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Concerns as Some Banks Show Signs of Weakness



A Central Bank of Nigeria (CBN) stress test has shown that only large banks will stay above the regulator’s capital adequacy ratio threshold if the non-performing loans levels of the Deposit Money Banks should rise by 50 per cent.


The results of the stress test were contained in the CBN’s latest Financial Stability Report posted on its website on Thurday.


According to the report, the end-June 2017 banking industry stress test, which covered 20 commercial and four merchant banks, was conducted to evaluate the resilience of the banks to credit, liquidity, interest rate and contagion risks (shocks).


The banking industry was categorised into large banks (those with assets up to N1tn or above); medium banks (those with assets more than N500bn but less than N1tn); and small banks (those with assets up to N500bn or below).


The stress test results stated, “The stress test showed that only large banks could withstand a further deterioration of their NPLs by up to 50 per cent. However, none of the groups withstood the impact of the most severe shock of a 200 per cent increase in the NPLs as their post-shock CARs fell below the 10 per cent minimum prudential requirement.


“The impact of the severe shocks on the banking industry, large, medium and small banks will result in significant solvency shortfall of 15.21, 9.78, 93.42 and 17.53 percentage points from the regulatory minimum of 10 per cent CAR, amounting to N2.77tn, N1.54tn, N0.98tn and N0.25tn, respectively.”


According to the CBN report, the average baseline Capital Adequacy Ratios for the banking industry, large, medium and small banks at the end of June 2017 stood at 11.51, 13.13, -6.71 and 13.54 per cent, respectively.


These represented a decline of 3.27, 2.34 and 19.46 percentage points for the banking industry, large and medium banks, respectively from the position as at end-December 2016.


However, the small banks group grew by 10.40 percentage points from 3.14 to 13.54 per cent


The CBN said the decline in the CARs was attributable to the challenges in the oil and gas sector coupled with the slow recovery in the domestic economy, which resulted to a rise in the NPLs and capital deterioration.


In the sectoral credit concentration risk stress test, the breakdown of banking industry’s total credit by sector showed that, oil and gas sector accounted for 28.83 per cent of the industry credit, while manufacturing, general, information and communications, government and others accounted for 13.76, 8.82, 4.94, 8.53 and 35.12 per cent, respectively at end-December 2016.


The report added, “The results of the stress test of default in exposure to oil and gas sector showed that the banking industry and peered groups, with the exception of medium banks, withstood up to 20 per cent default as their post-shock CARs remained above 10.00 per cent – industry (10.74 per cent), large banks (12.30 per cent) and small banks (13.34 per cent).


“Under a more severe shock of 50 per cent default, only small banks had CARs above 10.00 per cent (12.30 per cent). This showed that banking industry, large and medium banks were more exposed to the credit risk in the oil and gas sector than the small banks.”


The CBN liquidity stress test showed that after a one-day run, the liquidity ratio of the industry declined to 31.5 per cent from the 48.1 per cent pre-shock position, and to 11.8 and 7.9 per cent after a five-day and cumulative 30-day run, respectively.


According to the report, the asset quality of commercial banks declined in the first half of 2017.


The ratio of the NPLs to gross loans increased by 2.2 and 4.3 percentage points to 15.0 per cent at end-June 2017 compared with the levels at end-December 2016 and end-June 2016, respectively.


In his reaction under the Governor’s Statement on the FSR, the CBN Governor, Godwin Emefiele, said, “Reflecting the recession in the first half of 2017, there was noticeable deterioration in banks’ loan portfolios, especially exposures to the oil and gas sector and foreign currency denominated credit.


“To maintain financial system stability, efforts have been intensified to proactively engage operators to effectively manage the associated risks. Also, a framework for the establishment of private asset restructuring companies to acquire non-performing loans from banks and other financial institutions will be released in due course.”


The Deputy CBN Governor, Financial System Stability, Dr. Joseph Nnanna, stated that the regulatory attention was currently focused on ensuring an improvement in the quality of banks’ assets as well as ensuring that the banks contribute effectively to the real sector.


“The disruptions experienced in the economy with declining oil prices and government revenue resulted in an increase in the non-performing loans in the banking industry. The CBN will continue to monitor developments and initiate measures to limit contagion and ensure that financial institutions remain safe and sound,” he added.


The results of the CBN’s stress test were in line with the Article IV Consultation report by the International Monetary Fund, which highlighted the risks the banking sector faced, particularly with regards to solvency ratios of “four small and medium-sized undercapitalised banks,” Afrinvest, a Nigeria-based investment and research firm, said in a research note.


It noted that some of the “small and medium-sized banks are kept afloat through continuous recourse to the CBN’s lending facilities”


The IMF report stated that banks needed to raise their capital buffers hence, the CBN’s directive on dividend payment was a welcome development, while also calling for a broad review of asset quality to unmask potential capital needs.

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CBN Unveils Regulation for Payment of Bills



Godwin Emefiele, Governor of the Central Bank of Nigeria

Central Bank of Nigeria (CBN) has unveiled regulations for the payment of bills in the country, explaining that the move was to document the minimum standards that must be complied with for the processing of bill payment transactions.


In a circular released on its website at the weekend, the apex also stressed that the regulation is also to identify stakeholders in bill payment system space, ensure achievement of the vision of a ‘nationally utilized and international recognized’ payments system in Nigeria as well as to ensure adequate protection for the stakeholders in the bill payment system space.


According to the central bank, “Any person or entity desirous of operating a bill payment platform shall apply to the CBN for a license or be integrated to a duly licensed PSP.”


In addition, “All Inter-Bank transactions initiated and authorized on the bill payment platform shall be cleared via the Nigeria Clearing System and settled via Real Time Gross Settlement System (RTGS).”


Likewise, “Each component payment method implemented on the platform shall be in accordance with the rules issued by Central Bank of Nigeria to guide the conduct of market activities for relevant payment channels.”


On the operational procedure, the apex bank said, “There shall be a Service Level Agreement (SLA) executed between the platform provider and the Biller, as a condition for on-boarding,” which “shall provide the terms for engagement, roles and responsibilities of the parties, minimum service delivery commitments, obligations of the parties and penalties, as applicable.”


The CBN further said, “SLAs shall be reviewed periodically to ensure alignment with industry/regulatory changes, or appropriate provisions made to take cognizance of mandatory changes that may come into play after implementation.”


It noted that the minimum commitments to service availability would be defined and incorporated in the Dispute Resolution System (DRS) and SLA, and properly communicated to the users of the service.


The bank said transaction status upon completion must be sent by the biller to the payer and a procedure shall be in place for change management and shall include major releases, maintenance calendars and conditions for emergency upgrades and notification process.


On the dispute resolution system (DRS), the apex bank said payments shall be final and irrevocable and be consistent with the provision of the circular on the Statement of Payments Finality.


“All requests for refunds/recalls shall be via a dispute resolution system or other supplementary rules that guide the operations of the relevant payment method.


“Service Providers shall make an automated dispute resolution platform available to facilitate seamless resolution of complaints.


“Disputes arising from Bills Payment transactions shall be resolved amicably amongst the parties in line with the provisions of the guidelines on Operations of Electronic Payment Channels in Nigeria,” the CBN said.


It disclosed that, “Each platform shall be able to receive payment for multiple billers, clear transactions and settle such transactions through existing settlement mechanisms.”


On the scope of the regulations, the central bank said it covers bill payments on various payment channels and any payment platform that seeks to integrate the payment side of commercial activity and merchant aggregators in Nigeria.


“The payment methods include Cheques, Cards, Direct Debit, Instant Payments, and Automated Clearing House, etc,” it said.


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Nigerians Lose Faith in Banks as 2m Shun Services



Despite Central Bank of Nigeria’s (CBN) effort to promote financial inclusion, the Nigeria Inter-Bank Settlement System (NIBSS) banking industry statistics shows that the number of customers using financial services reduced in 2017.


The statistics obtained from the NIBSS website on Sunday, showed that the total number of bank customers dropped from 61 million in 2016 to 59 million in 2017.


Similarly, active bank accounts reduced from 65 million in 2016 to 63.5 million accounts in 2017.


According to NIBSS, the banking sector, however, made great strides in linking customers’ account using the Bank Verification Number (BVN).


The report showed that linked BVN accounts grew from 26 million in 2016, to 41.3 million in 2017.


According to a banking industry source, the reduction in banking customers is not unconnected to the Federal Government’s declaration to fight against corruption.


“When Buhari assumed office, many people abandoned their accounts, especially civil servants because of fear of investigation.


“While some out rightly closed down their accounts, others opted for gradual withdrawal so as not to raise alarm,’’ the source said.


The source, who works at one of the top five banks in the country, blamed the BVN for the low patronage of banking products, especially in the rural areas, where awareness was already very low.


A bank customer, Mr Olaitan Alagbe said that she closed some of her accounts due to unnecessary and illegal charges by banks.


“First of all, the interest rate is next to nothing, so there is little reason to keep your money at the bank when you can turn it over doing other businesses,” she said.


Another customer, who preferred to remain anonymous said he opened several accounts during the Ponzi scheme boom in the country, but was forced to abandon them after the schemes crashed in late 2016 and early 2017.


However, a source at the CBN said that the reduction in the number of banking customers was caused mainly by the introduction of BVN.


“The reduction may not necessarily be a bad thing. For example, many people opened accounts using different variations of their names.


“A person bearing Musa Salisu Mohammed, may have other accounts as Salisu Mohammed or Musa Salisu.


“So with the introduction of BVN, such customers were forced to regularise their names, however, some opted to close down their accounts, which resulted in the reduction of active bank accounts and customers,’’ the source said.


The CBN source was, however, optimistic that the financial inclusion strategy of the bank would succeed in bringing in more people into the formal banking system.


The Financial Inclusion strategy aims to ensure that major bulk of the money in the economy remains within the banking sector.


A major challenge in the financial inclusion process is how to ensure that the poor rural dwellers are carried along considering the lack of financial sophistication among this segment.


The CBN, Money Deposit Banks, Micro Finance Banks and other stakeholders are currently implementing different policies designed to enhance financial inclusion in the country.

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Benue Deploys Remita Software to Tame Payroll Fraud



Benue State Government has confirmed the deployment of a new payroll system into the state Civil service in the bid to check fraudulence practices on its payroll.


Mr David Olofu, State commissioner for Finance and Economic Planning, who confirmed this, revealed that the state has engage SystemSpecs’ Remita in managing the state’s salary payment and that this has really helped to get rid of fraud on the payroll.


It was gathered that the sum of N3.5billion salary fraud has recently been uncovered on the Benue State Civil Service payroll following a verification exercise to ascertain the over bloated wage of the state.


And since the deployment of the Remita software about 500 duplicate names and over 20 duplicate Bank Verification Numbers (BVN) were uncovered through Remita software.


Olofu said, “It is painful to me as commissioner for Finance to start something that I think will bring relief to us as a state.


“To me, it is important to look at what we have as against the solution we are presenting and to also look at the agreement and see if there is any shady deal. SystemSpecs did not come from heaven, they have been recommended,’’ he said.


He said that the Federal Government was presently using its platform, Remita for the payment of its workers’ salaries.


Olofu insisted that the payment of salaries needed a platform regardless of whether the payroll was prepared by civil servants or not.


“We must always use a platform for the payment of workers’ salaries, before this time, we were using the U-pay platform.


“When we came in, we discovered that salaries were paid through the platform but the system had many problems, which included duplication of names and we wanted to find out where the problems were coming from.


“We agreed in the ministry to do a trial with Zenith Bank to see if the challenges were as a result of normal banking problems or were caused by civil servants, that trial exposed a lot of issues including duplication of names on the payroll.’


The software has made enormous impact on the Nigerian economy in a relatively short time, and has attracted a global recognition for its role in engendering accountability and transparency in both private and public sectors.


A total of six states including Kano, Zamfara, and Benue have adopted Remita in their payroll management strategy. At the federal level, the smooth running of the Treasury Singly Account (TSA) is also facilitated by the Remita platform.


Remita is more than just a payment software, it also has HR and payroll functions which help businesses maintain a comprehensive, online employee personal and payroll data.


Licenced by the Central Bank of Nigeria (CBN), Remita is developed 100% in Nigeria to the highest international standards, and it has significantly assisted to revolutionise the e-payment industry in Nigeria.


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