By Babajide Komolafe

As usual, 2013 was another eventful year for the banking industry.  While many factors influenced activities in the industry during the year, additional restrictions on foreign exchange, increase in Cash Reserve Ratio on public sector deposit, and financial inclusion were the dominant factors of the year.

MONETARY POLICY
Monetary policy was largely stable for most part of the year.  The Central Bank of Nigeria (CBN) defied calls for downward review of its Monetary Policy Rate (MPR), maintaining the rate at 12 per cent throughout the year.  Furthermore, in July, it sharpened its efforts to tighten money supply by increasing Cash Reserve Ratio (CRR) on public sector deposit to 50 per cent from 12 per cent.

This according to the apex bank was prompted by the huge idle cash in the money market, and the need to protect the naira from speculative attacks. The decision prompted withdrawal of N1.2 trillion from the banking system and caused interbank interest rate to rise temporarily.

FOREIGN EXCHNAGE
The foreign exchange market experienced increased demand from January to September, causing the naira to depreciate in the interbank and parallel market.
Forex Sale: Reflecting the increased demand for foreign exchange, foreign exchange sales at the Wholesale Dutch auction System (WDAS) for the year rose to $25.37 billion, up by 32.9 per cent from $19.1 billion sold in 2012.

From $3.88 billion in the first quarter, foreign exchange sale rose by 70 per cent to $6.62 billion in the second quarter. In the third quarter, it rose again by 22 per cent to $8.09 billion.
CBN Intervention: To address this trend, the CBN intervened  with a series of measures including direct sale of foreign exchange to banks at specific exchange rate.

The apex bank banned importation of foreign currency, and dollar collection of the proceeds of international money transfer. The CBN also restricted margin of Bureaux De Change (BDCs) to two per cent, and margin of banks’ foreign exchange sales to BDCs to one per cent above interbank rate. Furthermore, the apex bank suspended WDAS and replaced it with Retail Dutch Auction effective October 2nd.

It also increased the limit on Visa Naira debit card and credit card to $150,000 per year from $40,000. As a result of these measures official  foreign exchange sale fell by 16 per cent to $6.78 billion in the last quarter of the year.
Exchange rate: While the official exchange rate was relative stable throughout the year, the interbank market exchange rate and parallel market rate rose and fell in reflection of demand situation in the market.

From N158.84 per dollar at the beginning of the year, the interbank exchange rate rose by 3.2 per cent to its peak of N163.11 per dollar at the end of August. It however fell by 1.9 per cent to close the year at N159.96 per dollar. The parallel market exchange rate however deviated  from this trend. From N159 per dollar in January, it rose steadily throughout the year to  N170 per dollar as at the close of business on Friday, December 27.

INTERBANK
The interbank money market enjoyed robust excess cash during the year. This is reflected in the relative stability of cost of funds in the market. For example interest rate on Open Buy Back (secured lending) opened at closed at 10.63 in January, dropped to its lowest at 10.17  in  March  and closed at 10.71 on December 24th. Interest rate on Overnight lending followed similar pattern, closing at 11 per cent in January, recorded the lowest of 10.29 in March, and highest point of 11.67 in August, but closed at 11 per cent on December 23rd.

Deviation: The relative stability of the interbank money market  suffered temporary setback between August and September when the cost of funds rose sharply to unprecedented level in response to the implementation of the 50 per cent CRR for public sector deposit.

Specifically, on September 18th, lending rates hit 55.8 per cent, the highest in the interbank money market since 1998.  The rapid and radical increase in rates started in August, when banks started feeling the impact of the decision of the CBN in July to further tighten money supply with 50 per cent reduction in the amount of public sector deposits banks can hold as cash.

The implementation of the policy, which was effected on August 7th, prompted interbank rates to rise, but moderately. However the rate increase became aggravated from Thursday September 12, as the money market experienced severe outflow of funds, while expected inflows, especially the monthly statutory allocation funds to the three tiers of government was delayed.

Hence, from 13.75 per cent that Thursday, interest rate on Overnight Lending rose to 23.68 per cent on Friday, 25.8 per cent on Monday 16th, 44.6 per cent on Tuesday 17th, and 55.8 per cent on Wednesday 18th. Realising how explosive the situation was, and the danger it posed to the health of many banks, the CBN decided to relax its tight money supply policy.

That day, it allowed banks to simultaneously use their treasury bills to borrow from its Standing Lending Facility (SLF), and also participate in the official foreign exchange auction sessions (Wholesale Dutch Auction System). It had previously banned banks that borrow from its SLF, from participating in WDAS.  The impact of the decision on cost of funds in the interbank money market was immediate and profound.

The following day, Friday September 19th, interest rate on Overnight Borrowing crashed to 13.25 from 55.8 per cent. However, the average cost of funds still ended the month higher than the level in the previous month.  From 11.6 per cent in August, a v e r a g e interest rate on Overnight Borrowing rose to 18.76 per cent at the end of September.

AMCON
The Asset Management Corporation of Nigeria featured prominently in the banking industry in 2013. The Corporation in October commenced the process of selling the three bridge banks in October when it advertised Request for Expression of Interest in Enterprise Bank.

The general anxiety over the maturity of N2 trillion AMCON bonds was, however, laid to rest, with the CBN buying the bonds from the Corporation, while banks, were to be repaid either in cash or treasury bills.

NEW BANKS
The number of banks operating in the country increased by three in 2013 with Heritage Bank, Rand Merchant Bank and FSDH Merchant Bank commencing operations. FSDH commenced operation in  January, while Rand Merchant Bank and Heritage Bank  opened for business in February.

REGIONAL EXPANSION
Two of Nigeria’s bank, namely First Bank and GTBank intensify their regional expansion across Africa. First Bank acquired 100 per cent equity interest in the West African subsidiaries of the International Commercial Bank Financial Group Holdings AG (ICBFGH). Thus the bank has expanded its operations to four more countries on the continent.

GTBank on its part acquired   70 per cent shareholding in Fina Bank Limited, a Kenyan bank with subsidiaries in Uganda and Rwanda. As a result, Fina Bank Limited, Kenya, Fina Bank Limited, Uganda and Fina Bank Limited Rwanda became subsidiaries of GTbank.

CASHLESS POLICY
On July 1st the policy was extended to five states and the federal capital city namely Abia, Anambra, Kano, Ogun and Rivers State Federal Capital Territory (Abuja). And on October 2nd the cashless charges became effective in the states. The impact of the policy on electronic payment transactions is revealed in the volume and value of PoS transactions from January to October. From about 400,000 per month, volume grew to one million per month, while the value of transactions grew to N18 billion per month.

FINANCIAL INCLUSION
In order to facilitate access to banking services, the CBN in January introduced Tiered Know Your Customer principle. The Bank also introduced agent banking, with Sterling Bank launching the first agent banking scheme in November.

BANK CHARGES
In March the CBN introduced a new Guide to Bank charges. Highlight of the new guide include: cancellation of Monthly ATM maintenance fee; cost of SMS alert pegged at N4; On electronic transfers, N70 charge on transactions below N500,000; N100 charge on transactions between N500,000 and N1million; for transactions above N1million, a charge of N500 will be applicable; Interest rate on  on savings deposit accounts  pegged at  a minimum of 30 per cent of the Monetary Policy Rate.

REVOCATION OF LICENCES
The year also witnessed the revocation of the operating licence of a number of financial institutions. In January, the licenses of 236 BDCs were revoked, while the licenses of 20 were suspended in September. Also the license of Express Discount House was revoked in July, thus reducing the number of discount houses in the country to four.

DUD CHEQUES
In November, the CBN introduced new measures to curb the rising trend of dud chques in the country. The apex bank said henceforth, anybody that issues dud cheques on three occasions would be blacklisted from the banking system and would be reported to the Economic and Financial Crimes Commission (EFCC).