COUNTRY PRESENTATION ON NIGERIA
BY
BENJAMIN IORNAWA ADAMU
DEPUTY DIRECTOR
CENTRAL BANK OF NIGERIA
ABUJA – NIGERIA
COUNTRY PRESENTATION AT COMMONWEALTH WORKSHOP
BANKING AND FINANCE IN SMALL STATES: ISSUES & POLICIES
UNIVERSITY OF MALTA, 16 – 20 APRIL, 2012
CONTENTS
•COUNTRY PROFILE - NIGERIA
•GOVERNANCE STRUCTURE
•MACROECONOMIC INDICES
•THE NIGERIAN FINANCIAL SYSTEM
•THE NIGERIAN BANKING SYSTEM
•REAL SECTOR FINANCE
•BANKING SECTOR REFORMS
•CAPITAL MARKET: CRISIS & REFORMS
•FINANCIAL SYSTEM STRATEGY (FSS 2020)
•GOLDMAN SATCH PREDICTION
•CONCLUSION
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1.0 COUNTRY PROFILE – NIGERIA
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COUNTRY PROFILE CONT’D.
• Location: Latitude: 40 N -140 N
Longitude: 30 N – 150 N
• Area Occupied: 923,768 Sq. Km
• Rainfall: South Coaster Areas: 4000mm
North Arid Areas: 500mm
• Climate: Mainly tropical
• Average temperature: 25 C – 28 C
• Seasons: Wet (May-Oct.); Dry (Nov.-April)
• Vegetation - South: mangrove forest; Middle Belt:
Savannah grassland & North: Semi-arid
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COUNTRY PROFILE CONT’D.
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Population: 140 million
Per Capital GDP: $2,035
6TH largest world exporter of crude oil
Capital: Abuja, located in the North Central
region (replaced Lagos as capital 12/12/93)
• Official Language: English
• Currency: Naira (N) & Kobo (k):
N1 = 100k (N116 = US$1)
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2.0 MACROECONOMIC INDICES
2.1 SOLID MINERAL DEPOSITS
TYPE
QUANTITY (METRIC TONS)
TALC
40 MILLION
GYPSUM
1 BILLION
IRON ORE
3 BILION
LEAD/ZINC
10 MILLION
BARITE
8 MILLION
BENTONITE
0.7 BILLION
BITUMEN
42 BILLION
COAL
3 BILLION
ROCK SALT
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1.5 MILLION
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2.2 AGRICULTURAL RESOURCES
COTTON
CASSAVA
COCOA
GINGER
GUM-ARABIC
ONIONS/GALIC
MAIZE
SORGHUM
BEANS
SESAME SEED
GROUND NUT
NEEM
OIL PALM
CASHEW NUTS
RUBBER
CUSTOR OIL SEED
SOYA BEANS
HONEY
POULTRY
HUNGRY RICE (ACHA)
SHEA NUTS
YAM
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2.3 HAND CRAFTS AND MANUFACTURED
PRODUCTS
HAND CRAFTS
MANUFACTURES
CALABASH CARVINGS
CONFECTIONERIES
LEATHER/PRODUCTS
CEMENT
CLOTH DYEING
COSMETICS & SOAPS
RAFIA PRODUCTS
INSECTICIDES
HAND WOVEN TEXTILES
TEXTILES & GARMENTS
POTTERY
SUN-DRIED MEAT
PAINTINGS
VEGETABLE OIL
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3.0 GOVERNANCE STRUCTURE
•PRESIDENTIAL SYSTEM OF GOVERNANCE
•Modelled according to the American System
•HAS THREE TIERS OF GOVERNANCE:
•The Executive
•The Legislature, and
•The Judiciary
•The governance structure consists of:
•The Federal Government ( with Fed. Ministries,
Departments and Agencies, headed by Ministers)
•The State Governments ( 36 States, including the FCT)
•The Local Governments (779 Local Governments)
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4.0 THE NIGERIAN FINANCIAL
SYSTEM
•The Nigerian Financial System comprises of:
•The Money Market
•The Capital Market
•Development Finance Institutions (DFIs), and
•Specialized Financial Institutions
•Each of the above segments of the market has an
apex body that regulates and supervises it.
•The Central Bank of Nigeria is the overall apex
regulatory authority in the Nigerian Financial System
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4.1 REGULATORY & SUPERVISORY
AUTHORITIES IN NIGERIA
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Central Bank of Nigeria (CBN) – apex regulator
Nigeria Deposit Insurance Corporation (NDIC)
Securities and Exchange Commission (SEC)
Federal Ministry of Finance (FMF)
National Insurance Commission (NAICOM)
Financial Services Regulation Coordinating
Commission (FSRCC)
• National Pension Commission (PENCOM)
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4.2 MONEY MARKET & INSTITUTIONS
•Markets where short-term securities are traded
•Facilitate intermediation of short-term funds from
surplus to deficit spending units
•Money Market Institutions are:
•Deposit Money Banks (DMBs)
•Discount Houses (DHs)
•Microfinance Banks.
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4.2.1 DEPOSIT MONEY BANKS
•Initially comprised (i) commercial and (ii) Merchant banking
institutions
•The adoption of Universal Banking System in 2001 abolished the
dichotomy between merchant and commercial banking in Nigeria
•The banking sector reforms of December, 2005 led to the
consolidation of hitherto 89 undercapitalized weak banks to 24
strong recapitalized banks in Nigeria
•The banking sector reforms of 2009 has offered a wide range of
banking licences for specialized banking services in Nigeria
•The new banking licences introduced by the monetary
authorities in 2010 offered varieties of banking licences to some
banks to operate at regional, national and international arena,
according to their skills and competitive advantages.
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4.2.2 DISCOUNT HOUSES
•Intermediaries between the Central Bank of Nigeria
and other financial institutions in Nigeria
• They are specialized non-bank financial
institutions
•They mobilize surplus funds and channel them to
deficit sectors
•They invest in government short-term securities by
providing (re) discounting facilities
•Helped in deepening Money Market in Nigeria
•Have assisted the use of Open Market Operations
(OMO) in liquidity management by the monetary
authorities.
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4.2.3 MICROFINANCE BANKS
• Established by ‘Microfinance Policy, Regulatory And
Supervisory Framework’ launched in December,
2005.
• Compelled all ‘’Community banks’’ to convert to
Microfinance banks
• Engage in limited aspects of financial intermediation
• Do not directly participate in the Clearing House
• Registered to finance economically active poor that
do not have access to formal banking services
• About 860 Microfinance banks in Nigeria as at July,
2010.
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4.3 THE NIGERIAN CAPITAL MARKET
•Market for mobilization of long-term funds.
•Market where long-term securities are traded
•The Market has two segments:
•Primary – for first issues, e.g. public offers, rights issues, private
placements etc. In 2006, 62 applications were approved for new
issues and mergers/acquisitions valued N1.4 trillion by the
Nigerian Stock Exchange (NSE)
•Secondary – where existing securities are traded after issuance in
the primary market. These include stock exchanges and over-thecounter (OTC) Markets.
•The Financial Market reforms carried out in 2004-2005 and the
approval by the Federal Government for the mandatory
investment of 25.0 per cent of pension funds in the market had led
to increase in the number of trading floors and stock brokers.
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4.3.1 NIGERIAN CAPITAL MARKET
INSTITUTIONS
•Securities & Exchange Commission (SEC)
•Nigerian Stock Exchange (NSE)
•Nigerian Commodity Exchange (ACE)
•Stock Brokers
•Issuing Houses, and
•Registrars
•The apex regulatory and supervisory body for
the Nigerian Capital Market is the Securities and
Exchange Commission (SEC).
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4.4 DEVELOPMENT FINANCE
INSTITUTIONS IN NIGERIA
• Set up primarily to address slow pace of
development. They include:
• Bank of Industry (BOI)
• Nigeria Agricultural Co-operative & Rural
Development Bank (NACRDB), now Bank of
Agriculture (BOA)
• National Economic Reconstruction Fund (NURFUND)
• Federal Mortgage Bank of Nigeria (FMBN)
• Urban Development Bank
• Nigeria Export-Import Bank (NEXIM)
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4.5 SPECIALIZED FINANCIAL
INSTITUTIONS
• Are non-bank financial institutions that play
important financial intermediation roles:
• Finance companies
• Insurance Companies
• Micro-finance Institutions
• Bureaux De Change (BDCs)
• Primary Mortgage Institutions
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5.0 NIGERIAN BANKING SYSTEM
•Modern commercial banking started with the
establishment of two British banks in Nigeria
between 1892 and 1933
•They were: (i) Bank of British West Africa, and (ii)
Barclays Bank.
•Established principally for payment of salaries and
other banking services for colonial administrators
•Between 1933 and 1951, many indigenous banks
were also established to balance the perceived
biased credit policies of the expatriate banks.
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NIGERIAN BANKING SYSTEM CONT’D.
•Many of the indigenous banks failed as soon as they were
established
•Legislation of banking activities through the Banking Ordinance of
1952 and its amendments in 1958 to regulate banking services
•Central Bank of Nigeria Act 1958 was promulgated
•Central Bank of Nigeria commenced operations on 1st July, 1959
to take sovereignties over legal tender issues.
•At independence in 1960, the total number of surviving banks
were twelve with 160 branches across the country.
•After independence, the government took over 60% of the equity
capital of the expatriate banks and nationalized the indigenous
banks to dilute the dichotomy between the indigenous and
expatriate banks as well as put the indigenous banks on a sound
financial footing.
•However, the capital adequacy ratio of the banks continued to be
weak.
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5.2 REAL SECTOR FINANCE
Periods
Aggregate Loans Aggregate Loans Mean%
To Economy (N’m.) To SME (N’m.)
1992-1996
492,878.0
131,092.0
26.6
1997-2005
7,754,476.6
505,098.4
6.5
2006-2008
15,063,605.6
80,198.0
0.53
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5.2 BANKING SECTOR REFORMS
•BY end-March, 2004 the Central Bank of Nigeria (CBN) assessment
of the 89 banks classified 62 as sound/satisfactory, 14 as marginal
and 11 as unsound. The remaining 2 banks did not render returns
during the period.
•The major problems of banks then included:
•Poor corporate governance
•Gross insider abuses resulting to huge non-performing loans
•Late or non-publication of annual accounts
•Negative capital adequacy ratios
•Weak capital base
•Over-dependence on public sector deposits
•Neglect of small and medium class savers, etc.
•This called for urgent reforms to avoid crisis.
•On 6th July, 2004, the Governor of CBN announced a 13-point
reform agenda (appendix 1).
•Raised minimum capitalization
banks
to N25.0 billion.
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Iornawa
Adamu
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BANKING SECTOR REFORMS CONT’D.
•CBN audit of banks in August 2009 revealed that about
N2.1 trillion loans granted by the banks were nonperforming
•The Managing Directors of the affected banks and their
team were removed and N600.0 billion injected into the
affected banks as tier one capital
•Subsequent reform was targeted at repositioning the
banks to finance real sector development.
•Risk management was instituted in all the banks
•Good corporate governance was enforced through
tenure policy and transparency in management
operations.
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CAPITAL MARKET: CRISES & REFORMS.
• CAUSES OF NIGERIAN CAPITAL MARKET DECLINE.
• Excessive investment in stocks and manipulation of
share prices by banks and listed companies.
• J. P. Morgan Report on Nigerian banks dated May 12,
2008 that 56% of the banks were overvalued and banks
share prices were far ahead of fundamentals.
• Sudden withdrawal of foreign investors who were
already affected by the global financial crisis at their
home countries.
• Rumored stoppage of ‘margin trading’ loans by the
Central Bank of Nigeria.
• Increase in monetary Policy Rate (MPR) from 9.5% to
10.5%; Cash Reserve Ratio (CRR) from 2% to 4% to curb
excess liquidity.
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CAUSES OF CAPITAL MARKET DECLINE
CONT’D.
• Harmonization of banks’ year-end led to funds
mobilization by banks leading to high interest
rate.
• CBN stoppage of massive credit expansion by
banks.
• Bad Monetary Policy, lax banks’ supervision and
anti-market regulations by the Nigerian Stock
Exchange (NSE).
• NSE declaration of one week for stock price
increases only at the dawn of the crisis.
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GOVERNMENT MEASURES ON CAPITAL
MARKET DECLINE
• The Federal Government, acting with both SEC, NSE, and
the CBN took various measures:
• NSE imposed one-week fixed floor on price drop.
• Proposed setting up of capital market stabilization fund.
• Zero tolerance for infractions in listing process.
• Reduced transaction costs by 50%.
• The CBN extended ‘margin facilities’ by banks and
restructured equity related credits.
• Approved longer loan repayment periods for banks.
• Reduced MPR from 10.25% to 9.75%; Liquidity Ratio from
40% to 30%; and CRR from 4% to 2%.
• Repo transactions allowed for 90 days, 180 days and 360
days.
• Securities eligible for Repo transactions widened.
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GOVERNMENT MEASURES CONT’D.
• The Federal Government set up a Presidential
Advisory Committee which recommended:
– That share price should not drop by more than 1%
of its market price each trading day.
– Share price could rise as high as 5% of its market
price each trading day.
– Quoted companies allowed to buy back their
shares up to 20%.
– Attorney-General of the Federation to review
capital market laws to effect 20% share buy back
by owner companies.
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5.3 FINANCIAL SYSTEM STRATEGY
(FSS) 2020
• Introduced as part of the reform agenda in 2004
• Designed to make Nigeria a ‘’financial hub’’ in Africa
• To position Nigerian banks to be competitive in the
global arena
• Increase real sector finance and raise credit to GDP
ratio to be among the top three of emerging
markets.
• Make credit accessible, convenient and affordable.
• Place Nigeria among the top twenty economies of
the world by the year 2020.
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6.0 GOLDMAN SATCH PREDICTION
ON NIGERIA
•Two countries in Africa, Nigeria and Egypt would
overtake Italy in GDP size by 2015.
•Nigeria’s estimated GDP of about N130 billion
was about 79% of the ECOWAS region.
•Nigeria had abundant mineral, agricultural and
human resources that were yet to be exploited
for economic development.
•Nigeria would be among the 20 top economies
of the world by the year 2020.
•The target period for some of the predictions
have been revised.
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6.1 OTHER PREDICTIONS ON NIGERIA
• International expert, Ted Truman, had classified
Nigeria as one of the SICs.
• SICs is acronym for ‘systematically important
countries’ that will manage the world’s affairs
• SICs is a group of 11 countries after the BRICs
• This group includes Mexico, Korea, Bangladesh,
Egypt, Iran, Pakistan, Nigeria and Vietnam
• The Political, Economic, Financial and
Bureaucratic Reforms that have been carried out
in Nigeria in the past eight years are aimed at
realization of the Nigeria’s Vision 20:2020; based
on the above predictions.
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7.0 CONCLUSION
Post banking sector consolidation fostered
acquisitions and mergers of some banks and
helped reduce the predominantly 89 weak banks
to 24 strong recapitalized banks with wide area
branch network between 2005 and 2006.
•Asset base grew by approx. 277% between 2003
and 2007
•11 banks with capital base of over $1 billion by
end of February, 2008
•Share of banks in NSE most capitalized companies
grew from 30% in 2003 to over 65% by the end of
2007.
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CONCLUSION CONT’D.
• 16 Branches of Nigerian banks in other African countries and 5
outside Africa by 2007
• Microfinance policy, regulatory and supervisory framework
launched in December 2005 paved way for the
licensing/establishment of 860 microfinance banks between 2006
& 2010
• N700 billion intervention fund for the real sector released to the
participating banks for resuscitation of ailing industries as part of
the reforms carried out in early 2010:
– N300 billion for power and aviation sector projects
– N200 billion for Restructuring & Refinancing Facility (RRF), for SME
projects and
– N200 billion for Small & Medium Enterprises Credit Guarantee Scheme
(SMECGS)
• With abundant mineral and agricultural resources, a vibrant
reformed financial sector and strong political awakening for
democratic principles and efficient resource utilization, some of
the prediction that Nigeria might be among the top twenty
economies of the world byBenjamin
2020
could
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Adamu be realized.
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THANK YOU
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APPENDIX 1
13 POINT REFORM AGENDA
• Recapitalization of banks at N25billion.
• Phased withdrawal of public sector funds from
banks.
• Consolidation of banking institutions through
mergers and acquisitions.
• Zero tolerance in regulatory framework in respect
of accurate returns to CBN.
• Completion of e-FASS to automate reporting.
• Hot Line & internate address for reporting.
• Adoption of risk-focused, rule-based, regulatory
framework.
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APPENDIX 1
13 POINT REFORM AGENDA CONT’D.
• Framework for combating systemic banking distress.
• Establishment of Assets Management Company for
distress resolution.
• Enforcement of dormant laws e.g. Dud Cheque, Board
Members liability for ‘insider abuses’ of the system.
• Up-date/new laws for effective operations of the
banking system.
• Collaborate with ‘Economic & Financial Crimes
Commission’, establish ‘financial intelligence unit’,
enforce anti-money laundering measures.
• Rehabilitate ‘Nigeria Security Printing & Minting
Company’ to meet security printing needs of Nigeria.
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APPENDIX 1 CONT’D.
STRATEGIC AGENDA FOR THE NAIRA.
• Currency Re-denomination.
• Adoption of Inflation Targeting Framework for
the conduct of Monetary Policy.
• Sharing part of the Federation Account
Allocation in U. S. Dollars to deepen the Forex
Market and for liquidity management.
• Current Account liberalization/convertibility
and accession to Article V111 of the IMF.
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