By Babajide Komolafe

The Central of Nigeria (CBN) has established a team to develop measures on how to respond to the impact of the global debt crisis on Nigeria.

Meanwhile the CBN has reported a 41 per cent increase in the domestic debt of the federal government.

Deputy Director, Financial Sector Surveillance, Dr. Kingsley Moghalu disclosed this while fielding questions from journalists in Lagos on the nationalisation of defunct Afribank, Bank PHB and Spring Bank.

He said, “We are conscious of the debt crisis in Europe especially how it can affect us. If it persists it could cause decline in their economy and reduce demand for oil and hence decline in oil prices and this might threaten the budget benchmark for crude oil price which is $75 per barrel. But we are not folding out hands. Just yesterday we established a team to fashion out macro economics and macro prudential response to the impact of the global crisis on the economy. Nigerian banks could also possibly be affecting. But I can assure you we would not be caught napping by any possible development in the global economy.”

Meanwhile, the federal government’s domestic debt rose by 41 per cent in 2010 to N4.55 trillion, with banks as the highest lender to the government accounting for N2.6 trillion.

The CBN disclosed this in its 2010 annual report saying, “The stock of Federal Government domestic debt at end-December 2010 was N4,551.8 billion, representing an increase of 41.0 per cent over the level in 2009.

The development reflected the substantial borrowing through the issuance of FGN Bonds and treasury bills. The banking system remained the dominant holder of the outstanding debt instruments with, 67.9 per cent, and the non-bank public accounted for the balance of 32.1 per cent.

Disaggregation of the banking system’s holdings indicated that N2,605.0 billion, or 84.2 per cent, was held by the DMBs and DHs, and N487.5 billion, or 15.8 per cent by the CBN and the sinking fund.

Analysis of the maturity structure of the domestic dept showed that instruments of two (2) years and below accounted for N2,850.7 billion or 62.6 per cent, followed by instrument of two (2) to five (5) years at N501.7 billion, or 11.0 per cent; those with tenors between five(5) and ten (10)years totalled N 481.1billion or 10.6 per cent, and tenors of over ten (10)years at N718.3billion or 15.8 per cent.”

“At the FGN Bonds segment, the 4th, 5th, 6th and 7th FGN Bonds series were re-opened. Total outstanding at the end of the year was N2, 901.6 billion, compared with N1 ,974.9 billion at the end of the preceding year, representing an increase of 49.1 per cent. The development was traceable to the new issues to finance FGN’s budget deficit and the restructured NTBs”.

Of the total outstanding bonds, 0.02,5.5, 14.9,22.6,26.7 and 30.3 per cent were for the 1st FGN bond, 2nd FGN Bond,3rd FGN Bond,4th FGN Bond,5th FGN Bond, and 6th FGN Bond respectively, while the balance of 30.3 per cent was for the 7th FGN Bond.

A breakdown of the holdings of FGN Bonds showed that the banks and discount houses held 68.8 per cent, parastatals 10.0 per cent, the pension fund 11.8 per cent, brokers 0.8 per cent, and others 8.6 per cent.

Responding on the exposure of banks to FGN Bonds and its potential to trigger another crisis, Moghalu said, “We have discussed this concern and have advised the banks accordingly. But beyond this, we are working to ensure that overtime banks should not have more than five per cent non-performing loans. While we are studying the bond situation, banks however have the option of holding to maturity”.