Global output was projected to grow at 3.1 per cent in 2013, the same rate as in 2012, owing to weak demand and growth in major emerging economies, persisting crisis in the Euro area, and weak expansion of the US economy. These factors, combined with improved supply of commodities, were also significant in moderating the global inflation rate to a projected 1.5 per cent in 2013, from the 2.0 per cent recorded in 2012. Crude oil price was projected to decline to an average of US$100.09 per barrel in 2013 with possible reduced earnings for Nigeria, given her high dependence on crude oil exports.
In the first half of 2013, monetary policy rates remained low in most advanced economies, as the US Federal Reserve, the Banks of England, Canada and Japan and the European Central Bank held interest rates at between 0.25 and 1.00 per cent. In most developing and emerging economies, monetary policy remained accommodating.
In Nigeria, economic growth remained impressive in the first half of 2013, with projected GDP growth of 6.56 and 6.18 per cent in the first and second quarters of 2013, respectively. The non-oil sector continued to drive growth, contributing 87.1 per cent to GDP in the review period. Although oil production declined, oil contributed 12.9 per cent to the gross output. The CBN maintained its tight monetary policy stance, which significantly moderated inflationary pressures, with the year-on-year headline inflation rate decelerating to single-digit in the review period. Also, money market rates fell marginally. Rates at the foreign exchange market were relatively stable. Gross external reserves rose by US$1.13 billion to US$44.96 billion at end-June 2013, which was adequate to finance11 months of imports.
The dominance of a few banks in the industry continued in the first half of 2013. The maturity mismatch and the near-absence of long-term deposits continued to constrain the ability of banks to create long-tenor risk assets necessary for economic development. The asset quality of banks declined slightly but remained within the maximum threshold of 5.0 per cent. On the other hand, the level of capitalization of the banks improved during the period.
The results of the examination of banks and other financial institutions showed improvement in risk ratings. The CBN granted an approval-in-principle for the incorporation of the Nigeria Mortgage Refinance Company (NMRC), a private-sector led second-tier, non-deposit taking financial institution, to enhance liquidity in the mortgage sub-sector. The CBN also continued the implementation of its financial inclusion strategy, which targets a reduction of the current financial exclusion rate of 46.3 per cent to 20 per cent in 2020. Also, AMCON announced its planned redemption of bonds held by private investors at maturity while the revised Guide to Bank Charges became effective from April 1, 2013.
In the payments system, some significant milestones were achieved, including the nationwide commencement of cheque truncation, a reduction in the clearing cycle to T+1, as well as an extension of the third party cheque encashment limit of 150,000, nationwide.
This edition of the FSR is divided into five sections. Section one reviews global and domestic economic and financial developments, highlighting key stability issues. Section two chronicles developments in the financial system; while section three covers regulatory and supervisory activities. Key developments in the payments system are highlighted in section four. Finally, section five provides the outlook for the financial system.
Source: CBN
