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Agriculture

From Rediscover Nigeria desk

  AGRICULTURE   The wealth of a nation is partially measured by its ability to guarantee its citizenry food security.In…

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Manufacturing

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Manufacturing in Nigeria concentrates mainly on the production of consumer goods. With a population estimated today at over 156 million…

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Nigeria! Overview

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Tourism in Nigeria has huge potentials to be a major foreign exchange earner. The Obasanjo administration has created awareness among…

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Nigeria's Resources

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Nigeria's total verified external debts as at December 2010 was US$4.578 billion as against US$3.947 billion in 2009. Total scrutinized…

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Rediscover Nigeria Banking and Finance

Banking and Finance

FINANCIAL SECTOR REVIEW FOR 2010

The effect on the global financial crisis was still felt in 2010. The credit crunch continued as net domestic credit grew at a rate below the indication benchmark. Otherwise, the Nigerian financial sector remained relatively stable and resilient.

To bring back confidence in the system, measures were taken to release the credit potential of banks, review the monetary policy rate, guarantee inter-bank transactions and promote the activities of Asset Management Company of Nigeria (AMCON)

Development in financial sector was mixed. For instance, the ratio of broad money supply (M2) to nominal GDP, at 38.9 per cent was lower than the ratio of 42:7 per cent recorded in 2009. The capacity of the banking sector to finance economic activities weakened as the ratio claims on the core private sector non-oil GDP declined by 17.0 per cent points to 48.1 per cent.

Total money assets outstanding at end-December 2010 increased by 35.9 per cent, compared with 19.1 per cent at end-December 2009, mainly because of the rise in FGN Bonds, Treasury Bills (NTBS) and Bankers Acceptance (BAs)

At end-December 2010, the Nigerian financial system comprised the Central Bank of Nigeria (CBN), the Nigeria Deposit Insurance Corporation (NDIC), the Securities and Exchange Commission (SEC), the National Insurance Commission (NAICOM), the National Pension Commission (PENCOM)

24 Deposit Money Banks, 5 Discount Houses, 866 Microfinance Companies, 101 Primary Mortgage Institutions, 5 Development Finance Institutions, 1,959 Bureaux-de-Change, 690 Security Brokerage Firms, 13 Pension Fund Administrators, 5 Pension Fund Custodians, 1 Asset Management Corporation, 1 Stock Exchange, 1 Commodity and Security Exchange and 73 Insurance Companies. With the establishment of AMCON, the Nigerian financial sector changed.

However the number of banks remained 24, just as in 2009. Banks branches increased, though from 5,565 in 2009 to 5,799 (an increase of 4.2%)

The CBN issued a total of N47.7 billion (approx. US$318 million) promisory notes to cover the shortfall between the assumed deposit liabilities and the selected assets of the eleven (11) failed banks that had been liquidated in accordance with the terms of the P&A contract.

In the Other Financial Institutions (OFIs) sub-sector, 2 Finance Companies (FCs) wound down, while the licences of 244 Microfinance Banks (MFBs) were revoked.

The operating licences of 132 classes 'A' Bureaux-de-Change (BDCs) were withdrawn. Licences were granted 59 new Microfinance Banks (MFBs) and 490 new BDCs. Following the injection of fresh capital and recovery of substantial loans, 121 MFBs whose licences were revoked, were granted provisional licences.

To ensure that the active poor have access to financial services, the CBN embarked on review of the Regulatory and Supervisory frameworks for MFBs in 2010.

The Nigerian Agricultural Credit and Rural Development Bank (NACRDB) were restructured during the year (2010). The board of directors was re-constituted and the name changed to Bank of Agriculture (BOA)

The Urban Development Bank (UDB) was privatised and restructured to enable it attract the desired funding for financing infrastructure and other related development activities. Under the aegis of the Association of African Development Finance Institutions (AADFI), new prudential requirements/standards were drawn up to deepen the opportunities and ensure the sustainability of all reporting DFIs.

The Nigerian Export-Import Bank (NEXIM) got the sum of N18.28 billion (approx. US$121.86 million) from the CBN as additional capital to enable it restructure and reposition itself for improved efficiency and effectiveness.

The Federal Mortgage Bank of Nigeria (FMBN) board was re-constituted. The former Suburban Savings and Loans were acquired by Alliance and General insurance Co. Ltd and renamed Alliance and General Savings and Loans.

ASSEST MANAGEMENT CORPORATION OF NIGERIA (AMCON)

The Assets Management Corporation of Nigeria (AMCON) was established by an Act of Parliament, signed into the law on July 19, 2010. It commenced operations during the last quarter of 2010.

High incidence of non-performing loans in the industry coupled with the erosion of capital in some banks necessitated the setting up of AMCON.

AMCON, by design, is a multi-purpose resolution/recapitalisation vehicle that is empowered to buy up toxic assets from banks and to also inject the needed capital through the issuance of appropriate securities.

For the troubled banks where the CBN had intervened AMCON's role is to facilitate mergers, acquisitions or capital injections by new investors.

AMCON started with N10 billion (approx. US$66.6 million) capital, fully subscribed to by the government, and held in trust by the CBN and the Federal Ministry of Finance in equal proportions.

AMCON (Mandate)

  1. Acquiring non-performing loans (NPLs) from banks.
  2. Injecting needed funds to recapitalise the intervened banks.
  3. Stimulating the recovery of the financial system by providing liquidity.

Source: (Central Bank of Nigeria)

  1. Facilitating Mergers and Acquisitions transactions and strategic partnerships.
  2. Attracting institutional investors into the intervened banks, and
  3. Increasing access to restructuring/refinancing opportunities for distressed borrowers.

The activities of AMCON will be funded by bonds guaranteed by the Federal Government. The 24 participating banks and the CBN are to provide a total of N1.50 trillion(approx. US$ 10 billion) over the next ten years as a banking sector Resolution cost sinking fund to augment any shortfall between the funds raised through the realisation of bank assets required by AMCON and resolution cost of ensuring financial stability.

The CBN has pledged to contribute N50 billion (approx. US$ 333.3million) annually over the next ten years, while each of the participating banks is expected to contribute an amount equivalent to 30 basis points (0.3) per cent of its total assets as at the date of its audited financial statement for the immediately preceding financial year over the next ten years.

Since its establishment, AMCON has acquired non-performing loans from 20 (DMBs), valued at N2.165 trillion (approx. US$ 14.43 billion) at the end of Dec. 2010. In return, it issued 3-year zero coupon bonds valued at N1.036 trillion (approx. US$ 690.66 million).

EXCHANGE RATE AND MONETARY OUTLOOK

An indicator of economic stability is currency stability. The exchange rate of naira achieved some level of stability during the year. Naira exchange rate to the U.S. dollar fluctuated between N148.82 in 2009 to N150.31 in 2010 at the official Foreign exchange market.

At the Bureau-de-Change segment, Naira appreciated from N153.04 per dollar in 2009 to N152.84 per dollar in 2010. At the interbank segment, it went up from N151.05 per dollar in Q2 2010 to N152.77 per dollar in Q4 2010. This fluctuation was against the budget target of N150 per USD.

MONETARY OUTLOOK

Despite CBN's projected single digit interest rate, official interest rate on borrowed fund hovered between 15% - 18%. Manufacturers Association of Nigeria's field survey indicated an average interest rate of 21-25%. The high margin was attributed to high cost of infrastructural facilities, as well as high overhead and administration cost.

The Central Bank of Nigeria in its commitment to make macro-economic stability and overriding objection, and to reform the financial system making sure that banks play a greater role in the real sector, the Central Bank of Nigeria enunciated a blueprint anchored on four pillars:

  1. Stimulation of banks credit to fund critical sectors i.e. Small and Medium Enterprises (SMEs), infrastructure and agriculture.
  2. Setting up structure, banking infrastructure, such as credit Bureau and registrars, monitor cost of banks, and role of the informal economy
  3. Establishment of a hybrid monetary policy/macro prudential rule, and the   deepening of the Capital markets as alternative to the Bank funding.
  4. Development of Industry remedial measures to address key causes of financial crisis, as well as entrenching risk based supervision, regulations and consumer protection in the financial system.

The Central Bank of Nigeria also established N500 billion intervention funds for the development of the real sector i.e. Power, Manufacturing and Aviation. The Manufacturing sector of the fund was meant to refinance long outstanding loan facilities at a single digit interest rate of 7% per annum for a tenor of 10-15 years. However, as noted elsewhere, the fund was not deep rooted enough in that it did not provide for fresh loan facilities. The Central Bank of Nigeria also introduced a Credit Guarantee Scheme of N200 billion to revitalise Small and Medium Enterprise.

OPPORTUNITIES

  • The banking sector has continuously made fantastic profits and recorded steep growth inspite of its operational deficiencies. The re-capitalization has created even bigger opportunities for business especially in the following areas:-
  • Financing of acquisitions in the on going privatization programme.
  • Investment in big infrastructural projects like Roads, Mortgage Finance, Power, Supply, Manufacturing, Financing of big transport infrastructure like the railways.
  • Long-term deposits in the face of better structures of banks through capitalization on the Stock Exchange.
  • Collaborative finance of agricultural development and non Oil Export.
  • Consumer Finance Banking.
  • Financing of backward integration projects to provide alternative sources of raw materials to industries.
  • Projects in the Oil and Gas Sector involving Petrochemicals and Gas delivery for industrial and domestic use.
  • Big time Mining projects involving industrial minerals for domestic use and export.

Source:  Nigeria Stock Exchange Factbook

 

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