. W. Muazu-Lere
Ditto

V. Ururuka (Dr.)
Ditto

M. C. Akuka
Ditto

M. A. Baba
Ditto

P. N. Wondi
Ditto

A. B. Isah
Ditto

C. O. Ugwueze
Ditto

C.P. Onyekwe
Ditto

M. M. Maadan
Ditto

V. K. C. Johnson
Ditto

I.S. Udom
Statistics Department

M. Y. Dogo
Monetary Policy Department

O. S. Ogundele
Ditto

U. Kama
Research Department

M. A. Adigun
Ditto

U. F. N. Onuoha
Development Finance Department

Y. Izzatu (Mrs.)
Ditto

B. Hassan
Banking Supervision Department

M. O. Okafor
Ditto

A. Shebe
Ditto

C. D. Nwaegerue
Ditto

E. O. Shonibare
Risk Management Department

G. Adegbite
Financial Markets Department

O. Ezewu
Other Financial Institutions Supervision
Department

A.Ologunde
Ditto

M. Farouk
Reserve Management Department

P. Oluikpe (Dr.)
Strategy Management Department

M. O. Nwedi
Consumer Protection Department

H. Abdullahi
Banking and Payments System Department

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


KEVIN N. AMUGO
Director,
Financial Policy and Regulation Department