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Nigeria loses $20bn to capital flight – CBN

… issues new guidelines on margin trading

By Babajide Komolafe & Oscarline Onwuemenyi with agency report
LAGOS —CENTRAL Bank of Nigeria, CBN, said, yesterday, that Nigeria lost $20 billion to the global financial crisis through capital flight.

Director, External Reserves Management Department, Mallam Lamido Yuguda, who disclosed this in an interview with Bloomberg News agency, in Abidjan, said that the apex bank would soon increase the minimum level of external reserves to cover 12 months of import.

Yuguda who spoke ahead of the African Development Bank’s annual general meeting in Abidjan, May 27 and 28, said the country’s reserves currently covered about 18 months of import needs, adding that the increase from the present level of six months was meant to cushion the economy if there were further crises.

He said: “We are looking to increase that, given our experience during the crisis. A country like ours needs a very good cushion. We have a very open capital account.”

Yuguda said the global financial crisis resulted in capital flight of $20 billion in Nigeria in 2009, noting: “The crisis was a wake-up call for the central bank. It called on Nigeria to hold a buffer over and above six months of import cover.

There was a massive flow of capital out of the country.”

He also said the apex bank might reduce its Euro reserves if the euro currency continued to decline, adding that CBN held 15 percent of its foreign currency reserves in euros and almost 80 percent in dollars,

The euro slumped 8.1 percent against the dollar since the beginning of this month as concerns mounted that Greece’s debt crisis might spread to other nations in the euro zone.

Yuguda said: “We have about 15 percent of euro in our portfolio and that’s enough to make us concerned. We don’t change because of short-term developments. If there are long-term concerns then we’ll change it.”

The euro dropped as much as 1.9 percent to $1.278, yesterday, and was trading at $1.222 as of 1:17 p.m. in London.
Nigeria’s foreign reserves dropped to $39.8 billion on 19 May, 2010 from $41.1 billion a month earlier, the Central Bank of Nigeria said on 21 May. Reserves declined from a high of $58.3 billion in March 2008 as crude oil prices fell.

The CBN director said the bank was also reviewing the types of assets it invested in, given rising debt levels in Europe, adding: “Credit risk and country risk have become quite important. We are looking at all these risks and opportunities.”
The African Development Bank, Vanguard learnt, was considering creating a bond fund that central banks in Africa can invest part of their reserves in.

Banks lack knowledge of concept

Meantime, CBN has announced that it was in the process of reviewing licences of some microfinance banks in the country, citing a complete lack of understanding of the ideal and the methods for operating such banks.

The Deputy Governor in charge of Financial Sector Stability, CBN, Dr. Kingsley Moughalu said at the maiden Microfinance Certification Training Programme of Operators of Microfinance banks, organized by the CBN in conjunction with the Nigeria Deposit Insurance Corporation, NDIC, and the Small and Medium Enterprises Development Agency of Nigeria, SMEDAN, yesterday, in Abuja that the reason for the collapse of the some microfinance institutions in the country was poor corporate governance, non-adherence to best practice and ownership problems.

He said: “In the course of on-site and off-site supervision of the microfinance banks, so many issues bordering on corporate governance, adherence to best practice and ownership problems were identified.

“In addition, the banks had performed poorly due to lack of proper understanding of the microfinance concept, method and best practice, and lack of proper orientation on how to deliver microfinance services.”

Other challenges faced by microfinance bank operators, according to Muoghalu, included poor understanding of provisions of the guidelines of the microfinance policy and regulatory framework, and high rate of non-performing director-related facilities.

“Some of the directors, our investigations have shown, have over-bearing influence on management staff, who themselves lack relevant skills and knowledge in various microfinance lending models and operational service delivery models,” he stated.

CBN issues new guidelines on margin trading

LAGOS— THE Central Bank has issued new guidelines on margin trading, in an apparent bid to avert a repeat of the abuses and sharp practices that bedevilled margin trading in the run up to the capital market collapse.

The Financial Services Regulation Coordinating Committee, FSRCC, which issued the new guidelines, said this followed the Committee’s meeting on Friday May 21, 2010.

A statement by CBN’s Head of Corporate Communications, M. M. Abdullahi, said the new guidelines were that banks aggregate exposure to margin lending should not exceed 10 percent of total loans and advances.


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