Background

The 2008 Nigeria bank crisis was according to the Central Bank of Nigeria (CBN) caused by macroeconomic instability from large and sudden capital inflows, lack of investor and consumer sophistication, major failures in corporate bank governance, uneven supervision and enforcement, inadequate disclosure and transparency about the financial position of banks, critical gaps in the regulatory framework and regulations, unstructured governance and management processes at the CBN, and weaknesses in the business environment.

Past Reform and Achievements

To address the identified factors and ensure a stable financial system, the government, through the CBN, embarked on reforms. About ₦620 billion was injected into the banking industry to shore up the capital of nine banks, and prevent their collapse. The chief executive/executive directors of eight of these banks were additionally removed from their positions.

To sustain liquidity in the financial system, the CBN continued to guarantee the interbank market till 31 December 2011. Foreign creditors and correspondent banks’ credit lines were also guaranteed to restore confidence and maintain important correspondent banking relationships.

A new banking model that prevents banks from investing in non-bank subsidiaries was instituted. Banks were also classified into international, national, regional, mono- line, and specialized Islamic categories, to increase efficiency. The Asset Management Corporation of Nigeria (AMCON) was established through an Act of the National Assembly and assent of the President. It was further made mandatory that banks change external auditors after having being audited by same for ten years. New point of sale guidelines were issued to encourage banks and other service providers embrace POS electronic devices.

As of March 2013, the CBN had recovered the sum of ₦7.9 billion that banks illegally charged their customers. The asset quality of banks improved from 4.03% in December 2010 to 17.9% and 17.8% in December 2011 and in June 2012, respectively – above the global threshold of 10%. The industry non-performing loans (NPL) ratio fell from 15.49% at end period December 2010 to 4.95% and 4.3% at December 2011 and June 2012 respectively. The industry liquidity ratio was high at 69.06% and 62.67% respectively, at end-December 2011and June 2012, up from 47.46% at end-December 2010.

Challenges and Next Steps

Focused leadership at the CBN should be ensured, to sustain the reforms. Balance should continue to be struck between stability and reform in the financial sector; while bank monitoring should be enhanced, to prevent bank crisis.