CBN Unveils 2018 Financial Stability Report

October 18, 2019/CBN

Global output growth declined to 3.70 per cent in 2018 from 3.80 per cent achieved in 2017, largely underpinned by dwindling consumer demand, decline in oil prices and weak financial markets. Global inflation trended upward, owing mainly to the pass-through effect of currency depreciation, especially for most emerging markets and developing economies. In Sub-Saharan Africa, however, inflation dipped slightly on account of weak consumer demand. International stock markets generally showed bearish performance, influenced majorly by heightened trade tension, weak economic growth and increased geopolitical uncertainties. With the exception of Brazil and Argentina, most other key stock markets declined considerably in the second half of 2018. Monetary policy rates for most central banks were kept relatively stable. In the foreign exchange market, major currencies depreciated against the US dollar with the exception of the Japanese Yen, the Mexican Peso and the Kenyan Shilling which appreciated during the review period.

On the domestic front, the economy continued its gradual recovery as the gross domestic product grew by 2.10 per cent in the second half of 2018. The improvement was largely attributed to the rebound of activities in the services and agricultural sectors. Inflationary pressures edged up slightly in the second half of 2018 as headline inflation (year-on-year) increased to 11.44 per cent in December 2018 from 11.23 per cent at end June 2018. External reserves declined by US$4.57 billion in the second half of 2018 to US$42.59 billion, while in the foreign exchange market, the naira remained relatively stable.

The non-expansionary stance of monetary policy continued in the review period in response to global and domestic economic developments. Relative to the level at end-December 2017, broad money supply, M3, rose by 16.58 per cent at end-December 2018. Net aggregate credit to the economy rose marginally by 6.42 per cent at end-December 2018, reflecting the increases in both net claims on the Federal Government and credit to the private sector. Reserve money grew by 0.32 per cent in the review period, higher than the 2018 indicative benchmark. The growth in reserve money reflected the increase observed in net domestic assets. The Bank continues to play its developmental roles by supporting the real sector through the various intervention programmes aimed at providing affordable credit for financing the sector.

The average short-term money market rates traded mostly above the MPR of 14.00 per cent. Money market rates closed higher at the interbank market with the overnight call and Open Buy Back rates trading above their levels in the preceding half year. Short-term maturities maintained dominance in the credit market, though their share to total credit declined. Similarly, banks’ short-term deposits (below one year) constituted a significant portion of the total. In the capital market, the Nigerian Stock Exchange All Share Index and Market Capitalization decreased, owing largely to foreign capital flow reversals.

Routine bank examination reports indicated improvements in the composite risk ratings of the banks. The CAR of the banking industry increased to 15.21 per cent from 12.11 per cent in the first half of 2018, reflecting improvement in the capital cover of banks’ exposures. Similarly, the industry ROA, ROE and interest margin recorded improvements, signifying the profitability of the industry.

During the period under review, the Bank established a new Department known as Payments System Management Department. Its mandate are to strengthen the supervision and regulation of payment service providers as well as facilitate early identification of emerging risks, thereby boosting public confidence in the payment system.

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