FINANCIAL STABILITY REPORT – DECEMBER 2020

FINANCIAL
STABILITY
REPORT


DECEMBER 2020

FINANCIAL STABILITY REPORT – DECEMBER 2020
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Content


FINANCIAL STABILITY REPORT – DECEMBER 2020


Potential Risks to Stability from the developments in the Financial Market


FINANCIAL STABILITY REPORT – DECEMBER 2020
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Nigeria Cheque Standards and Cheque Printers Accreditation Scheme


FINANCIAL STABILITY REPORT – DECEMBER 2020
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LIST OF FIGURES
FIGURE 2.2 DISTRIBUTION OF BANK LOANS AND ADVANCES BY MATURITY 23
FIGURE 2.4 CONCENTRATION RATIOS OF THE BANKING INDUSTRY ASSETS
FIGURE 2.8 SOURCES OF INVESTIBLE FUNDS OF PRIMARY MORTGAGE BANK
FIGURE 2.11 AVERAGE MONEY MARKET RATE MOVEMENTS JANUARY –
FIGURE 3.4 NON-PERFORMING LOANS NET OF PROVISIONS TO CAPITAL
FINANCIAL STABILITY REPORT – DECEMBER 2020
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FIGURE 3.10 INDUSTRY LIQUIDITY RATIOS AT PERIODS 1-5 AND CUMULATIVE
FIGURE 3.13 CATEGORIES (%) OF COMPLAINTS RECEIVED (JUL - DEC 2020)
FIGURE 3.14 CATEGORIES OF COMPLAINTS RECEIVED (JUL - DEC 2020) .... 65


FINANCIAL STABILITY REPORT – DECEMBER 2020
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LIST OF TABLES
TABLE 1:6 EXCHANGE RATES OF SELECTED COUNTRIES (VALUE IN LOCAL
TABLE 1:9 FOREIGN EXCHANGE FLOWS THROUGH THE CBN (US$ MILLION)
TABLE 2:4 FINANCIAL POSITION OF FINANCE COMPANIES AT END-DECEMBER
TABLE 2:6 MATURITY STRUCTURE OF LOANS & ADVANCES AND DEPOSIT
TABLE 2:7 : FOREIGN EXCHANGE SALES AND PURCHASES AT THE
TABLE 2:8 DOMESTIC AND FOREIGN PORTFOLIO PARTICIPATION IN EQUITIES
TABLE 2:10 NUMBER AND VALUE OF FINANCING STATEMENTS ON THE
NATIONAL COLLATERAL REGISTRY PORTAL FROM JULY 1ST TO
TABLE 2:11 NUMBER AND VALUE OF FINANCING STATEMENTS REGISTERED
IN RESPECT OF WOMEN AND WOMEN-OWNED BUSINESSES ON THE
NATIONAL COLLATERAL REGISTRY PORTAL FROM JULY 1ST TO
TABLE 3:1 SELECTED FINANCIAL SOUNDNESS INDICATORS OF THE NIGERIAN
FINANCIAL STABILITY REPORT – DECEMBER 2020
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TABLE 3:10 : PERCENTAGE OF ASSETS UNENCUMBERED AFTER FIRE SALES


FINANCIAL STABILITY REPORT – DECEMBER 2020
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LIST OF BOXES
BOX 1: CBN COUNTER-MEASURES TO MITIGATE THE COVID-19 PANDEMIC.31


FINANCIAL STABILITY REPORT – DECEMBER 2020
ix


LIST OF ACRONYMS
AMCON
Asset Management Corporation of Nigeria
AML/CFT
Anti-Money Laundering and Combating the Financing of Terrorism
BDCs
Bureaux De Change
BOI
Bank of Industry
BOA
Bank of Agriculture
BRICS
Brazil, Russia, India, China, and South Africa
BVN
Bank Verification Number
CACS
Commercial Agriculture Credit Scheme
CAR
Capital Adequacy Ratio
CBN
Central Bank of Nigeria
COB
Currency Outside Banks
CRMS
Credit Risk Management System
DAX
Deutscher Aktienindex (German stock index of 30 major German
companies)
DCs
Depository Corporations
DFIs
Development Finance Institutions
DMBs
Deposit Money Banks
EBAs
Eligible Bank Assets
ECB
European Central Bank
EGX CASE

Egypt Stock Exchange (Cairo and Alexandria Stock Exchange) 30
Stock Index
FAO
Food and Agriculture Organisation
FATF
Financial Action Task Force
FCs
Finance Companies
FGN
Federal Government of Nigeria
FMBN
Federal Mortgage Bank of Nigeria
FRACE
Financial Regulation Advisory Council of Experts
FSIs
Financial Soundness Indicators
FSR
Financial Stability Report
FSRCC
Financial Services Regulation Co-ordinating Committee
GDP
Gross Domestic Product
GSE
Ghanaian Stock Exchange
HHI
Herfindahl-Hirschman Index
FINANCIAL STABILITY REPORT – DECEMBER 2020
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ICE
Intercontinental Exchange
IFRS
International Financial Reporting Standards
IMF
International Monetary Fund
KYC
Know Your Customer
M1
Narrow Money Supply
M2
Broad Money Supply
M3
M2 plus CBN Bills held by the money holding sectors
MENA
Middle East and North African Countries
MFBs
Microfinance Banks
MICEX
Moscow Interbank Currency Exchange
MoUs
Memoranda of Understanding
MHSs
Money Holding Sectors
MPR
Monetary Policy Rate
NBS
National Bureau of Statistics
NCR
National Collateral Registry
NDC
Net Domestic Credit
NDIC
Nigeria Deposit Insurance Corporation
NEXIM
Nigerian Export-Import Bank
NIBSS
Nigerian Inter-bank Settlement System
NMRC
Nigeria Mortgage Re-finance Company Plc
NPLs
Non-Performing Loans
NSE ASI
Nigerian Stock Exchange All-Share Index
NSE 20
Nairobi Stock Exchange 20-Share Index
NYMEX
New York Mercantile Exchange
OBB
Open Buy Back
OFIs
Other Financial Institutions
ODCs
Other Depository Corporations
OPEC
Organisation of Petroleum Exporting Countries
ORB
OPEC Reference Basket
PAIF
Power and Aviation Infrastructure Fund
PENCOM
National Pension Commission of Nigeria
PFAs
Pension Fund Administrators
PFCs
Pension Fund Custodians
PMBs
Primary Mortgage Banks
FINANCIAL STABILITY REPORT – DECEMBER 2020
xi


PoS
Point of Sale
PSV 2020
Payments System Vision 2020
ROA
Return on Assets
ROE
Return on Equity
RTGS
Real-Time Gross Settlement System
S&P/TSX
Standards and Poor’s Composite Index of the Toronto Stock Exchange
SEC
Securities and Exchange Commission
SMEs
Small and Medium Enterprises
WAMZ
West African Monetary Zone
WEO
World Economic Outlook
WTI
West Texas Intermediate

FINANCIAL STABILITY REPORT – DECEMBER 2020

GOVERNOR’S STATEMENT
This edition of the Financial Stability Report highlights developments in the financial
system in the second half of 2020, amidst the Covid-19 challenges. During the review
period, downside risks to economic growth and financial stability continued to
dominate the global economic outlook and activities. Other factors that impacted the
global economy included sustained trade restrictions among key global economies,
lingering Brexit-related and country-specific issues. Consequently, the IMF estimated
that global output contracted by 3.5 per cent in 2020, in contrast to the growth of 2.9
per cent in 2019.
Similarly, output in 2020 contracted by 5.8, 4.3 and 3.3 per cent in the USA, Euro Area
and emerging markets, respectively. Also, economies in Sub-Saharan Africa (SSA)
continued to be affected by headwinds and low commodity prices. Inflation in the
region increased, reflecting supply disruptions, weakening currencies, poor
infrastructure and high inflation expectations.
In Nigeria, output recorded a negative growth of 1.7 per cent in the review period,
although an improved performance from the negative growth of 2.18 per cent in the
first half of 2020. Generally, credit to the private sector grew during the period,
bolstering the prospects for positive economic growth in the near term. The Bank will
continue to encourage lending to the priority sectors of the economy and provide
incentives for lending to SMEs and households, while sustaining the intervention
programmes and schemes.
Demand pressure and supply constraints remained key challenges in the foreign
exchange market. However, the Bank continued to ease access to foreign exchange
through its interventions to stabilise the exchange rate.
Although the banking system continued to face challenges occasioned by decline in
domestic output and external shocks, it remained resilient. The Bank will sustain its
supervisory and surveillance activities with a view to promoting a sound, stable and
safe banking system.
Godwin I. Emefiele, CON
Governor, Central Bank of Nigeria

FINANCIAL STABILITY REPORT – DECEMBER 2020

FOREWORD
Global output contracted by 3.5 per cent in 2020, owing largely to the shocks caused
by the Covid-19 pandemic, in contrast to a modest expansion of 2.9 per cent in 2019.
There is, however, optimism of a rebound to 6.01 per cent in 2021, premised on
continued fiscal and monetary responses to mitigate the effects of the pandemic on
households and businesses. Also, the development and distribution of vaccines would
provide greater confidence of an uptick in global economic activities.
Despite the recovery in major stock markets and increased oil prices, geopolitical
unrest and rising global debt portfolios created uncertainties, which further dampened
investors’ confidence.
In Nigeria, the lockdown measures put in place to curtail the spread of the Covid-19
pandemic disrupted economic activities. In response, the Bank maintained its
expansionary monetary policy stance and intervened in targeted sectors to ease
financial and economic conditions.
The financial soundness indicators for the review period revealed that despite
vulnerabilities, banks generally remained within regulatory requirements. To further
ensure banking industry safety and soundness, banks were granted forbearance to
restructure credits to sectors significantly impacted by the adverse effects of the Covid19 pandemic. The task of restoring economic growth and maintaining the health of the
banking sector remains a policy priority towards preserving the stability of the financial
system.
This edition of the Financial Stability Report is divided into six sections. The first
section examines global and domestic trends. The second section discusses financial
system developments, while the third, highlights regulatory and supervisory activities
the key stability issues. Section four discusses main developments in the payments
system, while sections five and six focus on key risks and the outlook for financial
system stability.
In conclusion, this Financial Stability Report provides insights on financial conditions,
risks and vulnerabilities as well as the Bank's initiatives towards ensuring a safe and
sound financial system that supports sustainable economic growth and development.


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


1 IMF World Economic Outlook Report March 2021
FINANCIAL STABILITY REPORT – DECEMBER 2020

EXECUTIVE SUMMARY
Global macroeconomic activities remained challenged in the second half of 2020,
amidst the adverse impact of the Covid-19 pandemic, resulting in output contraction
of 3.5 per cent in contrast to the 2.9 per cent expansion recorded in 2019. Though the
massive and rapid roll out of both fiscal and monetary policy responses helped to ease
financial conditions and support recovery, the possible buildup of financial
vulnerabilities posed a risk to financial stability. Furthermore, the dampening effects of
the pandemic on commodity prices and fiscal revenue earnings as well as rising debt
profiles have tightened the fiscal space, with implications for government spending.
Global consumer prices remained subdued, especially across most advanced
economies, owing to the negative output gap, induced by the Covid-19 pandemic.
However, global stock markets recorded overall bullish performance, bolstered by the
positive news of the successful development of the Covid-19 vaccines.
On the domestic front, the Nigerian economy slipped into recession in the third quarter
of 2020. However, sustained fiscal and monetary policy responses targeted at the
severely affected sectors led to a marginal recovery at the end of the fourth quarter.
Amidst the fragile economic conditions that characterised the second half of 2020, the
Bank also implemented some policy measures that strengthened the resilience of the
banking system.
In response to the adverse impact of the Covid-19 pandemic on the financial system,
the Bank strengthened its regulatory surveillance of the banking system to ensure
financial stability. In addition, the Bank commenced the implementation of the Global
Standing Instructions (GSI) policy and directed banks to highlight the effects of the
Covid-19 pandemic on their operations and measures taken to mitigate them.
Furthermore, banks were granted regulatory forbearance to restructure credit facilities
for eligible businesses and households.
In general, the banking system remained safe and sound during the review period as
reflected in the improved Financial Soundness Indicators (FSIs). Asset quality
improved as the ratio of Non-Performing Loans (NPLs) to gross loans declined in the
second half of 2020 by 0.39 percentage point, compared with the level at end-June
2020. Similarly, return on assets (ROA) increased by 0.83 percentage point, while the
CAR of the banking industry improved by 0.09 percentage point and remained above
the regulatory requirement. Contagion risk analysis indicated a decrease of 22.60 per
cent in exposure and interconnectedness during the review period.
The Credit Risk Management System (CRMS) database continued to serve as a
veritable source of credit information in the banking industry. The period under review
witnessed increased credit records, an indication of enhanced compliance by banks.
The Bank also sustained its intervention in the foreign exchange market to stabilise
the exchange rate.
Further liquidity injections were made through the Agri/Business Small and Medium
Enterprise Investment Scheme, Anchor Borrowers’ Programme and Targeted Credit
FINANCIAL STABILITY REPORT – DECEMBER 2020

Facility, amongst others, to eligible household and businesses to stimulate credit flow,
especially to the critically impacted sectors of the economy.
The Bank continued to sustain its risk mitigation strategies to ensure the stability of
the banking system. Although the sector remained exposed to credit concentration
and default risks, there were no significant systemic threats. Key risks in the banking
system included the likelihood of cyber-attack on the payment system infrastructure,
especially with the increased digitalisation of financial services, threat of social
engineering, price volatility arising from external shocks, exchange rate fluctuations
and heightened security challenges. In general, the economic outlook remained
cautiously optimistic, given the various policy measures taken towards containing the
effects of the pandemic and sustaining financial sector resilience.

FINANCIAL STABILITY REPORT – DECEMBER 2020

1 ECONOMIC AND FINANCIAL DEVELOPMENTS
1.1 Global Developments
1.1.1 Output
Global macroeconomic conditions remained fragile in 2020 on account of the multiple
waves of Covid-19 pandemic which led to the imposition of lockdowns across several
countries to curb the spread of the virus. This development caused significant
contraction in global economic activities. Other factors that contributed to the
contraction included heightened trade restrictions among key world economies and
lingering Brexit-related and country-specific issues. Consequently, global output
contracted by 3.5 per cent in 2020, in contrast to a modest expansion of 2.9 per cent
in 2019.
In the advanced economies, output contracted by 4.5 per cent in 2020, in contrast to
the growth rate of 1.6 per cent in 2019. The huge contraction was due mainly to larger-
than-expected downturn in the United States of America (USA), which recorded a
contraction of 5.8 per cent in contrast to a growth rate of 1.7 per cent in 2019. The
poor outturn in the USA reflected a massive freeze in investment owing to the
pandemic-induced disruption in both the supply and demand sides of the economy.
In the Euro area, output shrank by 4.3 per cent in 2020, in contrast to an expansion of
2.2 per cent in 2019, as a result of weak business sentiment occasioned by the
prolonged lockdown. Similarly, output in emerging market and developing economies
contracted by 3.3 per cent in 2020, against a growth of 3.7 per cent in 2019.
In Asia, output contracted by 0.7 per cent in 2020, in contrast to a growth rate of 5.7
per cent in 2019. Similarly, output in sub-Saharan Africa contracted by 3.0 per cent in
2020, which was a sharp contrast to a growth of 3.2 per cent in 2019. The weakness
in economic activities was due largely to low oil prices, civil strife and dwindling
financial inflows.
In Nigeria, the economy shrank by 1.92 per cent2 in 2020, in contrast to a growth of
2.27 per cent in 2019. The contraction was due mainly to the adverse effects of the
Covid-19 Pandemic, insecurity, rising inflation, subdued external demand and low
commodity prices.


2 Source: National Bureau of Statistics
FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 1:1 GLOBAL GROWTH
Region/Country
2016 2017 2018 2019 2020
World

Advanced Economies

United States
1.7
2.3

2.2
-3.4
Japan

Germany

France

Italy

United Kingdom

Euro Area

Other Advanced Economies

Regional Groups


Emerging & Developing Europe

China
6.8
6.9
6.7

2.3
Russia

Latin America and the Caribbean

Middle East & Central Asia

Sub-Saharan Africa

South Africa

Nigeria3

Source: IMF’s World Economic Outlook, December 2020 Update
In general, the rate of global output contraction in the second half of 2020 moderated
considerably, owing to the unprecedented policy support provided by public
authorities and progress recorded in the development of vaccines for Covid-19. The
expansionary policy stance of governments in the second half of 2020 focused
largely on reviving severely affected households and firms. Among the large fiscal
packages introduced within the review period were the European long-term stimulus
package of Euro 1.8 trillion; the Japanese fresh stimulus package of Yen 73.6 trillion
and the US relief package of USD 2.3 trillion relief package.
1.1.2 Inflation
Global consumer prices remained subdued in 2020, owing to the negative output gap
that following the Covid-19 pandemic. The decline in prices cut across major
economies to varying degrees.
In most advanced economies, consumer price inflation was below central banks’
targets, on account of weak aggregate demand. In the United States, inflation
moderated owing largely to a sharp drop in core personal consumption expenditure.

3 Source: National Bureau of Statistics
FINANCIAL STABILITY REPORT – DECEMBER 2020

Inflation in the Euro area fell, following largely from the impact of the Covid-19
pandemic, as well as reductions in energy prices and value-added tax in the second
half of the year. In the UK, inflation declined on account of the weakness in aggregate
demand, especially in the hospitality, aviation and entertainment sectors.
The movements in consumer prices were mixed in emerging market and developing
economies in 2020, with some moderation recorded in a few countries and an uptick
in others. In China, inflation remained flat at 2.9 per cent in 2020, as the high base
effect and subdued demand countered the upward pressure from disruption in
economic activities.
In Sub-Saharan Africa, average inflation accelerated to 10.6 per cent in 2020 from 8.5
per cent in 2019. In addition to the effects of the supply disruption, other factors that
stoked the price level during the period included weakening currencies, poor
infrastructural conditions, heightened security challenges and high inflation
expectations.

TABLE 1:2 GLOBAL INFLATION

Region/Country


Advanced Economies
0.8
1.5

1.4
0.8
United States

Euro Area
0.2

1.5
1.2
0.4
Japan

United Kingdom

Emerging Markets & Developing
Economies

China


Russia


Middle East & Central Asia

Sub-Saharan African

Source: IMF World Economic Outlook January 2021

1.1.3 Oil Prices
Crude oil prices rallied in the second half of 2020, reflecting the news of substantial
progress recorded in the development of Covid-19 vaccines. The OPEC Reference
Basket (ORB) increased to US$49.17 at end-December 2020 from US$37.05 at endJune 2020 but fell by US$14.15 per barrel or 22.34 per cent below the level at endDecember 2019.
The price of Bonny Light increased to US$40.21 at end-December 2020, from
US$31.35 at end-June 2020, but on yearly basis declined by US$12.61 or 23.87 per
cent from the level at end-December 2019. Similarly, Brent increased to US$51.22
FINANCIAL STABILITY REPORT – DECEMBER 2020

from US$ 41.64 during the review period, decline by US$13.06 or 20.32 per cent
compared to the level at end-December 2019.
The West Texas Intermediate (WTI) increased to US$47.04 at end-December 2020,
from US$38.31 at end-June 2020, but declined by US$9.95 or 17.46 per cent as
against the level at end-December 2019.
TABLE 1:3 PRICES OF CRUDE OIL

a
b
c
c-b
c-a


19-Dec
20Jun
20-Dec
AbsChange
AbsChange
%Change %Change
(y-o-y)
OPEC
References

Brent Crude

WTI

Bonny Light


1.1.4 Food Prices
The FAO4 Food Price Index (FFPI) increased by 16.54 per cent to an average of 108.5
at end-December 2020, from 93.1 at end-June 2020, owing mainly to the significant
increases in the prices of oil, sugar and cereal.
The FAO Dairy Price Index increased by 13.39 per cent to an average of 109.2 points
at end-December 2020, from 96.3 points at end-June 2020. The increase was as a
result of growth in global import demand and a surge in retail sales in Europe.
The FAO Vegetable Oils Price Index averaged 131.1 points at end-December 2020,
as against 86.6 points at end-June 2020, reflecting an increase of 51.38 per cent
owing, mainly, to contractions in global inventory and subdued export.
The FAO Meat Price Index stood at 94.8 points at end-December 2020, the same as
the level at end-June 2020. This was due to China's decision to ban imports of pork
from Germany in response to the detection of African swine fever (ASF) among wild
boars coupled with subdued international import demand.
The FAO Cereal Price Index averaged 115.9 points at end-December 2020, reflecting
an increase of 22.17 per cent from 96.7 points at end-June 2020. The increase was
attributed to the rise in demand for sorghum, feed barley and maize in the face of
tightened outlook for supplies.
Similarly, the FAO Sugar Price Index averaged 87.1 points at end-December 2020,
indicating an increase of 14.08 per cent from the 74.9 points recorded at end-June
2020, owing to poor yield.

4 Food and Agriculture Organisation
FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 1:4 WORLD FOOD PRICE INDEX

FAO Food Prices

Food
Meat
Dairy
Cereal
Veg.Oil
Sugar


Mar

April

May


June

July


August
95.8
92.2
102.1

96.7
81.1
September
97.9
91.5
102.3

104.6

October

November

December

Source: Food and Agriculture Organization (FAO), April 2021 Update
1.1.5 International Stock Markets
The performance of global stock markets was generally bullish in the second half of
2020, suggesting a renewal of confidence following the adverse impact of Covid-19 in
the first half of the year. The unprecedented supportive fiscal and monetary policy
measures undertaken in various climes played a key role in reigniting market
confidence and investors sentiment during the period.


FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 1:5 SELECTED INTERNATIONAL STOCK MARKET INDICES
Selected International Stock Market Indices as at December 31, 2020

Country
Index
31-Dec-19
30-Jun-20
31-Dec-20
Dec 31, 2019 -
Dec 31, 2020 %
Change
June 30, 2020 -
Dec 31, 2020 %
Change


AFRICA


Nigeria
NSE All-Share
Index

South Africa
JSE All-Share
Index

Kenya
Nairobi NSE 20
Share index

Egypt
EGX CASE 30

Ghana
GSE All-Share
Index


NORTH
AMERICA


US
S&P 500

Canada
S&P/TSX
Composite

Mexico
Bolsa


SOUTH
AMERICA


Brazil
Bovespa Stock

Argentina
Merval

Columbia
COLCAP


EUROPE


UK
FTSE 100

France
CAC 40

Germany
DAX


ASIA


Japan
NIKKEI 225

China
Shanghai SE A

India
BSE Sensex


1.1.6 Foreign Exchange Markets
Most major currencies appreciated against the US dollar in the second half of 2020,
reflecting a rebound in economic activities. However, a few currencies, mainly in Africa
FINANCIAL STABILITY REPORT – DECEMBER 2020

and Europe, witnessed depreciation against the US dollar during the period. This was
due largely to the second wave of the pandemic, which hit South America, Europe and
Africa in the fourth quarter of 2020, leading to the imposition of restrictions and
lockdowns by governments and the crippling of economies.

TABLE 1:6 EXCHANGE RATES OF SELECTED COUNTRIES (VALUE IN
LOCAL CURRENCY UNITS TO US$)
Table 2b: Exchange Rates of Selected Countries (Value in local currency units to US$)

Currency
29-Dec-18
31-Dec-19
31-Dec-20
% Change (29
Dec 18/ 31 Dec
19)
% Change (31
Dec 19 / 31 Dec
20)
AFRICA

A
b
C
YTY %
YTY %
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


EUROPE


UK
Pound

Euro Area
Euro

Russia
Ruble


ASIA


Japan
Yen

China
Renminbi

India
Rupee

Source: Bloomberg
FINANCIAL STABILITY REPORT – DECEMBER 2020

1.1.7 Monetary Policy Stance
Monetary policy maintained an expansionary stance across major central banks in
2020. This was driven by the need to respond to the contraction in economic activities
that resulted largely from supply chain disruptions associated with the Covid-19
pandemic.
In advanced economies, most central banks retained their policy rates throughout the
second half of 2020. Bank of Japan, Bank of England, the US Federal Reserve, Bank
of Canada, Reserve Bank of New Zealand, and Reserve Bank of Australia maintained
policy rates at -1.00, 0.10, 0.13, 1.75, 1.00, and 0.25 per cent, respectively during the
review period. However, Bank of South Korea reduced its policy rate by 50 basis points
to 0.75 per cent during the review period.
In Asia, both the Bank Negara Malaysia and the Bank of Indonesia cut their policy
rates twice during the second half of the year. In the BRICS, the Central Bank of Brazil,
the Bank of Russia, the Reserve Bank of India, the Peoples’ Bank of China and South
African Reserve Bank kept rates unchanged during the review period, at 4.00, 4.25,
4.00, 2.20, and 3.50 per cent, respectively.
In other emerging market economies, Bank of Mexico and Banco Central de Colombia
reduced their policy rates in the second half of 2020. In Africa, the Central Bank of
Nigeria reduced its rate by 100 basis point to 11.50 per cent, while Bank of Ghana and
Central Bank of Kenya retained their policy rates at 14.50 and 7.00 per cent,
respectively, during the review period.
TABLE 1:7 COMPARATIVE POLICY RATES OF SELECTED COUNTRIES

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Developed economies
Japan

Europe

UK

US

Canada

South Korea

New Zealand

Australia

Asia:
Indonesia

Malaysia

BRICS:
Brazil

Russia

India

China

FINANCIAL STABILITY REPORT – DECEMBER 2020

South Africa

Other Emerging Economies & South America:
Mexico

Chile

Colombia

Africa:
Egypt

Ghana
14.50 14.50
14.50 14.50 14.50 14.50 14.50
14.50 14.50 14.50 14.50 14.50
Nigeria
13.50 13.50
13.50 13.50 12.50 12.50 12.50
12.50 11.50 11.50 11.50 11.50
Kenya

Source: Cbrates.Com; Trading Economics
In addition to the use of policy rates, most central banks intensified their interventions
in the economy through large asset purchases, liquidity expansion and macroprudential policies to improve access to credit and boost economic activities.
These measures eased financial conditions globally but significantly expanded
central bank balance sheets. Furthermore, although the eased financial conditions
are expected to promote growth in the short-to-medium term, there are growing
concerns over the possible unintended consequences, such as build-up of
vulnerabilities, with adverse implications on financial stability.

1.1.8 Potential Risks from the Global Economic Developments
The prevailing global economic developments, arising largely from Covid-19 pandemic
and measures to curtail its spread, could pose threats to financial and economic
conditions in the medium term. Some of the likely implications are articulated below:
i.
The current economic recovery is fragile and vulnerable to setbacks.

ii.
Sustaining the accommodative monetary policy stance constitutes an upside risk
to inflation in the near to medium term. This would eventually hurt growth as well
as the long-term stability of the financial sector.

iii.
Continuous loose stance of monetary policy may put downward pressure on
returns from money market instruments, shifting investors’ preference to equity
markets. The response of the markets, therefore, could trigger an asset bubble in
the equity market while the subsequent market correction could lead to instability
in the financial system.

iv.
Credit risk may arise from the trade-off between sustained short-term policy
support to growth and measures aimed at mitigating near-term macro-financial
vulnerabilities.

FINANCIAL STABILITY REPORT – DECEMBER 2020

v.
With most fiscal authorities facing challenges in revenue mobilisation, the need to
provide stimuli may increase public sector borrowing requirements, and invariably
worsen the debt profiles of many countries, particularly the Emerging and
Developing Economies. This could negatively affect the risk premium on debt
instruments and ultimately the yield curve, creating threats to the stability of the
financial markets.

vi.
The rising FAO world food price index on account of Covid-19 induced supply
disruptions may trigger current account imbalances in most food-importing
countries including Nigeria. The net effect of such a development would be a
slowdown in accretion to external reserves, constraining the Bank’s capacity to
stabilizing exchange rates.

vii.
The renewed rally of the stock markets in the advanced economies on account of
the various monetary stimuli could reduce the incentives for capital inflows to
Emerging and Developing economies thereby posing challenges to the stability of
the financial sector.
1.2 Domestic Macroeconomic Developments
1.2.1 Output Growth
Domestic economic activities picked up in the second half of 2020, following the
phased easing of Covid-19 restrictions coupled with the various intervention measures
put in place by the monetary and fiscal authorities. The implementation of the Nigeria
Economic Sustainability Plan (NESP) together with the adoption of a more
accommodative monetary policy stance by the Bank, stimulated aggregate demand
and steered the economy towards recovery. Although the domestic economy
contracted by 1.70 per cent in the second half of 2020, the outcome reflected an
improved performance, compared with the 2.18 per cent decline in the first half. The
increased economic activities enhanced investors’ confidence in the financial market
as evidenced by the improved performance of the capital market.

FINANCIAL STABILITY REPORT – DECEMBER 2020

FIGURE 1.1 GROSS DOMESTIC PRODUCT (GROWTH %)

Source: National Bureau of Statistics

The contraction in non-oil GDP eased by 0.33 per cent in the second half of 2020, a
modest recovery, compared with the 2.31 per cent decline in the first half of 2020. The
recovery was driven by the Agriculture and Services sectors. Oil sector GDP
contracted by 16.48 per cent to N2,702.91 billion in the second half of 2020 from
N3,010.29 billion in the first half of 2020. This was due to weak global demand and
low crude oil prices, arising from the impact of the Covid-19 pandemic.

On a sectoral basis, agriculture, industry and services contributed 0.66, -1.42 and -
0.94 percentage points, respectively, to the growth in real GDP. During the review
period, agriculture showed a relatively improved performance, while services
recovered moderately, driven by the ICT sub-sector. However, the industry sector
continued to be adversely affected by the COVID-19 restrictions (Table 1.1).

TABLE 1:8 RELATIVE CONTRIBUTION TO REAL GDP
Sector
H2 2019
H1 2020
H2 2020
Agriculture
0.64
0.42
0.66
Crop Production
0.62
0.37
0.63
Industry
0.63
-1.17
-1.42
Services
1.16
-1.43
-0.94
ICT
9.12
11.59
14.77
GDP Growth
2.42
-2.18
-1.70
Source: National Bureau of Statistics


H1 2018
H2 2018
H1 2019
H2 2019
H1 2020
H2 2020
PER CENT
FINANCIAL STABILITY REPORT – DECEMBER 2020

1.2.2 Inflation
Inflationary pressures persisted in the second half of 2020 driven, mainly, by supply
disruptions arising from COVID-19 pandemic containment measures, floods in some
food-growing regions, increased cost of transportation and exchange rate passthrough effect on domestic prices.

Headline inflation5 increased to 15.75 per cent at end-December 2020, from 12.56 per
cent at end-June 2020. The 12-month-moving-average headline inflation stood at
13.25 per cent in the second half of 2020, compared with 11.90 per cent in the first
half of 2020.
Core inflation stood at 11.37 per cent at end-December 2020, reflecting a 1.24
percentage point increase over the level at end-June 2020, owing to increases in the
prices of transportation, health and miscellaneous goods. Year-on-year food6 inflation
increased to 19.56 per cent at end-December 2020, from 15.18 per cent at end-June
2020. The increase was due largely to the rise in prices of imported food and some
farm produce.
FIGURE 1.2 INFLATIONARY TREND (YEAR-ON-YEAR)

Source: National Bureau of Statistics

1.2.3 Fiscal Operations7
The provisional Federal Government retained revenue, at ₦2,045.69 billion in the
second half of 2020, reflected a shortfall of 42.62 per cent, compared with the halfyear budget benchmark of ₦2,917.50 billion. Aggregate expenditure, at ₦5,405.27
billion during the review period was below the budget benchmark, reflecting the

5 year-on-year
6 comprised farm produce and processed food
7 Data from July to September 2020 were obtained from OAGF, while those for October to December
2020 were CBN staff estimates.

2019 H2
2020 H1
2020 H2
Headline (y-on-Y)
Core (Y-on-Y)
Food (Y-on-Y)
FINANCIAL STABILITY REPORT – DECEMBER 2020

adjustment made to the budget, owing to the effects of the pandemic. Consequently,
the fiscal operations of the Federal Government resulted in a notional deficit of
₦3,253.49 billion.
The gap between receipts and expenditure was bridged majorly through domestic
borrowings. The total domestic debt stock at end-December 2020 was ₦16,023.89
billion, reflecting an increase of ₦568.19 billion or 3.68 per cent, above the level of
₦15,455.70 billion at end-June 2020. The increase was mainly from FGN Bonds and
additional FGN promissory notes.

FIGURE 1.3 FEDERAL GOVERNMENT DOMESTIC DEBT STOCK


FIGURE 1.4 FEDERAL GOVERNMENT FISCAL OPERATIONS (N BILLION)

Source: OAGF & CBN Staff Estimate


FGN Bonds
73.83%
NTBills
16.98%
PROMISSORY NOTES
6.06%
FGN SUKUK
2.26%
NTBonds
0.63%
FGN SAVINGS BONDS
0.08%
FGN GREEN BOND
0.16%
FINANCIAL STABILITY REPORT – DECEMBER 2020

BOX 1: CBN CONTINUED WITH THE COUNTER-MEASURES TO MITIGATE
THE COVID-19 PANDEMIC
• Extension of one-year moratorium on all principal repayments on CBN intervention
facilities.
• Reduction of interest rate from 9.0 per cent to 5.0 per cent on applicable CBN
intervention facilities
• Regulatory forbearances to the banking sector, allowing banks leave to consider
temporary and time-limited restructuring of the tenor and loan terms for
businesses and households most affected by the Covid-19 pandemic;
• Approval of a 12-month extension of the timeframe for MFBs to meet the new
minimum regulatory capital requirements for the various classes of MFB licences;
• Suspension of the sale of foreign currency to Bureaux-De-Change Operators as
part of the lockdown measures;
• ₦1.0 trillion credit facility for the manufacturing sector;
• The ₦50.0 billion Targeted Credit Facility stimulus package disbursed through
NIRSAL MFB to support households and MSMEs that were affected by the
coronavirus pandemic; and
• ₦100.0 billion credit facility for the pharmaceutical companies.

The CBN provided guidelines to the banking industry in March and May 2020 for the
restructuring of credit facilities impacted by the Covid-19 pandemic. The criteria for
credits to be restructured were that the facilities should have secured acceptable
collateral, and be for sectors in which businesses and cashflows had been adversely
impacted by the pandemic. The guidelines also required that banks do not charge
restructuring fees and excluded facilities categorized as lost or expired facilities
pending renewal.
Furthermore, the guidelines limited the moratorium on principal payments to 12
months whilst rescheduled payments did not qualify as default for the purposes of
supervisory reporting. Moratorium period for loans under General Commerce, Oil and
Gas (downstream) and General (personal and retail) sectors was limited to 6 months.
Under the guidelines, 28.18 per cent of the industry’s credit had been restructured at
end-December 2020. The Oil and Gas, Manufacturing, General Commerce and Other
sectors accounted for 42.31, 14.55, 5.37 and 37.77 per cent, respectively, of the total
restructured facilities.
The CBN will continue to monitor bank NPLs closely against the regulatory maximum
of 5 per cent to forestall spikes in NPLs. Meanwhile, the implementation of the Global
Standing Instruction in the banking industry is being considered to enhance
repayments and recoveries in the industry.

FINANCIAL STABILITY REPORT – DECEMBER 2020

BOX 2: ELIGIBILITY CRITERIA FOR CONSIDERING BANKS REQUEST FOR
REGULATORY FORBEARANCE ON A CREDIT IMPACTED BY COVID-19
PANDEMIC
1. All obligors operating in sectors of the economy in which businesses and cash
flows have been adversely impacted by the Covid-19 pandemic shall be
eligible. These include but are not limited to oil and gas, agriculture,
manufacturing, transport, education, healthcare, general (consumer and
retail), real estate/construction and entertainment and tourism.

2. The CBN may consider other sectors outside of those identified above for
grant of the regulatory forbearance on an exceptional basis.

3. All facilities classified LOST as at December 2019 shall NOT be eligible.

4. All expired facilities pending renewal by banks as at January 31, 2020 shall
NOT be eligible.

5. Restructuring requests may be initiated by either the bank or the customer.
However, where the requests are initiated by the bank on behalf of the
customer, the bank must obtain the customer’s written acceptance of the
terms of the restructured facility within one month of CBN approval. This
document shall be subject to review by examiners during onsite visits.
Customers are permitted to continue to service their obligations under existing
terms and conditions where they choose to do so.

6. Moratorium shall be available for principal and/or interest.

7. The maximum period of moratorium in respect of any restructured facility shall
not exceed 12 months, expiring 31st March 2021.

8. Moratorium period for loans under General Commerce, Oil and Gas
(downstream) and General (personal and retail) sectors shall NOT exceed 6
months subject to the condition in 7 above.

9. No restructuring fee shall be charged on any facility being restructured under
this Guideline.

10. The restructuring of payments 9principal and/or interest) under this Guideline,
shall not qualify as a default for the purposes of supervisory reporting.

11. The regulatory approval of the restructuring shall be on the condition that the
terms may be reviewed should economic conditions improve.

12. Internal approvals should be obtained before presentation to the CBN for
approval. Where this is not practicable, banks will ensure that the necessary
FINANCIAL STABILITY REPORT – DECEMBER 2020

internal approvals are in place within 30 days of receipt of such regulatory
approval.

13. Only facilities secured with acceptable collaterals are eligible for forbearance
under this Guideline. Acceptable collaterals includes the following:

a. Cash
b. Treasury bills and government securities e.g. bonds;
c. Quoted equities and other traded securities;
d. Bank guarantees and Receivables of blue-chip companies
e. Residential legal mortgage;
f. Commercial legal mortgage;
g. All assets debentures & Negative Pledge; and
h. Movable assets.

1.2.3.1 External Reserves
Gross external reserves stood at US$36.48 billion at end-December 2020, reflecting
an increase of US$0.70 billion or 1.97 per cent, compared with US$35.78 billion at
end-June 2020. The currency composition showed that 81.47 per cent of the external
reserves was held in US dollars, 11.62 per cent in Chinese Renminbi, 5.82 per cent in
IMF SDR and 1.09 per cent in other currencies.
The external reserves recorded an inflow of US$15.15 billion during the second half
of 2020, compared to US$24.84 billion in the first half of the year. The decrease of
US$9.69 billion or 39.0 per cent was largely due to the decline in receipts from crude
oil sales and oil-related taxes.
Total outflow in the review period decreased to US$14.92 billion, from the US$27.32
billion recorded in the first half of 2020. The outflow during the period was largely in
respect of market interventions, public sector uses and debt servicing.

TABLE 1:9 FOREIGN EXCHANGE FLOWS THROUGH THE CBN
(US$ MILLION)
Period
Inflow
Outflow
Net flow
H2 – 2020
15,149.80
14,917.55
232.25
H1 – 2020
24,840.24
27,324.80
(2,484.56)
H2 – 2019
25,935.09
32,300.85
(6,365.76)
Source: Central Bank of Nigeria

FINANCIAL STABILITY REPORT – DECEMBER 2020

1.2.3.2 Potential Risks to the External Reserves
1. The magnitude of asset purchase programmes by major central banks, such as
ECB’s Pandemic Emergency Purchase Programme and Fed’s purchase of
U.S. Treasuries and agency mortgage-backed securities, may result in
significant asset price bubble. The inevitable process of asset price correction
would then lead to volatility in financial markets and a decrease in the value of
assets held as part of the external reserves.
2. The low yield environment in advanced economies would negatively impact the
rate of return on new investments from the external reserves.
3. The prolonged expansionary fiscal and monetary policies by major economies
could result in inflationary pressure which may dampen global economic
recovery, decrease demand for commodities and ultimately affect accretion to
the external reserves.
4. The slow rollout of the Covid-19 vaccines amidst fears of the mutation of the
virus, cautious private consumption expenditure, sluggish growth in labour
participation rates and controlled investment expenditure by businesses would
lead to subdued global demand. This would result in lower commodity prices
and negatively affect accretion to the external reserves.
5. Any rise in geopolitical tensions between the US and China would dampen
prospects for global growth which could ultimately affect commodity prices,
specifically crude oil.
2 DEVELOPMENTS IN THE FINANCIAL SYSTEM
2.1 Monetary and Credit Developments
Monetary policy remained accommodative during the review period, driven, largely, by
the need to improve credit flow to key sectors that would stimulate growth in the
economy. The monetary base grew by 50.94 per cent to N13,103.1 billion at endDecember 2020, fromN8,680.95 billion at end-December 2019.
Broad money supply (M3) stood at N38,673.64 billion at end-December 2020,
reflecting a growth rate of 10.84 per cent. The development was due to the 40.20 per
cent rise in net foreign assets (NFA), following a significant decline in liabilities to nonresidents and the growth in claims by the banking system. Claims on the domestic
economy grew by 15.91 per cent, compared with 4.74 per cent at end-June 2020. This
reflected the 22.84 per cent increase in net claims on the Central Government, and
the 13.27 per cent growth in claims on other sectors.


FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 2:1 GROWTH RATES OF MONETARY AGGREGATES
% Change (Over preceding
December)
Dec 18
Jun 19
Dec 19
Jun 20
Dec 20
Foreign Assets (Net)

Domestic Claims

Claims on Central Government 8
(Net)

Claims on Other Sectors

Other Items (Net)

Narrow Money Supply (M1)

Currency
Outside
Depository
Corporations

Transferable Deposits

Other Deposits

Monetary Liabilities (M2)

Securities Other than Shares

Total Monetary Liabilities (M3)


Correspondingly, the increase in total monetary liabilities was due to the 56.29 per
cent and 19.19 per cent increase in transferable and ‘other’ deposits of the Depository
Corporations (DCs), respectively. Narrow money (M1) grew by 50.04 per cent to
N15,976.62 billion at end-December 2020, from N12,381.37 billion at end-June 2020.
The significant growth in narrow money stock emanated from the uncertainties
surrounding the COVID-19 pandemic, which increased money demand for
precautionary and transactionary purposes.

2.1.1 Consumer Credit
The rise in consumer credit in the review period reflected the continued impact of the
Loan to Deposit Ratio policy of the Bank. Consumer credit grew by 8.90 per cent to
N1,663.07 billion at end-December 2020, from the level of N1,540.00 billion at endJune 2020. Consumer loans constituted 5.52 per cent of total credit to other sectors in
the second half of 2020, compared with 5.21 per cent at end-June 2020.


8 Central Government in this context refers to the Federal Government of Nigeria.
FINANCIAL STABILITY REPORT – DECEMBER 2020

FIGURE 2.1 CONSUMER CREDIT


2.1.2 Maturity Structure of Bank Deposits and Credits
The structure of Other Depository Corporations’ (ODCs’) outstanding loans and
advances showed banks’ preference for short-term maturities. ODCs’ credit maturing
within one year accounted for 51.3 per cent, compared with 69.4 per cent at end-June
2020. The medium-term and long-term maturities stood at 17.2 and 31.5 per cent,
respectively, compared with 10.4 and 20.2 per cent at end-June 2020, indicating the
dominance of short-term maturities in the credit market.

FIGURE 2.2 DISTRIBUTION OF BANK LOANS AND ADVANCES BY
MATURITY


The analysis of banks’ deposit liabilities showed that short-term deposits9 constituted
90.0 per cent of the total (75.2 per cent had a maturity of less than 30 days), compared

9 of less than one-year maturity

Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Ratio (%)
N BillionN Billion
Consumer Credit
Ratio of Claims on Private Sector (rhs)

Jun 16
Dec 16
Dec 17
Jun 18
Dec 18
Jun 19
Dec-19
Jun-20
Dec-20
Per cent
Short term
Medium-term
Long-Term
FINANCIAL STABILITY REPORT – DECEMBER 2020

with 87.7 per cent at end-June 2020. Further analysis showed that the medium and
long-term deposits accounted for 4.1 and 5.9 per cent of total deposits at endDecember 2020, compared with 4.2 and 8.1 per cent at end-June 2020, respectively.
The preponderance of short-term liabilities remained a major constraint to holding
long-term assets by banks.
FIGURE 2.3 MATURITY STRUCTURE OF BANK DEPOSITS

2.1.3 Market Structure of the Banking Industry

During the review period, six banks accounted for 66.8 and 63.9 per cent of total
deposits and assets, respectively. There was no dominance of a single bank, as the
share of all the banks ranged from 0.05 to 14.5 per cent in deposits and 0.01 to 14.7
per cent in assets in the review period. This was confirmed by the HerfindahlHirschman Indices (HHI) 10 of 895.98 in deposits and 848.04 in assets at endDecember 2020.

FIGURE 2.4 CONCENTRATION RATIOS OF THE BANKING INDUSTRY
ASSETS AND DEPOSITS


10 on a scale of 100 to 10,000

Jun 16
Dec 16
Jun18
Dec18
Jun19
Dec19
Jun20
Dec20
Per cent
Per cent
Short term
Medium-term
Long-Term
0.00
500.00
1000.00

Jun 19
Dec 19
Jun 20
Dec-20
HHI
CR
CR(Deposits)
CR( Assets)
CR( Largest-Deposits)
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.2 Other Financial Institutions
There were 6,532 licensed Other Financial Institutions (OFIs) at end-December 2020,
compared with the 6,333 institutions at end-June 2020, reflecting an increase of 199
OFIs. The change in the number of OFIs was due to the licensing of 230 BDCs, 4
MFBs and 7 FCs, and the revocation of operating licences of 42 MFBs.
At end-December 2020, the OFIs comprised seven (7) Development Financial
Institutions (DFIs), 874 Microfinance Banks (MFBs), 87 Finance Companies (FCs), 34
Primary Mortgage Banks (PMBs) and 5,530 Bureaux De Change (BDCs).

TABLE 2:2 LICENSED OTHER FINANCIAL INSTITUTIONS
S/N
Type
Total
Licensed
Institutions
as
at
December 31, 2020
Total Licensed
Institutions
as
at June 30, 2020

Microfinance Banks

Bureaux De Change
5,530
5,300

Finance Companies

Development
Finance
Institutions

Primary Mortgage Banks

Total
6,532
6,333

The total assets of the sub-sector, excluding the BDCs, increased by 24.88 per cent
to N4,748.76 billion at end-December 2020, from N3,802.58 billion at end-June 2020,
while net loans and advances increased by 20.10 per cent to N2,153.43 billion at endDecember 2020, from N1,792.96 billion at end-June 2020. Total deposits/borrowings
also increased by 17.32 per cent to N2,057.74 billion at end-December 2020, from
N1,753.99 billion at end-June 2020.

The increase in total assets in the sub-sector was attributed largely to injection of
additional capital by the newly licensed OFIs, additional deposits and inclusion of the
Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) onlending facilities from the CBN as on-balance sheet item. The increase in borrowings
was largely attributed to on-lending facilities obtained by DFIs.
2.2.1 Development Finance Institutions
The total assets of the seven (7) DFIs increased by 23.21 per cent to N3,044.48 billion
at end-December 2020, from the N2,471.00 billion achieved at end-June 2020. The
increase was due largely to 25.18 per cent, 44.37 per cent, 13.52 per cent 29.80 per
cent increases in cash and bank balances, placements, loans and advances, and
FINANCIAL STABILITY REPORT – DECEMBER 2020

investments by the institutions, respectively. Similarly, DFIs’ borrowings increased by
27.63 per cent to N1,857.09 billion at end-December 2020, from the level of N1,455.11
billion recorded at end-June 2020.
The paid-up capital of the institutions, however, remained unchanged at N238.78
billion, while the shareholders’ funds increased by 1.78 per cent to N370.58 billion at
end-December 2020 from N364.10 billion at end-June 2020, owing to accretions to
reserves.
The Bank of Industry (BOI), Development Bank of Nigeria (DBN) and Federal
Mortgage Bank of Nigeria (FMBN) accounted for 62.11, 16.18 and 11.95 per cent of
the total assets of the DFIs, while NEXIM, NMRC, Bank of Agriculture (BOA), and The
Infrastructure Bank (TIB) accounted for 5.11, 2.79, 1.66 and 0.19 per cent,
respectively. The BOI, FMBN, DBN, NEXIM, BOA and NMRC accounted for 57.06,
18.40, 16.69, 4.74, 1.77 and 1.35 per cent of the total net loans and advances,
respectively.

FIGURE 2.5 ASSETS OF DEVELOPMENT FINANCIAL INSTITUTIONS

Bank of Industry (BOI), Development Bank of Nigeria (DBN), Federal Mortgage Bank
of Nigeria (FMBN), Nigeria Export Import Bank (NEXIM)

Nigeria Mortgage Refinance Company (NMRC), Bank of Agriculture (BOA), The
Infrastructure Bank (TIB)

2.2.2 The Nigeria Mortgage Refinance Company
The total assets of the NMRC stood at N84.98 billion at end-December 2020,
compared with N74.71 billion at end-June 2020. The development was due, largely,
to increase in placements and investments. Refinanced mortgages, however,
decreased by N0.32 billion to N17.35 billion at end-December 2020, from the level of
N17.67 billion at end-June 2020, reflecting a decrease in the creation of additional
mortgages and early liquidation of mortgages. The adjusted capital of N16.70 billion
was higher than the minimum capital requirement of N5.0 billion for the company.
Similarly, the company’s capital adequacy ratio (CAR) was well above both the
regulatory minimum of 10.00 per cent and its internal benchmark of 15 per cent.

BOI
62%
DBN
16%
FMBN
12%
NEXIM
5%
NMRC
3%
BOA
2%
TIB
0%
Assets of DFIs by Institution
BOI
57%
FMBN
18%
DBN
17%
NEXIM
5%
BOA
2%
NMRC
1%
TOTAL NET LOANS AND ADVANCES
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.2.3 Primary Mortgage Banks
The total assets of the PMBs increased by 5.74 per cent to N461.34 billion at endDecember 2020, compared with N436.29 billion at end-June 2020, owing largely to
increases in cash holdings (N1.27 billion), cash reserve requirements (N2.10 billion),
balances with banks (N19.69 billion) and placements with banks (N57.91 billion) at
end-December 2020.

FIGURE 2.6 ASSETS OF PRIMARY MORTGAGE BANKS

Similarly, deposit liabilities, paid-up capital, long term loans/NHF and other liabilities
of PMBs increased to N170.82 billion, N108.32 billion, N72.17 billion and N178.44
billion at end-December 2020 from N147.98 billion, N107.20 billion, N71.41 billion
and N165.68 billion, at end-June 2020, respectively. However, their total reserves
declined by 19.36 per cent to negative N72.27 billion at end-December 2020 from
negative N60.55 billion at end-June 2020. This was due to additional losses of N11.72
billion recorded in the second half of 2020.
FIGURE 2.7 LIABILITY STRUCTURE OF PRIMARY MORTGAGE BANKS


Cash
0%
Cash Reserve
Requirement
1%
Balances
with Banks
5%
Loans and
advances
66%
Placements
with banks
15%
Non-Current
Assets Held
for Sale
13%
Assets-End Dec 2020
Cash
0%
Cash Reserve
Requirement
1%
Balances
with Banks
4%
Loans and
advances
68%
Placements
with banks
13%
Non-Current
Assets Held
for Sale
14%
Assets-End June 2020
Deposit
liabilities
30%
Paid-up
Capital
19%
Long-term
Loans/NHF
13%
Other
liabilities
32%
Shareholders
’ funds
6%
Liability-End Dec 2020 (NBn)
Deposit
liabilities
27%
Paid-up
Capital
20%
Long-term
Loans/NHF
13%
Other
liabilities
31%
Shareholders
’ funds
9%
Liability-End June 2020 (Nbn)
FINANCIAL STABILITY REPORT – DECEMBER 2020

Investible funds stood at N45.40 billion, sourced mainly from deposits (N22.84 billion),
other liabilities (N12.75 billion) and disposal of non-current assets held for sale (N2.30
billion) and quoted shares (N5.26 billion). The funds were utilised majorly for
placements with banks and for loans and advances.

FIGURE 2.8 SOURCES OF INVESTIBLE FUNDS OF PRIMARY MORTGAGE
BANK


TABLE 2:3 PRIMARY MORTGAGE BANKS FINANCIAL HIGHLIGHTS

End-December

(N’ billion)
End-June 2020
(N’ billion)
% Change
Total assets
461.34
436.29
5.74
Cash
1.27
1.07
18.32
Cash Reserve Requirement
2.10
1.37
53.54
Balances with Banks
19.69
14.10
39.62
Loans and advances
248.09
240.45
3.18
Placements with banks
57.91
46.94
23.38
Non-Current Assets Held for Sale
47.72
50.02
(4.60)
Deposit liabilities
170.82
147.98
15.44
Other liabilities
178.44
165.68
7.70
Shareholders’ funds
36.05
46.65
(22.72)

The sub-sector CAR stood at 11.49 per cent at end-December 2020, compared with
13.39 per cent at end-June 2020. The decline was due largely to impairment
occasioned by the impact of the Covid-19 pandemic. However, it remained above the
regulatory requirement of 10 per cent.
Deposits
60%
Other liabilities
34%
Disposal of Noncurrent Assets
6%
Sources of Investible Funds At End Dec 2020 (N45.40bn)
FINANCIAL STABILITY REPORT – DECEMBER 2020

The liquidity ratio of the sub-sector stood at 48.16 per cent at end-December 2020,
compared with 44.0 per cent at end-June 2020. The rise in liquidity ratio was due
largely to the slowdown in the creation of mortgage assets.

2.2.3.1 Other Developments in the Mortgage Sector
Key developments in the mortgage sector during the review period were as follows:
•
The NMRC issued series 3 of its Fixed Rate Bonds and raised N10 billion from the
capital market out of its N140 billion Medium Term Note Fund (MTNF). The total
amount raised from inception in 2015 to date stood at N29 billion. The MTNF is to
refinance, with recourse, qualified mortgages of Mortgage Lending Originators.
•
Emergence of Mortgage Warehouse Funding Limited (MWFL) to deepen the
evolving secondary mortgage market and to improve housing affordability.
•
On-boarding of mortgage banks’ customers on the Bank Verification Number
(BVN) platform.
•
Increased advocacy for the adoption of the Model Mortgage & Foreclosure Law
(MMFL) by all States of the Federation as well as the pursuit of land title and
administration reforms led to the passing of the law by some states such as Lagos,
Nasarawa, Kaduna, Ekiti and Ogun. Other 10 states were at various stages of
passing the law.

2.2.4 Finance Companies
Total assets of the sub-sector increased by 34.14 per cent to N313.11 billion at endDecember 2020, from N256.62 billion at end-June 2020. This was attributed largely to
capital from 7 additional FCs licensed and borrowings. The newly-licensed FCs
resulted in a 12.71 per cent increase in total capital to N24.88 billion at end-December
2020 from N22.07 billion at end-June 2020. Borrowings by the FCs rose by 17.85 per
cent to N200.64 billion at end-December 2020 from N170.25 billion at end-June 2020.
Balances with banks increased by 45.85 per cent to N26.20 billion at end-December
2020 from N17.96 billion at end-June 2020. Net loans and advances rose by 21.52
per cent to N113.55 billion at end-December 2020 from N93.44 billion at end-June
2020. Also, placements increased by 45.85 per cent to N44.29 billion at endDecember 2020 from N30.37 billion at end-June 2020.


FINANCIAL STABILITY REPORT – DECEMBER 2020

FIGURE 2.9 ASSETS OF FINANCE COMPANIES


FIGURE 2.10 BORROWINGS OF FINANCE COMPANIES

Investible funds at end-December 2020 amounted to N81.41 billion. The funds were
sourced mainly from borrowings (N47.24 billion), paid-up capital (N4.19 billion) and
other liabilities (N27.35 billion). The funds were utilized mainly to increase loans and
advances, placements with banks, bank balances and fixed assets.

Dec-2020
Jun-2020
313.11
256.62
Total Assest of FCs (Nbn)

Dec-2020
Jun-2020
113.55
93.44
Net Loans and Advances
(Nbn)

Dec-2020
Jun-2020
26.2
17.96
Balances With Banks (Nbn)

Dec-2020
Jun-2020
200.64
170.25
Borrowings (Nbn)
FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 2:4 FINANCIAL POSITION OF FINANCE COMPANIES AT ENDDECEMBER 2020


End-December

(N’ billion)
End-June 2020
(N’ billion)
Change
(N’ billion)
% Change

Total Assets

Cash in Vault

Balances with Banks

Loans and Advances

Investments

Placements

Borrowings

Paid up capital

Reserves


2.2.5 Microfinance Banks
The total assets of the MFBs 11 at end-December 2020 stood at N929.83 billion,
compared with N638.67 billion at end-June 2020, reflecting an increase of 45.59 per
cent which was due largely to the on-lending facilities granted to NIRSAL MFB as well
as implementation of the new capital regime for MFBs. The net loans and advances,
which constituted 54.63 per cent of total asset, increased by 54.78 per cent to N507.95
billion at end-December 2020, from N328.18 billion at end-June 2020.
The shareholders’ funds declined by 0.19 per cent to N130.71 billion at end-December
2020 from N130.95 billion, owing largely to losses incurred from the effect of the Covid19 Pandemic. However, deposit liabilities increased by 29.58 per cent to N366.90
billion at end-December 2020 from N283.14 billion at end-June 2020.
Investible funds available to the sub-sector in the review period amounted to N296.72
billion, compared with N160.04 billion at end-June 2020. The funds were mainly
proceeds from long-term borrowings (N169.40 billion), deposits (N83.76 billion), other
liabilities (N22.76 billion) and paid-up capital (N3.88 billion). The funds were mostly

11 10 National, 134 State, and 730 Unit
FINANCIAL STABILITY REPORT – DECEMBER 2020

deployed to loans and advances (N179.77 billion), bank placements (N77.21 billion),
bank balances (N23.61 billion) and other assets (N10.45 billion).

TABLE 2:5 FINANCIAL POSITION OF MICROFINANCE BANKS

End-December 2020
End-June 2020
Change
% Change
(N’ billion)
(N’ billion)
(N’ billion)
Total Assets

Cash in Vault

Balances with Banks

Placements with Banks

Loans and Advances

Short Term Investments

Fixed Assets

Deposits

Long Term Borrowings

Shareholders’ Funds

Paid up capital

Reserves


2.2.5.1 Maturity Structure of Loans & Advances and Deposit Liabilities
Short-term credit constituted a greater proportion of the loans and advances of the
MFB sub-sector in the second half of the year. At end-December 2020, short-term
loans accounted for 53.54 per cent of the aggregate loans and advances, compared
with 71.60 per cent at end-June 2020. Loans with maturities of over 360 days
accounted for 46.46 per cent compared with 28.40 per cent at end-June 2020.
Similarly, the deposit structure remained largely short-term, as deposits of less than
one (1) year maturity accounted for 71.28 per cent, compared with 76.40 per cent
recorded at end-June 2020. On the other hand, deposits of over one (1) year maturity
accounted for 28.72 per cent, compared with 23.60 per cent at end-June 2020.


FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 2:6 MATURITY STRUCTURE OF LOANS & ADVANCES AND
DEPOSIT LIABILITIES

Tenor/Period
Jun-2020
Dec-20
Loans
and
Advances
Loans
and
Advances
Loans
and
Advances
Deposits
0-30 Days

31-60 Days

61-90 Days

91-180 Days

181-360 Days

Short-Term

Above 360 Days

Total

Source: Central Bank of Nigeria

2.2.5.2 Microfinance Certification Programme
In line with the requirements of the revised guidelines for MFBs on capacity building,
a total of 410 candidates completed the Level II Microfinance Certification Programme
(MCP) administered by the Chartered Institute of Bankers of Nigeria (CIBN), resulting
in a total of 7,102 certified microfinance bankers at end-December 2020, compared
with 6,692 at end-June 2020.

2.2.5.3 Other Developments
During the review period, the Bank met with the National Association of Microfinance
Banks and it was resolved that all MFBs shall:
• Comply with the revised phased recapitalisation deadlines of April 2021 and
April 2022 for the first phase and final phase, respectively, of the new capital
requirements for different tiers of MFBs.
• Implement the 10-year maximum tenure for External Auditors as enshrined in
the Code of Corporate Governance for Microfinance Banks in Nigeria.
• Enrol on the CRMS to qualify for inclusion on the GSI platform; and
• Implement Basel 2 accord to complement IFRS towards enhancing
transparency, capital cost reduction, effective capital and liquidity management


FINANCIAL STABILITY REPORT – DECEMBER 2020

2.3 Financial Markets
The domestic financial market indicators were relatively stable in the review period
amidst the prospects of global economic recovery, following increased accessibility of
Covid-19 vaccines. With the financial markets still being largely impacted by the Covid19 pandemic, the Bank continued to put in place appropriate policy measures to
stabilise them.
2.3.1 The Money Market
The banking system maintained adequate level of liquidity to keep rates stable in the
second half of 2020. The open-buy-back (OBB) and unsecured inter-bank call
weighted daily average rates opened at 12.68 and 11.80 per cent, respectively, on
July 1, 2020. Large inflows from maturing bills as well as fiscal operations increased
liquidity in the market. Consequently, monthly weighted average OBB and the
interbank call rates trended downward, closing at 1.02 and 1.25 per cent, respectively,
at end-December 2020, compared with 11.31 and 5.75 per cent, respectively, at endJune 2020. The monthly average OBB rates ranged from 1.02 to 11.78 per cent while
interbank call rates ranged from 1.25 to 10.29 per cent.
FIGURE 2.11 AVERAGE MONEY MARKET RATE MOVEMENTS JANUARY –
DECEMBER 2020


2.3.1.1 Nigerian Treasury Bills
The Nigerian Treasury Bills (NTBs) of 91-, 182- and 364-day tenors totaling N1,867.46
billion were issued and allotted in the second half of 2020, reflecting an increase of
N351.77 billion or 23.21 per cent, over the level of N1,515.68 billion recorded in the
preceding period. The increase was attributed to high appetite for NTBs.
Total subscriptions for the 91-, 182- and 364- day tenored NTBs stood at N5,027.61
billion, compared with N2,904.16 billion, in the first half of 2020, indicating an increase
of N2,123.45 billion or 73.12 per cent. Average marginal rates ranged between 0.0100
- 1.7890 per cent, 0.1500 - 1.9100 per cent and 0.1500 - 3.4000 per cent for the 91-,

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Per Cent
Inter-Bank Call (%)
Open-Buy-Back (OBB) (%)
MPR (%)
Call NIBOR (%)
30-day NIBOR
FINANCIAL STABILITY REPORT – DECEMBER 2020

182-and 364- day tenors, respectively. Comparatively, in the first half of 2020, average
marginal rates ranged between 1.0000 - 14.0000 per cent, 1.9400 - 12.0000 per cent
and 2.8000 - 15.4875 per cent for the 91- , 182- and 364- day tenors, respectively.
The decline in rates was attributable to high demand, driven by the prevailing liquidity
conditions in the system.
A breakdown of total NTB allotment indicated that commercial banks (including foreign
investors) took up N1,340.25 billion or 71.77 per cent, merchant banks N56.00 billion
or 0.03 per cent, while mandate and internal funds customers N406.14 billion or 21.75
per cent during the review period. Comparatively, in the first half of 2020, commercial
banks (including foreign investors) took up N978.37 billion or 64.55 per cent, merchant
banks N38.88 billion or 2.57 per cent, while mandate and internal funds customers
accounted for N498.44 billion or 32.89 per cent.
An analysis of the NTBs outstanding at end-Dec 2020, showed that commercial banks
accounted for 38.94 per cent, parastatals 26.56 per cent and merchant banks 0.73 per
cent, while the mandate and internal funds customers accounted for 33.77 per cent.

2.3.2 The Foreign Exchange Market
During the review period, the Bank sustained its various foreign exchange
interventions via the Retail Secondary Market Intervention Sales (SMIS) window for
agriculture, airline, petroleum, raw materials and machinery transactions, e.t.c.
Similarly, the Bank continued to meet the demand for invisible trade transactions, such
as personal and business travel allowances, medical bills, and school fees. The SMEs,
oil companies and the Investors & Exporters (I&E) windows also provided access to
foreign exchange, while sales to the BDC segment was reinstated. The Bank
continued its active participation in the Naira-Settled OTC Futures Market.
Furthermore, the Bi-lateral Currency Swap Agreement between the CBN and the
People’s Bank of China (PBoC-CBN) was sustained through the CBN Renminbi Retail
SMIS auctions. A total of 13 auctions were conducted with Renminbi worth CNY723.05
million sold in the review period, compared with CNY294.09 million in the preceding
period. This brought the total sold from inception to CNY2,469.46 million at endDecember 2020.
2.3.2.1 Exchange Rate Movements at the Interbank, Investors & Exporters’
Window and BDC Segments
At the I & E inter-bank segment of the foreign exchange market, the rate opened at
N361.00/US$ on July 1, 2020 and closed at N381.00/US$ on December 31, 2020,
representing a depreciation of 5.25 per cent. Comparatively, in the first half of 2020,
the rate opened at N307.00/US$ on January 1, 2020 and closed at N361.00/US$ on
June 30, 2020. The movement in rates was in response to liquidity conditions in the
foreign exchange market.
FINANCIAL STABILITY REPORT – DECEMBER 2020

The rate at the I & E window opened at N386.50 /US$ on July 1, 2020 and closed at
₦410.25/US$ on December 31, 2020, reflecting a depreciation of 5.80 per cent. In the
BDC segment, the exchange rate opened and closed at ₦455.00/US$ and
N465.00/US$, respectively, indicating a depreciation of 2.15 per cent (Figure 2.2)
which was as a result of demand pressures.

FIGURE 2.12 BDC AND I & E RATES, JANUARY – DECEMBER 2020


2.3.2.2 Foreign Exchange Spot, Forwards and OTC FX Futures Transactions
The total foreign exchange sales by the Bank in the second half of 2020 declined to
US$7,202.27 million from US$10,308.01 million in the first half. A breakdown of the
total indicated that interbank spot sales amounted to US$583.95 million, invisibles
US$262.60 million, I&E window US$2,935.67 million and SMEs US$611.26 million.
Inter-bank forward sales amounted to US$2,808.79 million. Forwards contracts valued
US$3,352.86 million matured, while US$3,226.37 million was outstanding at endDecember 2020. Furthermore, the Bank purchased US$1,248.39 million, resulting in
net sales of US$5,953.88 million.
In the preceding period, the total CBN foreign exchange sales, at the inter-bank
segment was US$10,308.01 million, of which spot sales amounted to US$1,198.48
million and invisibles US$312.00 million. The sum of US$570.00 million was sold to
support SMEs for small-scale importation, US$5,056.55 sold at the I & E window, and
US$3,170.97 million as inter-bank forward sales. Conversely, the Bank purchased
US$2,210.63 million, resulting in net sales of US$8,097.37 million.


Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
I & E window 363.18 364.79 373.04 385.09 386.17 386.39 387.54 386.27 386.02 385.91 386.91 394.84
BDC

N/US$
FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 2:7 : FOREIGN EXCHANGE SALES AND PURCHASES AT THE
INTERBANK SEGMENT

FOREIGN EXCHANGE SALES AND PURCHASES AT THE INTERBANK SEGMENT
FX Transactions
End-Jun 20
End-Dec 20

Sales
Purchases
Sales
Purchases

(N million)
(N million)
(N million)
(N million)
Spot
1,198.48

583.95

Invisibles
312.00

262.60

SME
570.00

611.26

I&E
5,056.55

2,935.67

Forwards
3,170.97

2,808.79


Purchases

2,210.63

1,248.39


Total

The notional amount of the OTC FX Futures contracts executed stood at US$4,549.44
million in the review period, compared with US$10,832.64 in the first half. Also, the
sum of US$9,623.43 million matured during the review period, while US$8,093.66
million was outstanding at end-December 2020.

2.3.3 The Capital Market
The Nigerian Stock Exchange (NSE) All Share Index (ASI) and Market Capitalization
(MC) reflected improved performances in the second half of 2020, compared with the
first half, owing to asset switching resulting from unattractive yields in the money
market. Similarly, Bond market performance improved in the review period.
2.3.3.1 The Equities Market
The Nigeria Stock Exchange ASI closed at 40,270.72 at end-December 2020,
indicating an increase of 64.51 per cent above the 24,479.22 recorded at end-June
2020. Similarly, Market Capitalisation (MC) closed higher at N21,056.08 billion,
reflecting an increase of 64.89 per cent from N12,769.81 billion at end-June 2020.
Foreign portfolio investment (FPI) inflows in the second half of 2020 totaled N117.32
billion, while divestments (outflows) stood at N215.25 billion, reflecting a net FPI
outflow of N97.93 billion. In comparison, inflows in the first half of 2020 amounted to
N129.95 billion, while divestments stood at N266.68 billion, reflecting a net FPI outflow
of N136.73 billion (Table 2.4)
A breakdown of the total equity transactions during the review period shows that FPI
flows accounted for 28.56 per cent compared with 39.52 per cent in the preceding
FINANCIAL STABILITY REPORT – DECEMBER 2020

period. Domestic transactions accounted for 71.44 per cent, compared with 60.48 per
cent in the preceding period (Table 2.4).
TABLE 2:8 DOMESTIC AND FOREIGN PORTFOLIO PARTICIPATION IN
EQUITIES TRADING
Period
Total
Foreign
N' Billion
%
Foreign
Domestic
N'Billion
%
Domestic
Foreign
Inflow
N'Billion
Foreign
Outflow
N'Billion
NSE ASI
Market
Capitalization
H2 2020

H1 2020

H2 2019

H1 2019


2.3.3.2 The Bond Market
Total bonds outstanding at end-December 2020 stood at N13,071.28 billion compared
with N11,350.66 billion at end-June 2020. See breakdown below (Table 2.9).
2.3.3.3 FGN Savings Bonds
FGN Savings Bonds (FGNSB) worth ₦1.36 billion were fully subscribed at endDecember 2020, indicating a decrease of ₦0.91 billion or 40.09 per cent from the level
of ₦2.27 billion at end-June 2020. The new issues were for 2- and 3- years and the
coupon rate applied ranged from 1.320 - 3.610 per cent and 1.820 - 4.610 per cent,
respectively, compared with 4.131 - 7.144 per cent and 5.131 - 8.144 per cent for the
respective tenors in the preceding period. Consequently, total value of FGNSB
outstanding at end-|December 2020 stood at ₦12.29 billion, compared with ₦12.98
billion at end-June 2020 (Table 2.1).
TABLE 2:9 OUTSTANDING BONDS (N’ BILLION)
Bond Issuer
June, 2020
Dec, 2020
% Change
Proportion
of Total
(June, 2020)
Proportion of
Total (Dec,
2020)
FGN Bonds

Sub-National Bonds

Corporate Bonds

Sukuk – FGN

Sukuk - Sub-National

Green – FGN

Green - Corporate

FGN Savings Bond

Total (N)

Source: FMDQ OTC
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.3.3.4 FGN Bonds
New issues and re-openings of the FGN Bonds valued ₦595.00 billion were auctioned
during the review period, indicating a decrease of 3.25 per cent compared with
₦615.00 billion auctioned in the preceding period. Public subscriptions and sales
decreased to ₦1,627.28 billion and ₦570.82 billion in the second half of 2020, from
₦2,449.97 billion and ₦1,308.58 billion in the first half of 2020, respectively.
The yield curve shifted further downward when compared with the position in the
preceding review period and the corresponding period of 2019. This development
depicts significantly lower yields at both ends of the curve, reflecting investors’ apathy.
(Figure 2.12).
FIGURE 2.13 YIELD CURVE FOR NIGERIA


Source: FMDQ-OTC Plc
2.3.3.5 Corporate Bonds
Corporate bonds worth ₦10.00 billion were issued within the review period, compared
with ₦149.50 billion issued in the preceding period, while bonds worth ₦82.98 billion
were redeemed. Consequently, bonds valued ₦543.28 billion remained outstanding
at end-December 2020, compared with ₦616.26 billion at end-June 2020.

2.3.4 Potential Risks to Stability from the developments in the Financial Market
✓ The financial market is vulnerable to oil price-induced FPI outflows which may
lead to price volatility.

Yield %
Time to Maturity
31/12/2020
30/06/2020
31/12/2019
FINANCIAL STABILITY REPORT – DECEMBER 2020

✓ Further depreciation of the naira exchange rate may have adverse inflationary
consequences.
✓ Continued decline in yields in the domestic financial market may create
disincentive for savings and engender capital flow reversals.

2.4 Real Sector Interventions
During the review period, the Bank sustained its real sector intervention programmes
and schemes, with emphasis on support to households and businesses affected by
the economic disruptions associated with the Covid-19 pandemic.
2.4.1 Agricultural Policy Support
2.4.1.1 Agricultural Credit Guarantee Scheme
In the second half of 2020, a total of 20,626 loans, valued ₦2.83 billion, were
guaranteed under the Scheme, compared with 9,641 loans, valued ₦1.48 billion, in
the first half of 2020, indicating increases of 113.9 and 91.22 per cent in the number
and value of loans guaranteed, respectively. Also, 11,319 loans, valued ₦1.690
billion, were repaid, compared with 8,867 loans, valued ₦1.35 billion in the first half
of 2020. These outcomes reflected increases of 27.65 and 25.19 per cent in the
number and value of loans repaid, respectively.
2.4.1.2 Commercial Agriculture Credit Scheme
The sum of ₦35.34 billion was disbursed to 25 projects in the second half of 2020,
reflecting increases of 30.0 per cent in value and 66.67 per cent in number of projects,
from the levels of ₦27.09 billion to 15 projects recorded in the first half of 2020. A total
of ₦25.97 billion was repaid by 132 projects in the review period, reflecting a decrease
of 10.57 per cent from the repayment of ₦29.04 billion by 264 projects in the first half
of 2020.
2.4.1.3 Anchor Borrowers’ Programme
In the review period, ₦68.99 billion was disbursed to 204,796 smallholder farmers
cultivating 605,279 hectares, compared with ₦149.64 billion to 705,097 smallholder
farmers cultivating 863,933 hectares at end-June 2020. Repayments under the
Programme amounted to ₦36.80 billion in the review period, compared with ₦41.09
billion in the preceding period.
2.4.1.4 Accelerated Agriculture Development Scheme
The sum of ₦2.94 billion was disbursed to two (2) projects in the review period,
compared with ₦6.00 billion to four (4) projects in the first half of 2020. The projects
covered rice, poultry, cassava, fish, maize, livestock and soybeans.
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.4.1.5 Paddy Aggregation Scheme
The sum of ₦0.50 billion was disbursed to one (1) project in the review period,
compared with ₦3.20 billion to three (3) projects in the first half of 2020. The financing
enabled small and medium-scale rice millers to procure paddy for all-year round rice
production. A total of ₦51.81 billion was repaid during the review period by nineteen
(19) integrated rice millers.
2.4.1.6 Maize Aggregation Scheme
The sum of ₦0.20 billion was disbursed for one (1) project, compared with ₦1.50 billion
to three (3) projects in the first half of 2020. As at end-December 2020, all the facilities
were under moratorium.
2.4.1.7 National Food Security Programme
There was no disbursement during the review period, compared with ₦9.00 billion
disbursed for two (2) projects in the first half of 2020. Repayment in the review period
was ₦2.36 billion, compared with ₦2.85 billion repaid in the preceding half year.
2.4.2 Small and Medium Enterprises & Industrial Policy Support
2.4.2.1 Micro, Small and Medium Enterprises Development Fund
In view of the contribution of the MSME to job creation, financial inclusion and poverty
reduction, the threshold for the Micro, Small and Medium Enterprises Development
Fund (MSMEDF) was increased from ₦200.00 billion to ₦1.00 trillion in 2020.
Repayments during the review period amounted to ₦1.68 billion, compared with
₦1.85 billion in the first half of 2020.
2.4.2.2 Agribusiness/ Small and Medium Enterprises Investment Scheme
In the review period, ₦62.70 billion was disbursed to 15,724 projects, compared with
₦26.62 billion to 6,727 projects in the first half of 2020.
Repayment in the review period was ₦102.89 million, compared with ₦21.15 million
in the preceding half.
2.4.2.3 Small and Medium Enterprises Credit Guarantee Scheme
In the review period, cumulative guarantees remained unchanged at ₦4.25 billion for
88 projects.
2.4.2.4 Creative Industry Financing Initiative
In the second half of 2020, the sum of ₦1.64 billion was disbursed for 151 projects,
compared with ₦392.62 million in the first half of 2020. The sum of ₦33.14 million was
repaid in the review period, compared with ₦82.04 million in the first half.
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.4.2.5 Targeted Credit Facility
During the period under review, the sum of ₦134.68 billion was disbursed for 319,051
projects, compared with ₦44.28 billion for 70,953 projects in the preceding half. As at
end-December 2020, all the facilities were under moratorium.
2.4.2.6 Nigeria Youth Investment Fund
The Fund was introduced in the second half of 2020, in collaboration with the Federal
Ministry of Youth and Sports Development, as a built-in strategy to respond to the
youth unemployment challenge in Nigeria. The take-off capital of ₦12.5 billion was set
aside by the Bank with NIRSAL MFB as the managing agent. During the period under
review, the sum of ₦191.70 million was disbursed to 293 projects.
2.4.3 Real Sector Policy Support
2.4.3.1 Real Sector Support Facility
There was no disbursement under this facility in the review period, compared with
₦6.70 billion disbursed for one (1) project in the first half of 2020. The sum of ₦5.57
billion was repaid in the review period, compared with ₦4.56 billion in the preceding
period.
2.4.3.2 RSSF - Differentiated Cash Reserve Requirement
In the period under review, the sum of ₦167.03 billion was disbursed for 41 projects,
compared with ₦60.07 billion released to 17 projects in the first half of 2020, indicating
an increase of 178.33 per cent. The sum of ₦28.35 billion was repaid in the second
half of 2020, compared with ₦11.65 billion in the first half of the year, reflecting an
increase of 143.35 per cent.
2.4.3.3 Covid-19 Intervention for the Manufacturing Sector
In the second half of 2020, the sum of ₦152.57 billion was disbursed for 26 projects,
compared with ₦77.41 billion for 42 projects in the first half of 2020, implying an
increase of 97.09 per cent. At end-December 2020, all the facilities were under
moratorium. However, the sum of ₦10 billion that was not utilised was recalled.
2.4.3.4 Healthcare Sector Intervention Facility
In the period under review, the sum of ₦50.68 billion was disbursed for 56 projects,
compared with ₦20.96 billion for 15 projects in the first half of 2020, indicating an
increase of 141.79 per cent. The sum of ₦3.39 billion was repaid in the second half of
2020, compared with no repayments in first half of 2020.
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.4.3.5 Healthcare Sector Research and Development Intervention (Grant)
Scheme
The Healthcare Sector Research and Development Intervention (Grant) Scheme was
introduced in the review period to trigger research and development (R&D) in the
production of indigenous drugs and vaccines against Covid-19 and other infectious
diseases. 286 proposals uploaded to the portal were still under review by the Body of
Experts (BOE) in the second half of 2020.
2.4.3.6 Textile Sector Intervention Facility
During the review period, the sum of ₦4.00 billion was disbursed for 2 projects,
compared with no disbursement in the first half. The sum of ₦9.00 billion was repaid,
compared with ₦3.11 billion in the preceding period.
2.4.3.7 CBN-BOI Industrial Facility
The third tranche of ₦100.00 billion was disbursed to the Bank of Industry in the review
period, resulting in a cumulative disbursement of ₦200.00 billion for 60 projects (first
and second tranches). At end-December 2020, all the facilities were under
moratorium.
2.4.3.8 Presidential Fertilizer Initiative
The sum of ₦3.0 billion was repaid within the period, compared with ₦3.5 billion in the
preceding period.
2.4.3.9 Solar Connection Facility
The Solar Connection Facility (SCF) was introduced in the review period to expand
affordable and clean off-grid energy to households and businesses; enhance national
energy sufficiency; and address the energy distribution and transmission
dependencies in Nigeria. The Bank approved the sum of ₦7.0 billion in respect of a
single project for the procurement and installation of 100,000 solar home systems
across the country.
2.4.3.10
Intervention Facility for the National Gas Expansion Programme
The Intervention Facility for the National Gas Expansion Programme (IFNGEP) was
introduced during the review period to stimulate investment in the gas value chain.
2.4.3.11
Family Homes Finance Initiative
The initiative was introduced to fast track the construction of 300,000 homes in the 36
states of the Federation and the Federal Capital Territory, create up to 1.5 million jobs
in 5 years, boost local manufacturing and improve the quality of life of 900,000 adults
and children.
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.5 Export Policy Support
2.5.1 Non-oil Export Stimulation Facility
Under this Facility, the sum of ₦2.00 billion was disbursed for a single project in the
second half of 2020, compared with ₦10.50 billion for three (3) projects in the first half.
The sum of ₦0.76 billion was repaid in the review period, compared with ₦2.85 billion
in the preceding period.
2.5.1.1 Export Development Facility
During the review period, the Bank invested an additional sum of ₦50.00 billion in
debentures issued by Nigerian Export-Import Bank (NEXIM) to support exportoriented enterprises, bringing the total to ₦100.00 billion. There was no disbursement
made during the review period, compared with ₦18.12 billion for 29 projects in the first
half of 2020.
2.6 Energy Policy Support
2.6.1.1 Power and Airline Intervention Fund
In the second half of 2020, the sum of ₦3.03 billion was disbursed through the BOI for
a single power project, compared with ₦2.99 billion for 2 projects in the preceding
period. The sum of ₦22.01 billion was repaid in respect of 69 projects, compared with
₦6.51 billion for 2 projects in the first half of 2020.
2.6.1.2 Nigerian Electricity Market Stabilisation Facility
There were no disbursements during both the review period and the first half year.
However, the sum of ₦11.249 billion was repaid in the review period, compared with
₦10.73 billion in the first half year.
2.6.1.3 Nigeria Bulk Electricity Trading – Payment Assurance Facility
In the second half of 2020, the sum of ₦85.58 billion was disbursed to the Nigeria Bulk
Electricity Trading Plc. (NBET) through the Bank of Industry (BOI), compared with
₦85.42 billion disbursed in the first half.
2.6.1.4 National Mass Metering Programme
The National Mass Metering Programme was introduced in the review period to
increase metering rate, thus eliminating estimated billing and strengthening the meter
value chain. The Bank approved the sum of ₦59.28 billion from the ₦200.00 billion
seed capital to finance the installation of 1 million meters. The sum of ₦14.35 billion
was disbursed to eight (8) Meter Asset Providers (MAPs) through eight (8) distribution
companies. All the facilities are still under moratorium.
FINANCIAL STABILITY REPORT – DECEMBER 2020

2.7 Institutional Support and Financial Inclusion
2.7.1 National Collateral Registry
A total of 55 financial institutions registered 27,689 financing statements valued
₦228.55 billion, US$82.60 million and £27,352 in respect of 40,932 borrowers,
compared with 20,282 financing statements valued ₦263.91 billion, US$163.79
million and €4.78 million registered in favour of 26,870 borrowers in the first half of
2020. In addition, a total of 30,414 searches were conducted on the portal by financial
institutions and public users during the review period compared with 25,968 in the first
half 2020.
TABLE 2:10 NUMBER AND VALUE OF FINANCING STATEMENTS ON THE
NATIONAL COLLATERAL REGISTRY PORTAL FROM JULY 1ST TO
DECEMBER 31ST, 2020
Debtor Type
Number
of
Financing
Statements
Number
of
Borrowers
Currency
Value of Financing
Statements
Individual
25,264
38,274
NGN (billion)
55.30
USD (billion
0.60
Large
Business

NGN (billion)
133.20
USD (billion)
0.48
Medium
Business
1,043
1,135
NGN (billion)
23,08
USD (billion)
0.33
GBP (billion)
0.03
Micro
Business

NGN (billion)
0.57
USD (billion)
0.03
Small
Business

NGN (billion)
16.40
USD (billion)
0.05
Total
27,689
40,932
NGN (billion)
228.55
USD (billion)
0.83
GBP (billion)
0.03


FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 2:11 NUMBER AND VALUE OF FINANCING STATEMENTS
REGISTERED IN RESPECT OF WOMEN AND WOMEN-OWNED
BUSINESSES ON THE NATIONAL COLLATERAL REGISTRY PORTAL
FROM JULY 1ST TO DECEMBER 31ST, 2020
Debtor Type
Number
of
Financing
Statements
Number
of
Womenowned
Enterprises
Currency
Value of Financing
Statements
Individual
11,395
13,035
NGN (billion)
19.07
Large
Business

NGN (billion)
1.23
Medium
Business

NGN (billion)
1.92
USD (billion)
0.01
Micro
Business

NGN (billion)
0.04
Small
Business

NGN (billion)
0.78
Total
11,726
13,420
NGN (billion)
23,04
USD (billion)
0.01

A total of 11,726 financing statements in respect of 13,420 women-owned enterprises,
were registered by 46 financial institutions in the review period. These outcomes
represented 42.35 per cent and 32.79 per cent, respectively, of the number of
financing statements and number of borrowers.

From inception to end-December 2020, a total of 129 financial institutions had
registered 125,117 financing statements valued ₦1,967.75 billion, US$1.43 billion,
€0.11 billion and £0.03 billion. An analysis of this figure indicated that 92 financial
institutions registered 48,136 financing statements (38.5 per cent), valued ₦126.47
billion and US$0.06 billion, in respect of women-owned enterprises.

2.7.2 Financial Inclusion
In the period under review, a number of bank branches were closed to customers as
a result of the Covid-19 containment measures. Banks, however, continued to render
services through alternative channels, such as ATM, PoS, Agent locations and mobile
Apps. Following the gradual reopening of the economy, bank branches and other
financial service touch points began to offer ‘over-the-counter’ (OTC) services to
customers.
A total of 3,445,413 new BVNs were issued between July and December 2020, out of
which 1,810,465 were female.
FINANCIAL STABILITY REPORT – DECEMBER 2020

During the review period, a total of 192,160 Agents were on-boarded, compared with
100,900 in the preceding period, bringing the total to 530,000 under the Shared Agent
Network Expansion Facility (SANEF) at end-December 2020. In terms of access
points per capita, 500 Agents served 100,000 adults in the second half of year 2020,
compared with 322 Agents per 100,000 adults in the preceding period. Other
alternative channels, such as ATM points, mobile agents and PoS devices, contributed
significantly to the number of access points.
2.8 Impact of Intervention
The Bank’s intervention programmes and schemes provided credit to the real sector
to support economic growth. The interventions contributed to the creation of jobs within
the focus sector, sustained households’ wealth through improvement in income.
They also improved the intermediation capacity of banks through on-lending, reduced
the level of NPLs and cushioned the consequences of Covid-19 pandemic on
businesses and households through low-cost financing.
3 REGULATORY AND SUPERVISORY ACTIVITIES
3.1 Financial Soundness Indicators

3.1.1 Asset-Based Indicators
3.1.1.1 Non-Performing Loans to Gross Loans
The Bank sustained the forbearance measures and implemented the Global Standing
Instruction (GSI) policy in addition to other regulatory measures. Consequently, the
ratio of non-performing loans (NPLs) to gross loans decreased to 6.02 per cent at endDecember 2020 from 6.41 per cent at end-June 2020.
FIGURE 3.1 BANKING INDUSTRY NPLS TO GROSS LOANS


3.1.1.2 Core Liquid Assets to Total Assets and Short-term Liabilities
Banking system liquidity improved within the review period as the ratio of core liquid
assets to total assets increased by 4.42 percentage points to 22.58 per cent from 18.16

End Dec. 2019
End Jun. 2020
End Dec. 2020
Banking Industry NPLs to Gross Loans
FINANCIAL STABILITY REPORT – DECEMBER 2020

per cent recorded in the first half of 2020. Furthermore, the ratio of core liquid assets
to short-term liabilities improved by 5.25 percentage points to 32.58 per cent in the
review period, compared with 27.33 per cent at end-June 2020. This was attributed to
increase in the holdings of Federal government securities and CBN Special Bills. Thus,
the improved liquidity indicators reflected the banks’ ability to meet their short-term
obligations thereby enhancing the safety and soundness of the banking system.
FIGURE 3.2 BANKING INDUSTRY LIQUIDITY INDICATORS

3.1.2 Capital-Based Indicators
The solvency of the banking industry improved as the regulatory capital to riskweighted assets increased marginally from 14.96 per cent in June-2020 to 15.05 per
cent at end-December 2020. Although the regulatory tier-1 capital to risk-weighted
assets declined marginally to 12.76 per cent at end-December 2020, from 13.04 per
cent in June 2020, the ratio remained above the regulatory threshold of 10 per cent.
Similarly, the Return on Assets (ROA) increased by 0.83 per cent during the review
period, indicating banks’ improved efficiency in using their assets.

FIGURE 3.3 BANKING INDUSTRY CAPITAL ADEQUACY INDICATORS


End Dec. 2019
End Jun. 2020
End Dec. 2020
P
e
r
c
e
n
t
a
g
e
s
Liquid assets (core) to total assets*
Liquid assets (core) to short-term liabilities*

End Dec. 2019
End Jun. 2020
End Dec. 2020
Percentages
Regulatory capital to risk-weighted assets*
Regulatory Tier 1 capital to risk-weighted assets*
FINANCIAL STABILITY REPORT – DECEMBER 2020

The resilience of the banking system improved as the ratio of non-performing loans
net of provisions to capital for the industry declined marginally to 32.73 per cent at
end-December 2020 from 33.66 per cent at end-June 2020. The decline was due to
the capitalization of a portion of the 2019 financial year earnings.
FIGURE 3.4 NON-PERFORMING LOANS NET OF PROVISIONS TO CAPITAL
RATIO


3.1.3 Income and Expense Based Indicators
The ratio of interest margin to gross income decreased to 52.72 per cent during the
review period from 59.05 per cent at end-June 2020. However, the ratio of non-interest
expenses to gross income increased to 62.63 per cent at end-December 2020 from
58.74 per cent in the preceding half.
The ratio of personnel expenses to non-interest expenses declined to 30.66 per cent
at end-December 2020 from 31.25 per cent at end-June 2020.


Jun-19
Dec-19
Jun-20
Dec-20
FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 3:1 SELECTED FINANCIAL SOUNDNESS INDICATORS OF THE
NIGERIAN BANKING INDUSTRY


*FSIs are computed based on IMF guidelines.
**Some indicators in 2018, 2019 and End-June 2020 are revised

3.2 The Banking Industry Stress Tests
3.2.1 Solvency Stress Test
3.2.1.1 Baseline Position
The baseline NPL ratio and CAR in the period under review were 6.02 and 15.05 per
cent respectively, while ROA and ROE stood at 3.33 and 14.37 per cent, respectively,
at end-December 2020.


FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 3:2 BANKING INDUSTRY BASELINE SELECTED KEY INDICATORS

CAR
LR
NPLs
ROA
ROE
Dec 2020 (%)

Jun 2020 (%)

Percentage Points
Change


FIGURE 3.5 BANKING INDUSTRY CAR (PER CENT)


3.2.1.2 Credit Risk
The banking industry remained resilient to general credit risk shock of “less than 100
per cent increase” in NPLs. However, there was a marginal reduction in the resilience
compared with June 2020 level, as depicted in the decline of CAR from 10.72 to 9.60
per cent (Table 3.3).
TABLE 3:3 CREDIT DEFAULT SHOCKS


Similarly, the credit concentration stress test showed that the banking industry was
resilient to shocks under scenarios 1, 2 and 3 as the CAR remained above the 10 per
cent regulatory threshold (Table 3.4).

Jun ' 17
Dec '17
Jun ' 18
Dec '18
Jun' 19
Dec' 19
Jun' 20
Dec' 20
Per cent
Banking Industry CAR
Single Factor Shocks
December 2020
June 2020
Baseline CAR
15.05
14.96
10% NPLs increase
14.33
14.53
15% NPLs increase
14.08
43.32
20% NPLs increase
13.83
14.12
30% NPLs increase
13.32
13.71
50% NPLs increase
12.29
12.88
100% NPLs increase
9.60
10.72
FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 3:4 CREDIT CONCENTRATION RISK

FIGURE 3.6 CREDIT CONCENTRATION RISK


3.2.1.3 Sectoral Credit Concentration Risk
A breakdown of banking industry credit by sectors at end-December 2020 showed that
the oil & gas, manufacturing, government, general, finance & insurance, general
commerce and others accounted for 25.10, 15.23, 8.64, 9.10, 6.06, 6.69 and 29.18
per cent, respectively.

12 Performing Loans

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

Dec 2020
Jun 2020
Baseline CAR
14.83
14.93
Single Factor Credit Concentration Shocks
Scenario 1
Five largest corporate credit facilities shifted from pass-through12to substandard (10%)
14.22
14.34
Scenario 2
Five largest corporate credit facilities shifted from sub-standard to
doubtful (50%)
13.29
13.44
Scenario 3
Five largest corporate credit facilities shifted from doubtful to lost (100%)
11.70
11.90
FINANCIAL STABILITY REPORT – DECEMBER 2020

FIGURE 3.7 SECTORAL CONCENTRATION OF CREDIT


The results of the stress test showed that the banking industry could withstand up to
50 per cent shock on defaults in oil and gas exposures as the post-shock CAR would
be 10.12 per cent.

TABLE 3:5 STRESS TEST ON OIL AND GAS EXPOSURES

Industry CAR (%)
Baseline CAR
14.83
30% Default on total exposure to Oil and Gas
14.11
50% Default on total exposure to Oil and Gas
10.12

3.2.1.4 Interest Rate Risk
The stress test on the net position of interest-sensitive instruments showed that the
industry maintained a stable solvency position to interest rate shock of “up to 1000
basis points downward shift in yield curve” as the post-shock CAR declined from 14.93
to 13.16 per cent. However, the interest rate shocks had significant adverse impact on
the ROA and ROE.


Oil and Gas
25%
Manufacturing
15%
Government
9%
General
9%
Gen Comm
7%
Finance and Insurance
6%
Others
29%
FINANCIAL STABILITY REPORT – DECEMBER 2020

FIGURE 3.8 IMPACT OF INTEREST RATE SHOCKS ON CAR


FIGURE 3.9 IMPACT OF INTEREST RATE SHOCKS ON ROA AND ROE


TABLE 3:6 IMPACT OF SELECTED SHOCKS ON CAR, ROA AND ROE

Banking
Industry (%)
Baseline ROA
0.23
Baseline ROE
3.73
Impact of Downward Shift in Yield Curve Shocks on CAR

500 bps downward shift in yield curve
14.04
1000 bps downward shift in yield curve
13.16
Impact of Downward Shift in Yield Curve Shocks on ROA

500 bps downward shift in yield curve
0.50
1000 bps downward shift in yield curve
0.05
Impact of Downward Shift in Yield Curve Shocks on ROE

500 bps downward shift in yield curve
7.57
1000 bps downward shift in yield curve
0.77

14.93
14.04
13.16
Baseline CAR
500 bps downward shift in yield
curve
1000 bps downward shift in yield
curve

Baseline
500 bps downward shift in yield
curve
1000 bps downward shift in yield
curve
ROA
ROE
FINANCIAL STABILITY REPORT – DECEMBER 2020

3.2.2 Liquidity Stress Test13
The stress test result revealed that after a one-day run scenario, the liquidity ratio for
the industry declined to 35.20 per cent from the 44.36 per cent baseline position.
Similarly, under the 5-day and 30-day scenarios, the liquidity ratio for the industry
declined to 19.03 and 15.06 per cent, indicating N2.26 trillion and N2.91 trillion liquidity
shortfalls, respectively at end-December 2020.

FIGURE 3.10 INDUSTRY LIQUIDITY RATIOS AT PERIODS 1-5 AND
CUMULATIVE 30-DAY SHOCKS


TABLE 3:7 LIQUIDITY STRESS TEST RESULTS (POST-SHOCK)
Scenario
Banks with
Liquidity Ratios (LR) < 30%
Dec 2020
June 2020
(27 CMBs)
Dec 2020
(27 CMBs)
LR (%)
Shortfall to 30% LR
threshold
(N’ billion)
Test 1.1: Implied Cash Flow Test
Test 1.1: Implied Cash
Flow Test
Day 1

35.20
Nil
Day 2

31.41
Nil
Day 3

27.51
569.80
Day 4

23.41
1,432.28
Day 5

19.03
2,261.13
Implied Cash Flow Test (30
Days)

15.06
2,914.55

13 Liquidity stress tests were conducted at end-Dec 2020 using the Implied Cash Flow Analysis (ICFA) and Maturity
Mismatch/Rollover Risk approaches to assess the resilience of individual banks and the banking industry to liquidity and
funding shocks.


Pre-Shock
After Day 1
After Day 2
After Day 3
After Day 4
After Day 5
After cum 30
days
Jun-19
Dec-19
Jun-20
Dec-20
FINANCIAL STABILITY REPORT – DECEMBER 2020

3.2.3 Maturity Mismatch
The cumulative position of the industry showed an excess of N2.30 trillion assets over
liabilities. The industry baseline assets and liabilities maturity profile at end-December
2020, revealed that the shorter end of the market (≤90 day bucket) were adequately
funded. However, five banks and seven banks were not adequately funded in the ≤30day and 31-90 day buckets, respectively.

TABLE 3:8 MATURITY PROFILE OF ASSETS AND LIABILITIES AT ENDDECEMBER 2020
Bucket
Liabilities
Assets
Mismatch
Cumulative
Mismatch
N Billion
≤30 days

31-90 days

91-180 days

181-365 days

1-3 years

>3 years

Total
35,885.91
38,189.14
(2,303.24)


TABLE 3:9 TEST RESULTS FOR SYSTEM-WIDE MATURITY MISMATCH

Test 2A
Descriptive Maturity
Mismatch.
(No consideration of
rollover)
Test 2B
Static Rollover risk Analysis.
(No possibility to close
liquidity gaps in other
buckets)
Test 2C
Dynamic Rollover risk test.
(Free assets used to close
liquidity gaps in other
buckets)
N ‘billion
No of banks
with mismatch
N ’billion
No of banks
with mismatch
N ’billion
No of banks
with mismatch
≤30 days
17,415.37

12,182.85

(927.40)

31-90 days
4,930.63

(251.94)

(435.73)

91-180days
3,461.02

(959.97)

(31.67)

181-365days
623.58

(3,791.91)

(1,343.71)

1-3 Years
1,688.36

(2,932.21)

(944.73)

Above 3 years
(5,403.23)

(9,573.06)

(4,086.74)

Total
22,715.72

(5,326.24)

(7,769.98)

FINANCIAL STABILITY REPORT – DECEMBER 2020

Test 2A revealed that the banking industry was adequately funded, while under 2B
and 2C the industry had mismatch of N5.33 trillion and N7.77 trillion, respectively.
These represented decrease of N1.53 trillion and N1.50 trillion under the Test 2B and
Test 2C, respectively, relative to end-June 2020 tests (Table 3.9).
3.2.4 Contagion Risk Analysis
Contagion risk measured by the volume of interbank placements and takings and the
number of institutions in the market, showed a 56.03 per cent decrease, compared
with the end-June 2020 position. Three banks were central on the network as their
combined exposures accounted for 77 per cent of total interbank takings.
A breakdown of placements showed that six banks accounted for 90.96 per cent
(N360.52bn) of total placements. Similarly, six banks accounted for 96.40 per cent
(N382.08bn) of total takings.
FIGURE 3.11 NETWORK ANALYSIS BASED ON INTERBANK EXPOSURES


BOX 2: LIQUIDITY STRESS TEST ASSUMPTIONS
Implied Cash Flow Analysis
The Implied Cash Flow Analysis (ICFA) assessed the ability of the banking system to
withstand unanticipated substantial withdrawals of deposits, short-term wholesale and
long-term funding over 5 days and cumulative 30 days, with specific assumptions on
fire sale of assets. The test assumed gradual average outflows of 3.8, 5.0 and 1.5 per
cent of total deposits, short-term funding and long-term funding respectively, over a
5-day period and a cumulative average outflow of 22.0, 11.0 and 1.5 per cent of total
Node colour representation
Blue
= Lenders,
Deep Blue= Net Placement
Red
= Borrowers
Purple= Net Takings
FINANCIAL STABILITY REPORT – DECEMBER 2020

deposits, short-term funding and long-term funding respectively, on a 30-day balance.
It also assumed that the assets in Table 3.10 would remain unencumbered after a fire
sale.

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

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

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

iii. Test 2c: Dynamic Rollover Risk made the same assumption as in 2b above, but
with the option of closing the liquidity gap from other buckets.
TABLE 3:10 : PERCENTAGE OF ASSETS UNENCUMBERED AFTER FIRE
SALES

Item No
Assets
% Unencumbered
1.
Cash and cash equivalents

2.
Current accounts with CBN

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

6.
Collateralized placements and money at call

7.
CRR

FINANCIAL STABILITY REPORT – DECEMBER 2020

3.3 Supervision of Banks
3.3.1 Supervisory/ Surveillance Activities
During the review period, the Bank continued with its supervisory and surveillance
activities with the aim of ensuring the safety and soundness of banks and the stability
of the financial system.
3.3.1.1 Examination
The Risk Based Examination of thirteen (13) banks with Composite Risk Rating (CRR)
of “High” and “Above Average” and two (2) financial holding companies was conducted
jointly with the NDIC in the review period. Monitoring and follow-up exercises were
also undertaken to ensure compliance of banks with the recommendations in the
examination reports with a view to reviewing their CRR accordingly.

3.3.1.2 Foreign Exchange Examination
Foreign exchange examination of twenty-two (22) commercial banks and four (4)
merchant banks was conducted in the review period. This was to ensure compliance
with extant regulations and the utilisation of foreign exchange acquired for eligible
transactions.
The examination revealed instances of the following infractions among others:
1.
Utilisation of cash deposits in excess of USD10,000 for telegraphic transfers.
2.
Usage of Domiciliary account balances to fund importation of goods without
processing Form M.
3.
Utilisation of foreign exchange in excess of the quarterly allowable limit of
U$20,000 by small scale importers.
4.
Non-compliance with net open position limits (NOPL) and currency trading
positions.
Appropriate regulatory measures, including financial sanctions, were imposed on the
banks.
3.3.2 Supervision of Domestic Systemically Important Banks
The five Domestic Systemically Important Banks (D-SIBs) at end-December 2020,
accounted for 58.16 per cent or N29.65 trillion of the industry total assets of N50.99
trillion. The D-SIBs also accounted for N19.78 trillion of total industry deposits of
N32.32 trillion, representing 61.20 per cent and 57.66 per cent or N10.12 trillion of the
aggregate industry credits of N17.55 trillion.

FINANCIAL STABILITY REPORT – DECEMBER 2020

The five D-SIBs submitted their Recovery and Resolution Plans (RRPs) for the period
under review in compliance with the D-SIB Supervisory Framework. The submissions
largely complied with the provisions of the Guideline for “Minimum Content for
Recovery Plans and Requirements for Resolution Planning” issued in November 2016.

3.3.3 Asset Management Corporation of Nigeria
The Asset Management Corporation of Nigeria (AMCON) recovered the sum of
N99.89 billion, representing 99 per cent of its 2020 target (N100.96 billion), majorly
from the sale of forfeited assets (N36.94 billion) and repayment by obligors (N49.43
billion).
The Corporation has achieved a total recovery of N854.36 billion to date, comprising
cash recovery of N440.01 billion, sale of forfeited assets of N274.51 billion and sale of
forfeited shares of N139.84 billion.
The carrying value of AMCON’s liabilities stood at N5.67 trillion as at December 31,
2020, with AMCON Notes of N4.03 trillion and Loan (Debenture) of N500 billion
accounting for 71.10 per cent of the liabilities. The carrying value of the Corporation’s
assets net of impairment stood at N964.27 billion at end-December 2020. The assets
represented 17.25 per cent of the liabilities. The difference would be covered by the
Banking Sector Resolution Cost Fund (BSRCF).
In year 2020, the total contributions collected in the BSRCF witnessed a significant
increase owing to the redemption of outstanding contributions by some participating
banks. Consequently, the total contributions to the BSRCF at end-December 2020
stood at N303.15 billion, an increase of N58.05 billion or 23%, compared with N245.1
billion at end-December 2019.

3.3.4 Cross Border Supervision of Nigerian Banks
3.3.4.1 Foreign Subsidiaries of Nigerian Banks
The number of offshore subsidiaries and representative offices of Nigerian banks
remained 58 and four (4), respectively.
The number of affiliates and international branches remained two (2) and three (3),
respectively, bringing the total number of offshore entities to 67.

3.3.4.2 Onsite Examination of Offshore Subsidiaries of Banks
During the review period, there was no onsite examination owing to the Covid-19
pandemic. However, banks continued to highlight the impact of the pandemic on their
subsidiaries and measures taken to address them in their monthly returns.

FINANCIAL STABILITY REPORT – DECEMBER 2020

3.3.4.3 Supervisory Collaborations
Supervisory engagements were held during the review period to address regulatory
concerns, with emphasis on risk management practices, corporate governance,
emerging cross border issues and information sharing and with a view to ensuring
financial stability within the region.

3.3.4.3.1 College of Supervisors
During the review period, the Bank hosted two inaugural College of Supervisors
meetings for Access Bank on August 10 and 11, 2020, and Guaranty Trust Bank on
August 12, 2020. The meetings discussed issues of regulatory concern about the
banks, particularly the enhancement of their risk management practices.
Similarly, the Bank participated in the College of Supervisors meeting convened for
Standard Chartered Bank by the Prudential Regulations Authority (PRA) of the United
Kingdom on July 09, 2020 and the 6th College of Supervisors meeting for Ecobank
Transnational Incorporated (ETI) convened on October 29-30, 2020.
Also, the 37th College of Supervisors of the West African Monetary Zone (CSWAMZ)
meeting was held on August 31 and September 3, 2020 with discussions focused on
addressing the impact of the Covid–19 pandemic on the region.

3.3.4.3.2 Community of African Banking Supervisors
The Community of African Banking Supervisors Working Group on Crisis
Management, Banking Resolution and FinTech organized a training programme on
FinTech regulations and supervision for its members from December 7-11, 2020. The
programme focused on building supervisors’ knowledge and skills on the key concepts
and trends in FinTech operations. The training covered risk management in FinTech
operations and the application of SupTech and RegTech in Fintech supervision,
among others.
3.3.5 Credit Risk Management System
The Redesigned Credit Risk Management System (CRMS) database, a veritable
source of credit information in the banking industry, continued to grow and gain
acceptance during the period.
The total number of credit facilities on the database increased by 7,106,824 or 48.98
per cent to 21,616,075 at end-December 2020, from 14,509,251 at end-June 2020.
This incremental end-December 2020 figure comprised 20,887,088 individual and
728,987 non-individual borrowers. Similarly, the total number of facilities with
outstanding balances increased by 98.48 per cent to 3,944,882 at end-December
2020, from 1,987,529 at end-June 2020. The increase comprised 3,830,870
individuals and 114,012 non-individuals.

FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 3:11 CREDIT RISK MANAGEMENT SYSTEM
Borrowers from the Banking Sector (Commercial, Merchant and Non-Interest Banks)
Description

June 2020

December

Absolute Change:
Increase/
(decrease)

%
Change

* Total No. of Credit/facilities
reported on the CRMS:

Individuals

Non-Individuals

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

Individuals

Non-Individuals

* The figures include borrowers with multiple loans and/or credit lines

3.3.6 CREDIT BUREAUX
During the review period, the capital base of the three (3) bureaux remained above
the regulatory minimum of N500 million. Also, a steady growth in credit records,
number of borrowers and value of credits was observed in all the credit bureaux,
indicating compliance with regulations by credit providers (Table 3.13).

TABLE 3:12 CREDIT BUREAUX RECORDS


As at December
31, 2020
As at June 30,

As at Dec 31,

As at June 30,

As at December
31, 2020
As at June 30,

Number of credit records


Number of subscribers
1,463
1,400

1,159
1,126

Value of Credit Facilities
N30.117 Trillion
N27.100 Trillion N28.974 trillion
N29.615 trillion
N27.699 Trillion
N27.163 Trillion

Number of borrowers

CRC Credit Bureau
CreditRegistry
First Central Credit Bureau
FINANCIAL STABILITY REPORT – DECEMBER 2020

3.3.7 Non-Interest Banks
Total assets of the seven (7) Non-Interest (Islamic) banking financial institutions
(NIFIs) comprising two banks, three MFBs and two windows was N351 billion,
representing less than 1 per cent of total banking industry assets.
A total of five (5) examinations were carried out on four (4) NIFIs during the review
period: three (3) routine RBS examinations, one (1) Risk Asset Assessment
Examination (RAAE) and one (1) maiden examination.

3.4 Supervision of Other Financial Institutions
The Bank conducted onsite examination of 190 OFIs, comprising 114 BDCs and 76
MFBs at end-December 2020 compared with 262 at end-June 2020.

3.4.1 Bureaux de Change
The Bank conducted on-site risk-based AML/CFT examination of 114 BDCs during
the review period. The examination reports revealed infractions of extant regulations
and erring institutions were appropriately sanctioned.

3.4.2 Microfinance Banks
There was no routine examination of MFBs, owing largely to the effect of the Covid19 Pandemic. However, special examination was carried out on 76 MFBs having
critical regulatory issues during the review period. The examination revealed that 34
MFBs were active while 42 MFBs had ceased operations. The operating licences of
the 42 MFBs were subsequently revoked by the Bank for regulatory infractions such
as unauthorized closure and failure to render monthly returns for more than six (6)
months.

3.5 Other Developments in the Financial System
3.5.1 Anti-Money Laundering and Combating the Financing of Terrorism
In order to sustain Nigeria’s ranking with the Financial Action Task Force (FATF), and
in compliance with the FATF requirements, the Inter-governmental Action Group
against Money Laundering in West Africa (GIABA) assessors conducted a follow-up
assessment on the exceptions raised during the Mutual Evaluation Exercise held in
2019.
Furthermore, the Bank’s meeting with the Association of Bureaux De Change
Operators of Nigeria (ABCON) on AML/CFT compliance issues and on GIABA Mutual
Evaluation Exercise (MEE), resolved that all BDCs shall:
FINANCIAL STABILITY REPORT – DECEMBER 2020

•
Implement AML/CFT controls and ensure comprehensive customer due
diligence;
•
Conduct AML/CFT trainings for stakeholders periodically; and
•
Improve on AML/CFT returns rendition to the CBN and Nigerian Financial
Intelligence Unit (NFIU).

In compliance with the foreign exchange regulations, a total of 593,892 transactions
were reviewed, with 88 accounts identified with issues relating to structured deposits,
unexplained large inflows and transfers, and unrelated party transactions. Appropriate
regulatory measures were taken accordingly.

3.5.2 Corporate Governance Scorecard
Scorecard assessments were conducted on eight (8) banks in the second half of the
year, to ascertain their level of compliance with the CBN Code of Corporate
Governance for Banks and Discount Houses.
3.6 Complaints Management and Resolution
During the period under review, the Bank received 2,577 complaints from consumers
of financial services, an increase of 524 or 25.52 per cent over the 2,053 received in
the first half of 2020. The breakdown showed that 2,491 complaints or 96.67 per cent
were against Deposit Money Banks while 86 complaints or 3.33 per cent were against
Other Financial Institutions. The rise in complaints was attributed to challenges
associated with increased adoption of electronic channels for banking transactions
owing to lockdown restrictions as well as increased awareness of consumers of
financial services.
FIGURE 3.12 NUMBER OF COMPLAINTS RECEIVED (JAN - DEC 2020)

JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
FINANCIAL STABILITY REPORT – DECEMBER 2020

The complaints were related to excess/unauthorized charges, fraud, guarantees,
account management, ATM dispense errors and funds transfer. Complaints relating
to electronic products constituted the highest number.
FIGURE 3.13 CATEGORIES (%) OF COMPLAINTS RECEIVED (JUL - DEC
2020)


FIGURE 3.14 CATEGORIES OF COMPLAINTS RECEIVED (JUL - DEC 2020)

During the review period 1,528 complaints were resolved while 628 were closed,
making a total of 2,156 resolved/closed. This outcome reflected a marginal decrease
of 45 or 2.04 per cent, compared with the total of 2,201 in the first half of 2020.


FINANCIAL STABILITY REPORT – DECEMBER 2020

FIGURE 3.15 DISTRIBUTION OF COMPLAINTS RESOLVED/CLOSED

Total claims made by complainants during the review period amounted to N31.52
billion while the sum of N839.93 million was refunded by financial institutions to
customers.
4 THE PAYMENTS SYSTEM
4.1 Developments in the Payments System
The Bank continued to implement policies and introduce initiatives with a view to
promoting financial system stability through an improved payments system.
4.1.1 Bank Verification Number Operations and Watch-list
The Bank Verification Number (BVN) remained a credible unique identifier for
customers across the banking system, facilitating effective implementation of the
Know Your Customer (KYC) policy. At end–December 2020, the BVN count stood at
45,809,213, reflecting an increase of 7.62 per cent over the 42,320,351 BVNs
recorded at end-June 2020. The number of accounts linked with BVN was 97,364,819
out of 114.77 million active customer accounts while the number of watch-listed
BVNs14 stood at 10,800 at end-December 2020.

14 Watch-list is a database of bank customers identified by their BVNs, who have been
involved in confirmed fraudulent activities.

JUL
AUG
SEP
OCT
NOV
DEC
Complaints Resolved/Closed
Resolved
Closed
FINANCIAL STABILITY REPORT – DECEMBER 2020

4.1.2 Licensing of Payments System Participants
During the period under review, eight (8) new licences were issued comprising one (1)
Payment Solution Service Provider and seven (7) Super Agents. However, eight
licences were revoked, comprising four (4) Payment Terminal Service Providers, three
(3) Mobile Money Operators and one (1) Switching Company. In addition, Bank-led
Mobile Money Operators no longer require licences and are not included in the count
of licensed PSPs. Consequently, the number of licensed PSPs decreased to 112 at
end-December 2020 (Table 4.1).
TABLE 4:1 LICENSED PAYMENTS SYSTEM PARTICIPANTS
Licence –Type
Number
June 2020
Dec 2020
Card Schemes

Mobile Money Operators

Payment Solution Service Providers

Payment Terminal Service Providers

Transaction Switching Companies

Third Party Processors

Super Agents

Non-Bank Acquirers

Accredited Cheque Printers

Total15

4.1.3 Nigeria Cheque Standards and Cheque Printers Accreditation Scheme
The Bank extended the implementation of the final phase of the Nigeria Cheque
Standard Version 2.0 to April 1, 2021 due to the impact of Covid-19 pandemic on the
project. The implementation is expected to enhance the safety and efficiency of
cheque clearing system.

4.1.4 Other Payments System Developments
The Bank streamlined payments system licensing into four categories, namely:
Switching and Processing; Mobile Money Operations; Payment Solution Services; and
Regulatory Sandbox during the review period.

15 Fourteen Bank-led Mobile Money Operators were excluded from end-December 2020
figure.
FINANCIAL STABILITY REPORT – DECEMBER 2020

Furthermore, the Bank in line with its commitment to promote a strong and credible
payments system as well as deepen the financial system, issued the Framework for
Regulatory Sandbox operations, Framework for Quick Response (QR) Code payment
in Nigeria and Regulatory Framework for Open Banking in Nigeria to guide and
standardize the industry operations.

4.2 Payments System Statistics and Trends
4.2.1 Large Value Payments
The volume and value of inter-bank fund transfers through the CBN Real Time Gross
Settlement (RTGS) system increased to 148,707 and N36,195.11 billion at endDecember 2020, from 137,425 and N35,177.75 billion at end-June 2020, respectively.
The increases of 8.21 and 2.89 per cent, in volume and value, respectively, were
attributed largely to the entrance of a new participant and the opening up of economic
activities following the gradual relaxation of lockdown measures.
4.2.2 Retail Payments


4.2.2.1 Cheque Clearing
The volume of cheques cleared increased to 10,555,943 in the second half of 2020
from 9,467,610, in the first half, reflecting a11.50 per cent increase, while the value
increased to N8,044.35 billion from N7,373.55 billion, indicating a 9.50 per cent
increase. The increases were due to the resumption of clearing activities.
4.2.2.2 Electronic Transactions
The volume and value of electronic transactions increased by 44.13 and 32.65 per
cent to 6,436,148,824 and N 438,934.17 billion during the review period. The surge in
the adoption and usage of electronic payment channels for banking transactions was
due to Covid-19 pandemic containment measures and increased public confidence in
the banking system.


FINANCIAL STABILITY REPORT – DECEMBER 2020

TABLE 4:2 ELECTRONIC TRANSACTIONS

4.2.3 Risks in the Payments System
Generally, the Nigerian payments system remained safe despite heightened cyberattacks arising from an increase in the number of vulnerable users, digitalization of
financial services, and telecommuting. Some of the policy measures put in place to
mitigate cyber-attacks included:
1. Establishment of an industry Cybersecurity Fusion Centre, including Malware
Information Sharing Platform (MISP).
2. Strengthened BVN framework to re-inforce KYC regulation.
3. Quarterly industry engagement at Nigerian Electronic Fraud Forum (NeFF) to
discuss fraud trends, emerging risks and mitigations.
4. Enhanced regulatory oversight and enforcement of compliance with security
standards and best practices by licensed payment service providers.
Payment
Channel
Number of Active
Terminals
Number of Transactions
% Change
Volume
Increase/
(decrease)
Value N’ Billion
% Change
Value
Increase/
(decrease)
Jun
Dec
Jan– Jun 2020
Jul-Dec2020
Jan–Jun

Jul-Dec

ATMs


8,600.10

9,599.55
11.62
POS


2,003.23

2,723.85
35.97
Mobile
Money


5,146.80

9,830.74

Online
Transfers
(Internet/
Web)


171,197.08
221,142.31
29.17
Mobile
App


USSD


Direct
Debit


ACH/
NEFT


Total


FINANCIAL STABILITY REPORT – DECEMBER 2020

5 Key Risks to the Financial System
5.1 Credit Risk


Risk Rating (Medium Risk, Trending downwards)
The effects of the Covid-19 pandemic lingered in the second half of 2020, with
attendant disruptions in businesses and households. However, the impact was
subdued by the Bank’s sustained stimulus packages for priority sectors of the
economy.
The decline in Non-Performing Loans (NPLs) ratio from 6.41 per cent to 6.02 per cent,
reflected increased repayment by obligors and implementation of forbearance
measures. To enhance loan repayment in the banking industry and further reduce NPL
ratio, the Bank introduced the Global Standing Instruction policy.
Overall, the effect of the pandemic continued to pose additional threat to the
performance of risk assets. However, it is envisaged that the effective implementation
of the policy measures would continue to moderate the trend of credit risk downward.


FIGURE 5.1 NON-PERFORMING LOANS RATIO


5.2 Liquidity Risk
Risk Rating (Low Risk, Stable)

The average liquidity ratio of the banking industry increased by 3.81 percentage points
to 44.6 per cent at end-December 2020 from 40.79 per cent at end-June 2020. This
ratio was above the regulatory threshold of 30 per cent. Consequently, the industry
liquidity risk is expected to remain low and stable.


Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
FINANCIAL STABILITY REPORT – DECEMBER 2020

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

The weighted average of OBB and interbank call rates at 1.09 and 1.25 per cent at
end-December 2020, fell sharply from 10.85 and 5.75 per cent at end-June 2020,
respectively, reflecting increased liquidity of the banking system. Similarly, average
savings rate fell to 2.04 per cent from 3.78 per cent during the same period, further
discouraging savings and reducing total funds available to the industry from customer
deposits. Maximum lending rate declined marginally to 28.31 per cent at endDecember 2020, from 28.66 per cent at end-June 2020. The large spread between
the maximum lending and savings rates reflected banking sector inefficiency, reducing
the flow of credit to areas of most productive use.
The foreign exchange market was negatively impacted during the period, following the
adverse impact of the Covid-19 pandemic on the global economy and consequently
on the accretion to reserves. In order to check the activities of speculators and
enhance rate convergence in the market, the Bank adjusted the interbank rate.
In the capital market, the FGN Bond segment continued to witness suppressed yields
across tenors, propelled mainly by higher levels of system liquidity. The equity market
showed improved performance as the NSE ASI closed at 40,270.72 at end-December
2020, from 24,479.22 points at end-June, 2020, owing mainly to asset switching by
investors. Though the market witnessed increased sell-off by international investors
up until November 2020, this was moderated by renewed participation by domestic
investors at the end of the year.

Overall, market risk is expected to trend upwards in 2021 as the foreign exchange
market remains exposed to oil price shocks and FPI reversals. Additionally, increased
public debt alongside dwindling revenue, exposes the country to further downgrade in
credit ratings, which would increase borrowing costs and lower investor confidence.
Furthermore, the combined effect of a spike in interest rate and volatility in exchange
rate could severely put pressure on the asset quality of the banking system which
could be a precursor of systemic risk.
However, it is expected that these effects would be moderated by the gradual
reopening of the global economy, favourable crude oil prices, and the effective
distribution of Covid-19 vaccines.


FINANCIAL STABILITY REPORT – DECEMBER 2020

5.4
Operational Risk
Risk Rating (High Risk, Trending up)

During the review period, reported cases of fraud and forgeries in DMBs increased to
120,948 at end-December 2020 from 44,948 at end-June 2020. Consequently, actual
losses rose to N4.32 billion from N1.05 billion at end-June 2020. Frauds were carried
out through suppression of cheques, conversion of customers’ deposits, unauthorised
fund transfers and ATM withdrawals.
The increased adoption of electronic channels for transactions following the Covid-19
pandemic precipitated a rise in cyber-crime as ransomware attacks increased by 485
per cent in 2020 compared to 2019. Additionally, the restructuring of banks’ operations
following the implementation of Covid-19 protocols, strained service delivery to
customers owing to reduced work hours, phased branch reopening as well as the
adoption of telecommuting policies which exposed banks to information security risk
vulnerabilities. Heightened security risks resulting from civil unrest and increased
attacks on bank branches and bullion vans were identified as threats during the period.
To mitigate the risks, banks and payment service providers were directed to ensure
full compliance with the requirements of the CBN cyber-security framework and
guidelines, and the regulatory framework for the use of Unstructured Supplementary
Service Data (USSD) for financial services in Nigeria. Banks were also required to
reinforce their Disaster Recovery and Business Continuity plans, carry out
comprehensive infrastructure risk assessments and adequately train staff. In this
connection, Chief Information Security Officers were trained by the Bank on cyber
threat intelligence while customers were sensitized on the need to continually employ
safe banking practices.
Overall, in 2020, cybersecurity risk remained elevated alongside the risk of attacks on
payments system infrastructure as the rapid adoption of digitalized financial services
continued.
5.5
Macroeconomic Risk
Risk Rating (High Risk, Stable)
During the period under review, macroeconomic risk was largely driven by the effects
of the Covid-19 pandemic lockdown measures, fiscal sustainability issues arising from
dwindling revenue, inflationary pressures and investor apprehension. Despite these,
the combined monetary and fiscal policy measures implemented in the preceding half
of 2020 facilitated a modest level of recovery in the second half of 2020. The
implementation of the Nigeria Economic Sustainability Plan supported recovery and
bolstered output.
FINANCIAL STABILITY REPORT – DECEMBER 2020

Prolonged expansionary fiscal and monetary policies by major economies could result
in inflationary pressures while another wave of the Covid-19 pandemic might reverse
the fragile growth in demand. The combined effect of such adverse developments
would dampen global economic recovery, decrease demand for commodities and
consequently reduce accretion to the external reserves.

In 2021, relatively low oil prices and Covid-19 related disruptions might slow down the
rate of recovery while the envisaged full deregulation of the petroleum sector and
increased electricity tariffs would exert pressure on inflation. Additionally, increased
Federal Government deficits might crowd out credit to the private sector, with adverse
implications for growth.
However, all things considered, it is projected that the combined effects of fiscal and
monetary policy measures, gradual reopening of the economy as well as the
development and distribution of Covid-19 vaccines would consolidate domestic
economic growth in 2021.
6 OUTLOOK
Although uncertainties in crude oil prices, capped production volumes and the
lingering effects of Covid-19 pandemic impacted output, the Nigerian economy
recorded marginal recovery during the period under review. This was attributed to the
coordinated efforts of the fiscal and monetary authorities in the implementation of the
Economic Recovery and Growth Plan (ERGP) and the provision of credit to
businesses and households, particularly those severely affected by the economic
disruptions associated with the pandemic.
The financial system recorded improvements in the financial soundness indicators in
the second half of 2020. This will be sustained in the coming years through the
enhanced supervision and monitoring of financial institutions. Furthermore, the
implementation of robust enterprise risk management frameworks, strengthened
information technology infrastructure and reinforcement of cyber security in banks and
payment service providers would boost the resilience of the banking industry.
The payments system space experienced a high level of activity during the review
period, precipitated by the rapid adoption and usage of digital financial services. The
implementation of the Payments System Vision 2025 would facilitate a more robust
payment architecture to increase the efficiency and safety of the Nigerian Payments
System.
The Bank would continue to deploy appropriate policy options to facilitate growth while
ensuring financial system stability in the medium to long term.


FINANCIAL STABILITY REPORT – DECEMBER 2020

ACKNOWLEDGEMENTS
LIST OF MAJOR CONTRIBUTORS

V.O. Ururuka (PhD.)
Financial Policy and Regulation Department

I. S. Tukur
Ditto

J. M. Gana
Ditto

H. J. Audu
Ditto

J. A. Mohammed
Ditto

Y. Babade
Ditto

U. Babale
Ditto

V. K. Johnson
Ditto

O. I. Adebowale
Development Finance Department

V. U. Oboh
Monetary Policy Department

Chioma Nwosu
Research Department

A. Shebe
Banking Supervision Department

Audu Salihu
Statistics Department

E. O. Shonibare (Mrs)
Risk Management Department

M. Ashiru
Financial Markets Department

V. A. Martins
Other
Financial
Institutions
Supervision
Department

M. M. Farouk
Reserve Management Department

M. K. Muazu
Consumer Protection Department

H. Abdullahi
Banking Services Department

A. A. Isa-Olatinwo
Payments System Management Department

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

KEVIN N. AMUGO
Director, Financial Policy and Regulation Department