country presentation on nigeria by benjamin · pdf filebenjamin iornawa adamu deputy director...

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

•CONCLUSION2Benjamin Iornawa Adamu

1.0 COUNTRY PROFILE – NIGERIA

3Benjamin Iornawa Adamu

COUNTRY PROFILE CONT’D.

• Location: Latitude: 400N -1400N Longitude: 300N – 1500N

• Area Occupied: 923,768 Sq. Km

• Rainfall: South Coaster Areas: 4000mm

North Arid Areas: 500mm

• Climate: Mainly tropical

• Average temperature: 250C – 280C

• Seasons: Wet (May-Oct.); Dry (Nov.-April)

• Vegetation - South: mangrove forest; Middle Belt: Savannah grassland & North: Semi-arid


COUNTRY PROFILE CONT’D.

• 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)


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 1.5 MILLION 6Benjamin Iornawa Adamu

2.2 AGRICULTURAL RESOURCESCOTTON NEEM

CASSAVA OIL PALM

COCOA CASHEW NUTS

GINGER RUBBER

GUM-ARABIC CUSTOR OIL SEED

ONIONS/GALIC SOYA BEANS

MAIZE HONEY

SORGHUM POULTRY

BEANS HUNGRY RICE (ACHA)

SESAME SEED SHEA NUTS

GROUND NUT YAM


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 OIL8Benjamin Iornawa Adamu

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)9Benjamin Iornawa Adamu

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 System10Benjamin Iornawa Adamu

4.1 REGULATORY & SUPERVISORY

AUTHORITIES IN NIGERIA

• 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)11Benjamin Iornawa Adamu

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.


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.


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.


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. 15Benjamin Iornawa Adamu

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-the-counter (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.


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).17Benjamin Iornawa Adamu

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) 18Benjamin Iornawa Adamu

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


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.20Benjamin Iornawa Adamu

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.


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


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 for banks to N25.0 billion. 24Benjamin Iornawa Adamu

BANKING SECTOR REFORMS CONT’D.

•CBN audit of banks in August 2009 revealed that about N2.1 trillion loans granted by the banks were non-performing

•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.


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.

Benjamin Iornawa Adamu 26

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.


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.


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.


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.


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.


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.


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.


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 by 2020 could be realized. 34Benjamin Iornawa Adamu

THANK YOU


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.


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.


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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