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UPDATE ON REGULATORY LEGISLATION, CENTRAL BANK OF NIGERIA GUIDELINES, CENTRAL BANK OF NIGERIA CIRCULARS AND PUBLICATIONS
Please find below a list and brief summary of recent guidelines and circulars affecting the banking sector since the last update.
CENTRAL BANK OF NIGERIA COMMUNIQUE NO. 66 OF THE MONETARY POLICY COMMITTEE MEETING, NOVEMBER 03, 2009
This communiqué was issued by the Monetary Policy Committee of the Central Bank of Nigeria (CBN) pursuant to their meeting of 3rd November 2009. The Committee reviewed the domestic economic developments in line with the evolving international economic and financial situation. The Committee also considered Key Marco-economic and Financial Developments such as output and prices, monetary and financial market developments, and external sector developments. The Committee in the light of its considerations took the following decisions;
- The Monetary Policy Rate (MPR) will remain unchanged at 6% but an asymmetric corridor of interest rates around the MPR will be introduced. The rate on standing lending facility will remain at 200 basis points above the MPR while the rate on the standing deposit facility will be 400 basis points below the MPR.
- Quantitative easing to bridge the gap currently estimated at approximately N500 billion between the levels of the current monetary aggregates and the bench mark levels for 2009. The modalities for quantitative easing include investments in bonds to be issued by Asset Management Company (AMC), the setting up of which is subject to the approval of the national Assembly. Other modalities include the redemption of promissory notes issued by the Federal Ministry of Finance as well as by the CBN in connection with the retirement of debt and liabilities arising from purchase and assumption of failed banks.
- Purchase of loans by banks under the AMC will be based on terms aimed at strengthening the balance sheets with a focus on asset quality, improving liquidity and capital adequacy as well as on reducing debt overhang relating to the stock market in order to stimulate activity in the capital market.
- The temporary bans placed on Bankers’ Acceptance and Commercial Papers by the CBN will be lifted from 16th November 2009 with Guidelines being issued prior to that date.
- In view of the concluded audit of the banks and adequate provisions made for non-performing loans and to stimulate credit growth and strengthen banks’ balance sheets, the 1% general provision on performing loans contained in the existing prudential guidelines is waived for the year 2009 as a countercyclical measure. New prudential guidelines will be issued before the end of the first quarter of 2010.
It was also noted in the communiqué that the above stated measures are aimed at improving system liquidity and financial stability to regenerate confidence in the Nigerian markets and to further stimulate growth. It was further noted that the MPC is conscious of the upside risks as a result of quantitative easing but holds the view that progress in the execution of capital projects and favourable outlook on agricultural output growth will moderate the upside risks. The priority of the MPC is therefore to stimulate growth in output and to ensure financial stability with a view to improving the effectiveness of monetary policy.
RE: AMENDMENT OF PROVISIONS OF MEMORANDUM 11 ON EXPORT TRANSACTION IN THE FOREIGN EXCHANGE MANUAL
Ref: TED/FEM/FPC/GEN/01/158/09 DATED 2ND NOVEMBER 2009
This circular was issued by the CBN to all authorized dealers, Cobalt International Services Limited and the General Public informing all authorized dealers and oil exporters of the amendment of the provisions of Memorandum 11 Section 1(a) (ii) of the Foreign Exchange Manual which require submission of a Proforma Invoice by oil exporters at the point of registration of Form NXP. The requirement of the submission of a Proforma Invoice as a condition for oil exports has been waived with effect from the date of the circular. The waiver applies only to oil exporters. Non exporters are still required to submit the Proforma Invoice at the point of registering Form NXP.
PRESS STATEMENT DATED 4TH NOVEMEBER 2009
This press statement was issued by the CBN to the general public. The CBN noted the reports circulating in some sections of the press alleging that the CBN was against the Federal Government’s policy of deregulation of the downstream sector of the petroleum industry. The press reports were issued as a result of the MPC briefing by the CBN Governor on Tuesday 3rd November 2009. The CBN noted that the CBN Governor had not expressed any opposition by the CBN to the planned deregulation of the oil industry at any point in his briefing. The MPC had recognised the effect of the deregulation of petroleum products on inflation rate but had also noted the moderating impact of the improved agricultural output as well as the slack in demand as a result of the slow growth in monetary aggregates in its decision to retain the Monetary Policy Rate MRR at 6%. Therefore the CBN had made it clear that there was no basis to be wary of inflationary effects.
It was further noted that the CBN governor had made it clear that while inflationary effects was there, the long term positive impact of deregulation will far outweigh the initial pain as more funds will be available to the Government for key infrastructure and power which directly impact on economic growth. The investment in infrastructure and power will positively impact on output significantly and therefore dampen the inflationary threats.
In conclusion, it was noted that the CBN is in full support of the Federal Government’s policy on deregulation, in view of the inherent benefits and advantages to the economy and the press reports had been given out of context.
PRESS STATEMENT ON EQUITORIAL TRUST BANK DATED 4TH NOVEMBER 2009
The press statement was issued by the CBN to the general public with respect to Equatorial Trust Bank Limited (ETB). It was noted that pursuant to the audit of all banks by the CBN and the subsequent actions by the CBN, the shareholders of ETB have requested the CBN’s permission to rectify the lapses identified in the bank. The shareholders had therefore executed a Deed of Covenant on the following terms:
- The willingness of the shareholders to recapitalize the bank by way of injection of additional capital by June 30, 2010 at the latest;
- Restructuring, diversification and enlargement of the capital base of the bank either by way of a public offering of shares, securing a core investor or merger with a local bank within a 1 year period;
- Addressing the corporate governance issues in the bank which were mainly ascribed to the previous Executive Management team in the bank;
- Reconstitution of the Board of Directors of the bank through the retirement of two non-executive directors and the appointment of four new non-executive directors, including Dr. Mike Adenuga Jnr. (CON), an erstwhile member of the board, subject to the approval of the CBN; and
- Convening a board meeting of the bank’s shareholders to ratify, through a resolution all the nominated appointments of the bank’s board.
The CBN will closely monitor the implementation of the terms of the Covenant to ensure that the lapses are fully rectified and in the overall interest of the banking system.
PRESS RELEASE DATED 13TH NOVEMBER 2009: UPDATE ON BANKING REFORMS
The press statement was released by the CBN to the general public in furtherance of the banking reforms exercise aimed at ensuring the stability and soundness of Nigeria’s banking industry. The CBN by the statement informed the public of the appointment of advisers that will work with the 110 deposit money banks whose management were recently replaced – Afribank Plc, Finbank Plc, Intercontinental Bank Plc, Oceanic International Bank Plc, Union Bank of Nigeria Plc, Bank PHB Plc, Equitorial Trust Bank Plc and Spring Bank Plc; as well as Wema Bank Plc and Unity Banks Plc. The advisers are as follows;
- Deutsche Bank;
- Chapel Hill Denham;
- Stanbic IBTC;
- Olaniwun Ajayi LLP;
- Kola Awodein & Co;
- KPMG Professional Services; and
- Akintola Williams Deloitte.
The advisers are to work with the board and management of the above named banks by exploring the options of securing their stability and long term future growth and institutionalising best practise and good governance at each bank.
The CBN also restated its determination to ensure the stability of the banking sector within the shortest time possible. The Bank is also working to ensure that the proposed Asset Management Company is set up by the end of 2009 and the CBN will continue to come up with measures that will ensure the emergence of a banking system that is sound, strong and stable.
IMPORTATION OF COLD ROLL STEEL COILS AND ALUMINIUM ROOFING SHEETS INTO NIGERIA
Ref: TED/FEM/GEN/FPC/01/163/09 DATED 13TH NOVEMBER 2009
This circular was issued by the CBN to all authorized dealers, destination inspection service providers, the Nigerian Customs Services and the general public informing them that with effect from November 16 2009, the importation of aluminum roofing sheets of less than 0.50mm thickness and cold roll steel of less than 0.20mm thickness into Nigeria shall not be allowed. Request for establishment of Form ‘M’ for these items which do not meet the above stated specifications should not be entertained by authorized dealers. Transactions initiated before the issuance of the circular are mandated to be completed on or before 12th February 2009.
GUIDELINES ON THE ISSUANCE AND TREATMENT OF BANKERS ACCEPTANCES AND COMMERCIAL PAPERS DATED 18TH NOVEMBER 2009
The Guidelines were issued by the CBN in order to ensure uniform practice and correct treatment of Bankers Acceptance (BAs) and Commercial Papers (CPs) and to deepen and facilitate the effective and efficient functioning of the Nigerian money market. These Guidelines have introduced a fundamental change with respect to the way Banks utilize BAs and CPs as a basis for their facilities and have placed a constraint on the use of such notes for balance sheet management.
Under the Guidelines, every BA shall have an underlying trade transaction for which the Bank should hold the title documents to the merchandise as collateral for the acceptance. These documents should be available for the CBN Examiners’ scrutiny.
With regard to a CP, the issuer of a CP or the specific issue itself shall be rated by a rating agency registered in Nigeria or any international rating agency acceptable to the CBN. An indicative rating must have been obtained by the issuer at the time of submission of the declarations and information to the Central Securities Clearing System (CSCS). The issuer shall have a minimum of investment grade credit rating (BBB- or similar rating).
The Guidelines also cover areas such as general conditions for creating a BA and CP; documentation requirement for Bas and CPs; Rating requirement for CP issues; Tenor and Rollover of BAs ad CPs; Denominations of BAs and CPs; Limits and the amount of issue of BAs and CPs; underwriting of CPs; procedure for Issuance of BAs and CPs; roles and responsibilities of parties to CP issuance; reporting requirement for BAs and CPs; accounting treatment; disclosure requirements; and penalty for non-compliance.
Banks and discount houses are to ensure full compliance with the provisions of the Guidelines. All existing transactions and syndications as at the issue date of the Guidelines are allowed a transition period ending 31st March 2009. The accounting treatment provisions of Section 18 of the guidelines will however be immediately applicable.
A more detailed analysis of the Guidelines and its impact on transactions in the market will follow.
NOTICE OF MEETING ON IMPORT DUTY COLLECTION SCHEME (IDCS)
Ref: TED/FEM/GEN/FPC/01/67 DATED 25th November 2009
This circular was issued by the CBN to all designated banks, destination inspection service providers, and the Nigerian customs services (NCS) informing them of the Import Duty Collection Scheme meeting scheduled to hold at the CBN, Abeokuta branch on Friday 4th December 2009 at 11.00 am prompt. Representation at the meeting is restricted to 2 persons per bank who are conversant with the scheme and its operations.
Aluko & Oyebode
14 December 2009
