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  • Soludo worst CBN Gov-Says Okonjo-Iweala

    Soludo worst CBN Gov-Says Okonjo-Iweala

    The Coordinating Minister for the Economy and Minister of Finance Dr. Ngozi Okonjo-Iweala has responded to former governor of the Central Bank of Nigeria (CBN) Charles Soludo’s recent critique of the Nigerian economy, describing Soludo as the worst CBN governor in Nigeria’s history.

    Okonjo-Iweala in a statement from her office noted that “the consolidation of the banking sector was a good policy idea of the Obasanjo Administration but Soludo went on to thoroughly mismanage its implementation leading to the worst financial crisis in Nigeria’s history.”

    The finance minister stated that after Soludo’s consolidation exercise, “the regulatory functions of the Soludo-led CBN were very poorly exercised. As Governor, he failed to adequately supervise and regulate the now larger banks – an anomaly in Financial Sector Supervision. In his time there was very little separation between the regulators and the regulated which is a violation of a key requirement of Central Banking success.”

    This Okonjo-Iweala said “led to infractions in corporate governance in many banks as loans and other credit instruments running to hundreds of billions of naira were extended to clients without following due process, and several of these loans could not be paid back. This massive accumulation of bad debts or non-performing loans as they are called in the banking sector meant that our banks were ill-positioned to deal with the global financial crisis when it hit.”

    Okonjo-Iweala accused Soludo of bringing the banking sector to its knees and as such the sector “required a massive bailout by Nigerian tax payers. This bailout was done by his successor (now Emir of Kano) who cleaned up all the bad debts and transferred them to the newly-established Asset Management Company of Nigeria (AMCON), from where they are managed today.”

    For the record Okonjo-Iweala stated that “Soludo’s single-handed mismanagement of the banking sector led to an incredible accumulation of liabilities that will cost tax payers about N5.67 trillion (being the total face value of AMCON-issued bonds) to clean up.”

    This amount she said “is more than the entire Federal Government 2015 Budget, constitutes the bulk of Nigeria’s ‘contingent liabilities’ mentioned in Soludo’s article. It is only in Nigeria where someone who perpetrated such a colossal economic atrocity would have the temerity to make assertions on public debt and the management of the economy.”

    Concerning Soludo’s comments on the mismanagement of the economy and the imposition of the austerity measures, the finance minister lamented that “the fall in oil prices, a global phenomenon over which Nigeria has no control, has given every charlatan the opportunity to attack the economy, and by extension the managers of the economy.”

    Thorough examination of the facts on performance under the Jonathan Administration Okonjo-Iweala said “will also reveal that at a time when global economic performance was mediocre, with GDP growth averaging about three percent per annum, Nigeria’s GDP growth – averaging about six percent per annum – is indeed remarkable.”

    Even more interesting she said “is the fact that the oil sector did not drive this economic performance but the non-oil sector (Agriculture, Manufacturing, Telecommunications, the Creative Economy, and so on), which shows that the current Administration’s diversification objective under the Transformation Agenda is working.”

  • APC replies Soludo

    APC replies Soludo

    The All Progressives Congress (APC) will not ride to power on mere rhetorics of ‘change’, the party said yesterday through the Director, Policy, Research and Strategy of its Presidential Campaign, Dr. Kayode Fayemi.

    Fayemi was reacting to former Central Bank of Nigeria (CBN) Governor Prof Charles Soludo’s counsel that the APC presidential flag bearer Gen. Muhammadu Buhari should give facts and figures on how he plans to implement his party’s ambitious manifesto.

    Details of APC’s reply are on page 47.

  • CBN: banks lost N20b to frauds in six months

    CBN: banks lost N20b to frauds in six months

    The Central Bank of Nigeria (CBN) has traced rising cases of e-fraud in international card transactions to increased insider abuse. The fraud where perpetrated through theft and authorisation, it said.

    CBN’s report for the first half of 2013 contained in the ‘KPMG 2014  Customer Satisfaction Survey’ indicated that there were 2,478 fraud and forgery cases valued at over N20 billion. The figure represented an eight per cent increase over the previous year, and represents a significant increase in value of over 200 per cent from the 2012 figures.

    The report showed that two per cent of retail bank customers were defrauded in the last one year.

    CBN Director, Banking and Payments System Department, ‘Dipo Fatokun, said increased use of automation in most payment processes escalated the insider abuse because of banks’ weak authentication procedures.

    He said frauds were rampant when international hybrid cards issued by Nigerian banks are used in non-EMV environments, like the United States.

    EMV stands for Europay, MasterCard and Visa, a global standard for interoperation of integrated circuit cards for authenticating transactions.

    He advised banks to collate all their card frauds abroad and send to CBN not later than Friday. It also directed that all data on card-fraud occurring abroad should be rendered on the Nigeria Interbank Settlement System (NIBSS) fraud portal.

    He directed banks to implement a maker/checker control structure for all payment platforms, including account and database system maintenance on core banking systems. The lenders, he said, are to implement two factor authentication at login points for applications driving transfers, withdrawals, deposit, standing order, account maintenance and system maintenance processes.

    He said: “An implementation plan should be submitted to the Central Bank by January 30 and all banks are expected to fully comply by December 31, failing which defaulting banks would incur a penalty of N50,000 daily.”

    He said from next month banks would ensure that, only customers who indicate their intension of travelling to non-EMV jurisdictions would have their cards default to the magnetic stripe and for the period indicated by the cardholder only. To this end, banks should ensure that their customers are adequately educated.

    Meanwhile, the naira recovered from a record intraday low after two commercial lenders and an energy company sold dollars on the interbank market ahead of a CBN interest rate meeting, dealers said.

    The two lenders and Nigeria’s LNG sold an undisclosed amount of dollars, helping the naira to gain 2.3 per cent against the greenback to N187.50. The naira had earlier hit a record intraday low of N191.85 to the dollar.

    Dealers said the lenders had to sell dollars to remain within a regulatory open limit position on hard currency set by the CBN, while the energy company bought naira for its local operation.

     

  • President challenges critics of his economic policies

    President challenges critics of his economic policies

    President Goodluck Jonathan yesterday replied critics of his economic policies, challenging them to come out with facts and figures to contest the fact that the economy is Africa’s largest.

    Last year, the Jonathan administration rebased Nigeria’s economy and declared it the largest in Africa.

    The President said after the rebasing, the economy became the largest as recently attested to by the American Cable News Network (CNN).

    President Jonathan spoke in Ilorin, the Kwara State capital, at a campaign rally.

    Said he: “The economy you all know has become the largest in Africa after the rebasing, it was not by chance. We worked with the private sector…. a few days ago, the CNN announced that Nigeria has joined other nations where the economy will blossom.

    “If CNN can say that who is the economist in Nigeria that says that what the world has seen about Nigeria…? Who is the economist that can tell me that he is superior to the World Bank; the economists in the World Bank?

    “Who is the economist in Nigeria that can tell me he is superior to the economist in the IMF? Who is the economist in Nigeria that can tell me that he’s sharper or better focused than the CNN? People should stop deceiving Nigerians. We are working hard to move this country forward and we will work with the people of Kwara State to move the state forward.”

    The President also flaunted his administration’s credentials in the rule of law, saying it is strictly adhered to.

    The President said: “We don’t want to run a government by intimidation; I signed the FoI Bill, and promised that every Nigerian will be free. I want every Nigerian to be free. We don’t want to intimidate anybody; we want you to have the ability to express yourself without any fear of intimidation.

    “We don’t encourage our leaders to intimidate the followers; where people will be living as if they are in the zoo and the lions and leopard are moving freely and all the other animals have to go into hiding; no. That is not a government, Nigeria is not a zoological garden. Nigeria is not a forest.

    “Nigeria is a country governed by laws and conventions, a country where citizens must be free and where every citizen must be able to grow to the level that he so desires.”

    On his agricultural reforms, Jonathan said: “We will use SMEs to grow the economy .We are no longer talking of agriculture as a rural dwellers’ occupation but agriculture as a means of creating wealth, agriculture as means of creating millions. So many people in Kwara have keyed into that project and we will work you. Agriculture will accelerate the economy of this country.

    “Also, SMEs; we are working hard with the CBN. Funds are being released to people who are in that sector. When you talk about Asian Tigers, they became strong because of SMEs and not necessarily because of large industries.

    We are working very hard to ensure that we encourage SMES in Kwara State and in Nigeria to be able to create wealth for themselves. That is why we started the YouWIN. The beneficiaries will not be job seekers but creators of jobs for themselves and for others.”

  • PDP attacks Soludo

    PDP attacks Soludo

    Former Central Bank of Nigeria (CBN) Governor Charles Soludo came under fire yesterday from President Goodluck Jonathan’s Campaign Group for his submission on the management of the economy under the President.

    Soludo, in an article published by The Nation yesterday, rated the performance of the government low.

    But the Director, Media and Publicity of PDP Campaign Organisation, Femi Fani-Kayode in a statement said: “I read Charles Soludo’s contribution to the debate with amusement. I will be gentle with him because I have a soft spot for him. He has criticised the President, his government and his handling of the economy.

    “Meanwhile Nigeria has just won the prestigious award of being designated the largest economy in Africa and this has happened under the watch of President Goodluck Jonathan and no-one else.

    “Should any right-thinking person who has the nation’s interest at heart be complaining about that? Needless to say my friend and brother Charles Soludo is confused and conflicted. He seems to have lost touch with reality and this is what often happens when you spend too much time with the Buharists.

    “The truth is that Soludo is far too educated, civilised and advanced to be in the opposition. He belongs to the modern age and not the dark ages. I pray that sooner than later he comes to his senses and he sees the light.

    “One thousand Muhammadu Buhari’s cannot match one Goodluck Jonathan in terms of tolerance, compassion, performance or output. Buhari cannot even begin to understand the complex nature of the economy or the immense problems that we are facing in this country whilst Jonathan not only understands them but is also making a gallant effort at solving them.

    “I respect Charles Soludo immensely but I believe that he got it quite wrong here. He is in error and he needs to sit up, reconsider his views and review his unsavoury and disrespectful contribution.

  • CBN stops dollar sales to BDCs

    CBN stops dollar sales to BDCs

    The Central Bank of Nigeria (CBN) yesterday, stopped, with immediate effect, sale of dollars (forex) through the Retail Dutch Auction System (RDAS) and interbank to Bureau De Change (BDC) operators.

    A circular to authorised dealers signed by CBN Director, Trade & Exchange, Olakanmi Gbadamosi, however said the weekly sales of forex to BDCs will be sustained by the CBN based on the liquidity needs of the market.

    He explained that the regulator took the decision based on ongoing review of developments in the foreign exchange market and the need to check speculative demand in the market.

    Both the interbank and RDAS funds, he said, should be used for strictly funding of Letters of Credits, Bills for Collection and other invisible transactions. However, this is subject to appropriate documentation as provided by extant regulations.

    The RDAS and interbank funds, the he said, should no longer be sold to BDCs and other authorised dealers. “In continuation of the review of developments in the foreign exchange market and to curb speculative demand in the market, both the RDAS and interbank funds should henceforth be used, strictly for funding of Letters of Credits, Bills for Collection and other invisible transactions. It is also subject to appropriate documentation as provided by extant regulations,” Gbadamosi said.

    The CBN also reviewed upwards, the Net Foreign Exchange Trading position from 0.1 per cent of the shareholder’s fund unimpaired by loses, to 0.5 per cent of the shareholder’s fund unimpaired by loses.

    Currencies Analyst at Ecobank Nigeria, Olakunle Ezun told The Nation that the CBN by the circular has not only stopped selling dollars through the specified channels to BDCs, but also stopped banks from doing same.

    He said the circular followed CBN Governor, Godwin Emefiele’s directive that the regulator can only meet all legitimate transactions of dealers. He explained that before now, BDCs relied heavily on banks in souring their forex, and that with the policy directive; volume of dollars to the operators will shrink.

    The CBN two weeks ago, given approval to additional 102 BDCs, bringing the total approved operators to 2,544 since the recapitalisation deadline elapsed in July.

    The CBN had in June announced a new minimum capital requirement of N35 million for the operation of BDCs in the country, up from the N10 million it was previously.

  • Will CBN win naira rescue war?

    Will CBN win naira rescue war?

    Has the Central Bank of Nigeria (CBN) lost the battle to rescue the naira? This is the question many are asking as the currency continues to depreciate despite CBN’s efforts to stabilise it, writes COLLINS NWEZE.

    Ahead of next month’s elections, increased political risk, falling oil prices and lack of interest in investors’ frontier assets have put the naira under pressure.

    The naira has depreciated to an all-time low of 188.48 against the dollar. Last week, the currency was  3.5 per cent down, the lowest since November 14.

    This has depleted the foreign reserves. Policy makers are contemplating either to allow the currency to move in a wider range against the dollar or raise interest rates.

    But the Central Bank of Nigeria (CBN) Governor Godwin Emefiele has promised to stabilise the currency without following either routes. He listed some of the challenges he is facing defending the naira, adding that the naira/dollar exchange rate has been under pressure over the last couple of months.

    Explaining the difficulties in managing exchange rate stability, the CBN boss raised a poser: “What then can a Central Bank do to react to such a situation of falling reserves and pressurised exchange rates?

    “One course of action would be to continue to deplete the foreign exchange reserves in trying to keep the official rate at a stable level. But there are several difficulties with this option.”

    He said regardless of its critical nature in an import-dependent country such as Nigeria, the exchange rate operates like any other ‘price’ in the market.

    The dollar/naira exchange rate is simply the ‘price’ of dollars in naira. The forces of demand and supply, he said, determine its movement. “When demand rises, the price rises. When supply falls, the price also rises as well. In recent times, Nigeria has faced a perfect storm of simultaneous dwindling supply of dollars and rise in demand. Both forces have led to a rise in the price of dollars, that is, significant reduction in supply of dollars to the market, even with constant output of crude oil production,” he said.

    The other global factor, which has significantly reduced the supply of dollars in the market is related to the end of Quantitative Easing by the United States (U.S) Federal Reserve. At the height of the programme, the Federal Reserve was supplying a total of about $85 billion into the U.S economy on a monthly basis, through asset purchases. This programme came to an end in October last year, thereby significantly reducing the supply of U.S dollars in the global economy.

    Another difficulty which has contributed to the continuing depletion of Nigeria’s foreign reserves, and its capacity to defend the naira is that the combination of a fall in oil prices and the end of the Quantitative Easing programme by the US Federal Reserve have led to a depreciation of most currencies in the world against the dollar.

    Emefiele said an analysis of the year-on-year change in the exchange rate of 26 Emerging Market countries (including Brazil, China, India, South Africa, Turkey, Mexico, and Nigeria) indicates that their currencies have depreciated by about 8.1 per cent on average against the dollar.

    Steps taken by the CBN

    The CBN has directed that all importations involving electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions will henceforth be funded from the interbank foreign exchange market only.

    In a circular to all authorised dealers, CBN Director, Trade & Exchange Department, O. I. Gbadamosi told stakeholders that the policy was to maintain the existing stability in forex market and strengthen the various policy measures, already initiated by the CBN.

    On the development, Head, Africa Strategy at Standard Chartered in London, Samir Gadio, said: “The importation of electronics, finished products, information technology, generators, telecommunication equipment, and invisible transactions importations shall henceforth be limited to the interbank market only.

    “We’re seeing more foreign-exchange flexibility. Perhaps they do not want to burn FX reserves unnecessarily. It’s a risky strategy though as the market will now look for the topside of dollar-naira and also because the lower rates will reduce the incentive to hold naira fixed-income assets.”

    BDCs policy

    On June 23, last year, the CBN, among other things, raised the minimum capital requirement of BDCs to N35 million from N10 million. It raised the mandatory caution deposit to N35 million from $10,000.

    Again, on July 7, the apex bank extended the deadline from July 15 to July 31, in response to appeals and intervention of Association of Bureau De Change Operators of Nigeria (ABCON)and both chambers of the National Assembly.

    In a circular, CBN’s Director, Financial Policy and Regulation, Kelvin Amugo, said interest would be paid on the mandatory caution deposit of N35 million, based on the savings account rate. The CBN, Amugo said, would, on expiration of the deadline, cease to fund any BDC that failed to comply with the fresh requirements.

    Meanwhile, the CBN had given approval to additional 102 Bureau De Change (BDC) operators, bringing the total to 2,544 since the recapitalisation deadline lapsed in July.

    The apex bank had last August, published a list of 2,442 licensed BDCs, which it said, had complied with its new capital requirements of N35 million as at July 31, last year.

    There were 3,208 registered BDCs before the expiration of the deadline. The CBN had in June announced a new minimum capital requirement of N35 million for the operation of BDCs, up from the N10 million.

    To ensure that the forex dealers comply with the new capital requirements, the CBN had extended the deadline to July 31, last year. The forex dealers were previously given a deadline of July 15, last year. The apex bank had also stated that interest would be paid on the mandatory cautionary deposit of N35 million, based on banking industry savings account rate.

    It, among other requirements, also reviewed the mandatory cautionary deposit for BDCs upward to N35 million. The regulator had pointed out that on the expiration of the deadline on July 31, last year, that it would cease to fund any BDC that failed to comply with the new requirements, adding that “only BDCs that meet the new requirements would qualify to be engaged as agent by the licenced international money transfer operators for inward and outward transfer business in Nigeria.

    Dollar sales to BDCs slashed

    The CBN has cut dollar sales to BDCs by 70 per cent from $50,000 per week to $15,000.

    The N35 million caution raised from $20,000 represents a 1000 per cent hike among other conditions set by the apex bank in its June 23 guidelines for the subsector.

    Managing Director, Kayewd BDC Limited, Rotimi Dada, who confirmed the new dollar sales to BDCs, said the action has cut dollar supply to the market, and reduced profit margins for operators while the overhead costs remain the same.

    Speaking on the sideline of the ABCON public hearing in Lagos, he said operators had rents to pay, adding that they are not able to meet market demands for the dollar which is bad for the market. He said there is a multiplier effect of the policy, which makes it difficult for operators to buy dollar from commercial banks.

    Dada said the CBN was acting a bit hasty by cutting the dollar sales to BDCs and that the regulator should consult with stakeholders on what needed to be done. He said the CBN should see the BDCs as macroeconomic factors that favour the economy.

    Complex crises get worse

    The misfortune of the naira seems complex. The thinking is that massive inflow of forex from surging oil prices and the boom in the capital market were responsible for the appreciation of the naira in the past few years. Unfortunately, oil prices have nosedived and Nigeria capital market is in a shambles. The fall in the price of oil has major consequences on government revenue, aggregate output, capital formation investment, employment, trade and fiscal balance.

    The 2008 global financial meltdown also contributed to naira’s freefall.  Chief Executive Officer, Financial Derivatives Bismarck Rewane, said Nigeria was unprepared for the shock. “The Nigerian economy believed to be one of the most resilient in the world was caught unawares by the global crisis,” he said.

    Analysts said a gradual appreciation of the currency will require building confidence in the financial system and price of crude oil in international market. This is what is going to drive the exchange rate now and beyond. We cannot isolate what is happening in the global economy like the issue of diversification of energy sources.

    Policy makers speak

    Sub-Saharan Africa Economist at Renaissance Capital and co-Author of the Fastest Billion Yvonne Mhango said the CBN has shown absolute commitment to dealing with dwindling fortune of the naira.

    The official devaluation of the naira, she said, allows the Retail Dutch Auction System (RDAS) to move within the range that straddles the interbank foreign exchange rate. “While the market reaction to the RDAS move in the near-term will be important, we think that these measures deal as comprehensively as possible with the challenges facing Nigeria.

    “While Nigeria cannot do much to influence the oil price, the combination of measures sends a powerful signal to all stakeholders on the CBN’s intent to do what it can to preserve macroeconomic stability,” she said.

    Head, Equities Market at FBN Capital Olubunmi Ashaolu said the CBN has by the policy, set clear cut objective on its monetary policy direction. He said the stock exchange positive reaction was an indication that local and foreign investors now understand where the naira is heading. “As long as there is clarity and good investment climate, the equities market will benefit,” he said.

    He advised government to improve infrastructure, noting that such action would make Nigeria’s investment climate more attractive for foreign investors.

    Rewane said the MPC’s decision has reinforced the CBN’s independence and autonomy.

    He said the currency adjustment has a direct impact on the cost of imports and may undermine the MPC’s efforts at ensuring price stability in a hugely import-dependent economy. The devaluation, he added, would slow down external reserves depletion. “Since the naira is closer to equilibrium, the need to intervene will be less,” he added.

    To the President of National Association of Small Scale Industrialists, Chukwu Wachukwu, there are consequences wherever currencies are devalued. He said the naira devaluation would make government to jettison its sole reliance on oil and pay attention to other sectors of the economy. “We can’t just continue to depend on oil, we need to diversify,” he said.

  • CBN laments rise in e-fraud in int’l transactions

    CBN laments rise in e-fraud in int’l transactions

    The Central Bank of Nigeria (CBN) has traced rising cases of e-fraud in international card to increased insider abuse mainly through theft and abuse of authorisation.

    CBN Director, Banking and Payments System Department, ‘Dipo Fatokun, said increased use of automation in most banking payment processes has further escalated insider abuse in banks with weak authentication procedures.

    Fatokun said the fraud cases are rampant when International hybrid cards issued by Nigerian banks are used in non-EMV environments, like the USA.

    He therefore, advised banks to collate all their card frauds abroad and send same to CBN not later than January 30,. Also, all data on card fraud occurring abroad should be rendered on the Nigeria Interbank Settlement System (NIBSS) fraud portal.

    He advised banks to implement a maker/checker control structure for all payment platforms, including account and database system maintenances on core banking systems.

    The lenders, he said, are to implement two factor authentication at login points for applications driving transfers, withdrawal, deposit, standing order, account maintenance and system maintenance processes, adding that an an implementation plan should be submitted to the Central Bank by January 30, and that all banks are expected to fully comply by December 31, failing which defaulting banks would incur a penalty of N50,000 daily,” he said.

    Banks, he said, are to ensure that from February 01, only customers that expressly indicated their intension of travelling to non-EMV jurisdictions, would have their cards default to the magnetic stripe and for the period indicated by the cardholder only. To this end, banks should ensure that their customers are adequately educated.

    Meanwhile, the naira recovered from a record intraday low after two commercial lenders and an energy company sold dollars on the interbank market ahead of a CBN interest rate meeting, dealers said.

     

     

     

  • CBN to evaluate N700b intervention funds

    CBN to evaluate N700b intervention funds

    The Central Bank of Nigeria (CBN) yesterday said it is planning to undertake an impact evaluation of its intervention projects estimated at N700 billion.

    In a statement, the apex bank said the assessment will cover projects done since 2009 under the N200 billion Commercial Agriculture Credit Guarantee Scheme (CACS), N300 billion Power and Airline Intervention Fund (PAIF) and N200 billion Small and Medium Enterprises Restructuring and Refinancing Facility (SMERRF).

    The CBN is therefore, requesting for proposals from interested and competent organisations to conduct the impact evaluation of the scheme.

    Doing that, it said, would ascertain the extent to which it has met its stated objectives. That, it added would also identify the areas of success, impact and challenges; serve as input in evolving a new initiative for the financing of agricultural enterprises on a sustainable basis.

    The CBN had in collaboration with the Federal Ministry of Agriculture and Water Resources,  established the CACS in 2009. The CACS was meant to finance agricultural value chain from input supply to marketing. The scheme commenced operation on April 23, 2009 with the approval of the Federal Government.

    The CACS was meant to fast-track the development of the agricultural value sector of the economy through the provision of credit facilities at a single digit interest rate to large-scale commercial farmers.

    The N300 billion PAIF was meant to facilitate intervention in the transport sector. It was meant provide long term financing that would stimulate private sector participation in the sector.

    The CBN said the Fund provided the banks in the first half of 2013, is a window to finance power sector projects as well as restructure and refinance outstanding facilities in the aviation sector on a long-term basis of between 10 to 15 years at a concessionary interest rate of seven per cent.

  • CBN defers credit risk mitigation policy for oil sector loans

    CBN defers credit risk mitigation policy for oil sector loans

    The Central Bank of Nigeria (CBN) at the weekend, deferred the implementation of its credit risk mitigation framework for oil and gas loans. This is due to the on-going implementation of the Basel II/III capital adequacy framework.

    A letter to all banks signed by K.O Balogun, for Director, Banking Supervisions, said a new date would be advised to all banks in due course.

    The regulator however advised banks to put in place adequate risk mitigating techniques for the management of their oil and gas risk exposures which would be reviewed during its regular risk-based supervision activities.

    The letter, titled:  ‘Oil and Gas Industry Credit Risk Mitigation,’ referred to the December 10 circular, where the apex bank warned banks on dire consequences of the falling oil price on loan advances to the oil and gas sector, as well as the public sector.

    CBN Director, Banking Supervision, Mrs. Tokunbo Martins, said the falling oil prices and the potential for a further decline has been of major concern in recent times.

    She said  considering the quantum of exposure to the oil & gas sector, combined with risk management deficiencies revealed by the recent Risk Based Supervision exercise, there is a need to proactively guard against a crystallization of these risks.

    “The CBN therefore considers it essential to ensure that banks have sufficient capital buffers to mitigate these escalating risk taking activities. Where exposure to the oil and gas sector (as defined by the International Standard Industrial Classification of Economic Sectors as issued by the CBN) is in excess of 20 per cent of total credit facilities of a bank, the risk weight of the entire portfolio in the sector will attract weight of 125 per cent for the purpose of capital adequacy computation,” she said.

    Oil prices have declined from $107.89 per barrel in June to $85.06 per barrel in October, and currently trading at $50.33 per barrel. The possibility of further declines, she said, should not be underestimated.

    The CBN director said that a proposed single-factor sensitivity stress test showed that at $70 per barrel, 25 per cent of oil sector loans would become non-performing while 15 per cent of the loans will be nonperforming in the public sector.

    At $65 per barrel, 40 per cent of oil and gas portfolio becomes non-performing and 30 per cent for public sector loans. Also at $60 per barrel, 55 per cent of oil loans become non-performing while 45 per cent of the loans become non-performing in the public sector.

    The CBN has therefore mandated banks to forward to it, the computations and results of a single-factor sensitivity stress test, using specified template and guidelines, on the impact of volatile and falling crude oil prices on bank’s financial position, performance and prudential ratios.

    The regulator also wants lenders to ensure that projections for volumes of crude oil sales for upstream obligors are backed by independent and professionally prepared reserves estimation reports.

    It is requesting that adequate technical data be provided by the obligor for the management of obligor credit risk, including a copy of the feasibility study of the project being financed.

    The CBN is also asking lenders to ensure there is documented improvement in their monitoring activities of oil and gas exploration, production exposures. Oil and gas customers have a robust and effective enterprise management policy and system. Of key importance is a price risk hedging policy. A comprehensive review exercise on oil and gas obligors is conducted on a periodic basis. There is an improvement in the quality of credit file contents, organization and indexing, presentation, maintenance, management, and oversight. She said lenders will be assessed for compliance with these directives as part of periodic Risk Based Supervision review.