Arp 2004 Part1

CENTRAL BANK OF NIGERIA
Annual Report
And
Statement of Accounts
FOR THE YEAR ENDED

31ST DECEMBER, 2004.
Central Bank of Nigeria

Corporate Head Office
Central Business District
P.M.B 0187
Garki Abuja
Website: www.cenbank.org
Tel: +234(0)961638707
+234(0)961638762
ISSN 1597 - 2976
Vision
T o be one of the most efficient and effective
world's central Banks in promoting and
sustaining economic development.
Mission
To
be proactive in providing a stable

framework for the economic development of
Nigeria through the effective, efficient and
transparent implementation of monetary and
exchange rate policy and management of the
financial sector.
AS AT 31ST DEC., 2004.
PROF. CHARLES C. SOLUDO

Chairman of the Board
MALLAM BASHIRU TUKUR

Director
APOSTLE H. I. ALILE. OFR

Director
DR. SHAMSUDDEEN USMAN, OFR

Deputy Governor
MR. ERNEST C. EBI

Deputy Governor
PROF. M. O. KAYODE
Director
MR. S. INIE AKONO

Director
MR. TUNDE LEMO

Deputy Governor
DR. (MRS.) UCHE AZIKIWE, KSP, MFR

Director
MRS. WAHIR D. A. MSHELIA

Deputy Governor
ALHAJI U. B. GIREI
Secretary to the Board
DR. HARUNA U. SANUSI

Director
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
1.
2.
3.
4.
5.
A.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
B.
1.
2.
MEMBERS OF THE BOARD OF DIRECTORS OF THE

BANK AS AT 31ST DECEMBER, 2004
Prof. Charles C. Soludo
Governor (Chairman)
Dr. Shamsuddeen Usman, OFR
Deputy Governor
Mr. Ernest C. Ebi
Deputy Governor
Mr. Tunde Lemo
Deputy Governor
Mrs.Wahir D. A. Mshelia
Deputy Governor
Mallam Bashiru Tukur
Director
Prof. M. O. Kayode
Director
Apostle H. I. Alile. OFR
Director
Mr. S.Inie Akono
Director
Dr. (Mrs.) Uche Azikiwe, KSP, MFR
Director
Dr. Haruna U. Sanusi
Director
Alhaji U. B. Girei
Secretary to the Board
MEMBERS OF THE COMMITTEE OF GOVERNORS OF THE
BANK AS AT 31ST DECEMBER, 2004
Prof. Charles C. Soludo
Governor (Chairman)
Dr. Shamsuddeen Usman, OFR
Deputy Governor
Mr. Ernest C. Ebi
Deputy Governor
Mr. Tunde Lemo
Deputy Governor
Mrs. Wahir D. A. Mshelia
Deputy Governor
Alhaji U. B. Girei
Secretary
PRINCIPAL OFFICERS OF THE BANK AS AT
Departmental Directors
Alhaji M.S. Garba
Mrs. O.A. Demuren
Mr. O.I. Imala
Dr. S.O. Aladesulu
Alhaji U. B. Girei
Mr. A. S. Bamisile
Dr. O. J. Nnanna
Mrs. O. O. Akanji
Mr.B.C. Onyido
Mr. D. T. Bango
Alhaji M. Nda
Mr. W.W. Ahrey
Mr. G.E. Ukpabio
Mr. S.A. Oni
Alhaji G. Ahmed
Dr. (Mrs.) S.O. Alade
-
Finance
Human Resources
Banking Supervision
Information Technology
Corporate Secretariat
Internal Audit
Research & Statistics
Trade & Exchange
Currency & Branch Operations
Development Finance
Foreign Operations
Strategy & Performance
Office of the Governor
Other Financial Institutions
Procurement & Support Services
Banking Operations
Economic Policy
Mr. A.O. Olatujoye
Legal Adviser
Special Advisers to the Governor

Mr. P. A. H. Ataman
Dr. Chidozie E. Emenuga
Personnel and Admin. Matters

Policy and Economic Matters
CBN Annual Report & Statement of Accounts for the Year Ended 31st December, 2004.
31ST DECEMBER, 2004
Page:
TABLE OF CONTENTS
Statement By The Governor................................................................................................... xxi
Executive Summary................................................................ xxvii
PART ONE: ACTIVITIES OF THE CENTRAL BANK OF NIGERIA IN 2004
1.0
MONETARY, FINANCIAL AND OTHER POLICY STANCE IN 2004........

1.1
Monetary and Financial Policy Stance .....
1.1.1
Liquidity Management..........................
1.1.2
Interest Rate Policy ......
1.1.3
Financial Sector Surveillance ...............
1.1.4
Payments and Clearing System Policy .................................
1.2
External Sector Policy....................................................
1.3
Other Policy Objectives.............................
1.3.1
Developmental Programmes.............
1.3.2
Corporate Social Responsibility........................
3
3
4
4
4
6
6
6
6
7
2.0
APPRAISAL OF MONETARY POLICY AND OPERATIONS OF THE CBN......

2.1
Monetary and Credit Developments..........................................
2.1.1
Open Market Operations (OMO)..........................
2.1.2
Interest Rate Developments .............
2.2
Institutional Developments............................
2.2.1
Growth and Structural Changes........................
2.2.2
Legal and Regulatory Developments............................
2.2.3
Monitoring Banking Sector Soundness.................
2.3
Surveillance Report on the Activities of Financial Institutions.
2.3.1
Fraud and Forgery.................................
2.3.2
Public Complaints Desk............................................
2.4
The Payments and Clearing System...................................
2.4.1
Institutional Arrangements................................
2.4.2
Issue of Legal Tender................................
2.4.3
Cheque Clearing........................................
2.4.4
Large Value Inter-bank Funds Transfer (LVIFT)..........
2.4.5
Use of e-Money Products......................................
2.5.
Foreign Operations.................................................................
2.6.
Other Developmental Functions of CBN......................
2.6.1
The Small and Medium Industries Equity Investment
Scheme (SMIEIS).............................
2.6.2
The SME II Loan Scheme.............................................
9
9
11
12
13
13
14
14
15
17
17
17
17
18
19
20
20
20
21
21
23
Page: vii
2.7
2.8
2.6.3
The Agricultural Credit Guarantee Scheme Fund (ACGSF).
Other Activities of the CBN...................
2.7.1
Board of Directors and Other Committees........................
2.7.2
Restructuring of the Central Bank of Nigeria (Project
EAGLES)..............................................................................
2.7.3
Monetary Policy Forum............................
2.7.4
Staff...............................
2.7.5
Training ........................................
2.7.6
Sports.................................................
2.7.7
Corporate Social Responsibility....................
2.7.8
CBN Primary School....................
2.7.9
Development of CBN Headquarters and Branch Offices.............
2.7.10
Computerization Programme................
2.7.10.1
Library Operations.............
2.7.11
Legal Services...........
The CBN Accounts.....................................
2.8.1
Income and Appropriation.
2.8.2
The Balance Sheet.........
2.8.2.1
Total Assets................
2.8.2.2
Total Liabilities..........
23
25
25
25
26
26
26
26
27
27
27
28
28
28
29
29
30
30
30
PART TWO: ECONOMIC REPORT

3.0
GENERAL SURVEY OF THE ECONOMY................

3.1
Domestic Output................................
3.2
Domestic Prices.........
3.3
Federal Government Fiscal Operations.....
3.4
Monetary Developments....................
3.5
The External Payments Position........................
3.6
Exchange Rate Movements .......
3.7
International Economic and Financial Developments.......
33
33
34
34
34
35
35
35
4.0
THE FINANCIAL SECTOR..........................

4.1
Monetary and Credit Developments..........
4.1.1
Monetary Developments.......................
4.1.2
Banking System Credit......
4.1.3
Deposit Money Banks.......................
4.2
Community Banks (CBs)...............................
4.3
Other Financial Institutions.......................
4.3.1
Discount Houses............................
4.3.2
Finance Companies (FCs).........
37
37
37
37
38
41
41
41
41
Page: viii
4.3.3
Primary Mortgage Institutions (PMIs).......
4.3.4
Bureaux-de-Change (BDCs)......
4.3.5
Development Finance Institutions (DFIs).....
Financial Savings...
Money Market Developments........
4.5.1
The Inter-bank Funds Market............
4.5.2
Nigerian Treasury Bills.................
4.5.3
Treasury Bonds..............................
4.5.4
Commercial Papers (CPs).............
4.5.5
Bankers' Acceptances............
4.5.6
Open Market Operations (OMO)..............
Capital Market Developments...
4.6.1
Nigerian Stock Exchange (NSE)...........
4.6.1.1
The Secondary Market.......
4.6.1.2
Value Index of Equities..............
4.6.2
New Issues Market............
Nigeria's Flow of Funds Statements, 2004....
4.7.1
Financing Balances........................
4.7.2
Sectoral Analysis...........
4.7.2.1
The Rest of the World....
4.7.2.2
The Financial Sector......
4.7.2.3
The General Government.......................
4.7.2.4
The Non-Financial Business Sector...........
4.7.2.5
The Households..................................
42
42
42
43
43
44
45
46
47
47
47
48
48
49
49
49
49
49
50
50
50
51
51
51
FISCAL OPERATIONS..................................................
5.1
Federation Account Operations..............
5.1.1
The Federation Account Allocation...
5.2
Federal Government Finances.......................
5.2.1
The Federal Government Retained Revenue.........
5.2.2
The Federal Governments Total Expenditure...
5.2.2.1
The Recurrent Expenditure........
5.2.2.2
The Capital Expenditure........
5.2.3
The Overall Fiscal Balance and Financing....
5.3
State Governments' Finances.........
5.4
Local Governments' Finances........
5.5
The Consolidated Government Debt.
5.5.1
Domestic Debt...
5.5.2
The External Debt......
5.5.3
Debt Service Payments......
53
53
54
54
54
55
55
56
57
57
58
58
59
59
60
4.4
4.5
4.6
4.7
5.0
Page: ix
5.5.3.1
External Debt Service Payments........
5.5.3.2
Domestic Debt Service Payments..........
The Debt Conversion Programme ................
60
61
61
THE REAL SECTOR.............

6.1
Domestic Output....
6.2
Agriculture.........................
6.2.1
Agricultural Production.....
6.2.2
Agricultural Prices.........
6.3
Industry..................................
6.3.1
Manufacturing............
6.3.2
Mining...
6.3.2.1
Crude Oil........
6.3.2.2
Gas.................
6.3.2.3
Solid Minerals........
6.3.3
Electricity Generation............
6.3.4
Energy Consumption.........
6.3.4.1
Petroleum Products............
6.3.4.2
Electricity Consumption ...........
6.3.4.3
Coal Consumption.........
6.3.4.4
Natural Gas Consumption......
6.3.4.5
Hydropower Consumption ......
6.4
Transportation and Communications.........
6.4.1
Reported Road Accidents..........
6.4.2
Airline Services.........
6.4.2.1
Domestic Airlines...........
6.4.3
Railway Services...........
6.4.4
Communications............
6.5
Unemployment and Industrial Relations........
6.5.1
Unemployment..................................
6.5.2
Industrial Relations...........
6.6
Consumer Prices....
6.7
Social Sector..............
6.7.1
Living Standards and Poverty Reduction......
6.7.2
Healthcare Delivery.......................
6.7.3
Education...............
6.7.4
Water Resources Development..........
6.7.5
Demography..............
6.7.6
Environment..........
63
63
64
64
66
67
67
68
68
69
69
69
70
70
71
71
71
71
71
71
72
72
72
72
73
73
73
73
74
74
75
75
76
76
76
5.5.4
6.0
Page:
7.0
THE EXTERNAL SECTOR.......

7.1
The Current Account..............
7.1.1
Goods Trade..............
7.1.1.1
Imports: Cost and Freight......
7.1.1.2
Exports ......
7.1.2
Direction of Oil Exports....
7.1.3
The Services Account....
7.1.4
The Income Account.............
7.1.5
Current Transfers...
7.2
The Capital and Financial Account....
7.3
Foreign Exchange Developments..
7.4
Total External Assets..
79
79
79
80
81
82
83
84
84
85
85
86
PART THREE: THE INTERNATIONAL ECONOMY

8.0
INTERNATIONAL ECONOMIC AND FINANCIAL DEVELOPMENTS.......

8.1
World Output and Prices....
8.1.1
Output ...
8.1.2
Prices ............................
8.2
World Trade....
8.3
The International Foreign Exchange Market.....
8.4
The Impact of International Economic and Political
Developments on the Nigerian Economy...............................................
8.5
International Commodity Organisations .......
8.5.1
International Coffee Organisation (ICO)...
8.5.2
International Cocoa Organisation (ICCO)....
8.5.3
Cocoa Producers' Alliance (COPAL)............
8.5.4
OPEC.................................
8.6
The International Monetary System.......
8.6.1
Bilateral Relations.
8.6.2
Regional Institutions..............................
8.6.2.1
The Association of African Central Banks.....
8.6.3
United Nations Economic Commission for Africa (ECA)....
8.6.4
African Development Bank Group (AfDB)......
8.6.5
Nigeria Technical Co-operation Fund (NTCF).
8.6.6
New Partnership for Africa's Development (NEPAD)..
8.6.7
African Peer Review Mechanism (APRM)...
8.6.8
The Assembly of the African Union..............
8.6.9
Sub-regional Institutions........
89
89
89
91
92
92
92
93
93
93
94
94
94
96
97
97
97
98
98
99
99
99
99
Page: xi
8.6.9.1
8.6.9.2
8.6.9.3
The West African Institute for Financial and

Economic Management (WAIFEM).................. 99
The West African Monetary Agency (WAMA)..... 100
The West African Monetary Zone (WAMZ).......... 100
Page: xii
LIST OF TABLES
A Table of Selected Macroeconomic and Social Indicators......................................xxxiv
1.1
Key Policy Targets.................................................
4
2.1
Outcomes of Monetary, Financial and Other Targets.... 10
2.2
Credit Developments......... 10
2.3
Rating of Banks Using the CAMEL Parameters.... 15
2.4(a) Currency Structure................................. 19
2.4(b) Volume and Value of Cheques Cleared...... 19
2.5
Performance under the Trust Fund Model..... 23
2.6
Distribution of Loans under the ACGSF in 2004 . 24
2.7
Selected Interest Rates... 102
2.8
Loans Guaranteed By Agricultural Credit Guarantee Scheme Fund By Size
And Purpose:
January December, 2004....... 103
2.9
Currency in Circulation.................. 104
2.10 Sectoral Utilization of Foreign Exchange...... 105
3.1
Selected Macroeconomic and Social Indicators........ 106
4.1
Money Supply and its Determinants...... 107
4.2
Banking System Credit to the Economy............ 108
4.3
Summary of Deposit Money Banks Activities....... 111
4.4
Deposit Money Banks' Sources and Application of Funds.... 113
4.5
Summary of Community Banks' Activities, End-December.......... 114
4.6
Discount Houses' Statement of Assets& Liabilities............... 115
4.7
Summary of Assets and Liabilities of Finance Companies (End-December).... 116
4.8
Treasury Bills: Issues and Subscriptions........................ 117
4.9
Holdings of Treasury Bills Outstanding................. 118
4.10 Bids and Sales at Open Market Operations (OMO) Sessions........ 119
4.11 Transactions on the Nigerian Stock Exchange..... 120
4.12 Value Index of All Common Stocks Listed on the Nigerian Stock Exchange... 121
4.13 Market Capitalization of Quoted Companies..................... 123
4.14 Nigeria's Financial Flows Matrix: 2004............. 124
4.15 Flow of Funds in the Financial Sector: 2004............. 125
4.16 Flow of Funds Statement: Business Corporate Sector: 2004......................... 126
4.17 Flow of Funds: General Government Sector: 2004....... 127
5.1
Federation Account Operations.......... 128
5.2
Summary of Federal Government Finances........... 129
5.3
Federal Government Recurrent Expenditure......... 130
5.4
Federal Government Capital Expenditure......... 131
Page: xiii
5.5
5.6
Summary of State Governments' Finances in 2004...

Functional Classification of State Governments' Recurrent and Capital
Expenditure in 2004...........................................................................................
5.7
Summary of Local Governments' Finances (2000 - 2004)............
5.8
Summary of Local Governments' Finances in 2004..........
5.9
Domestic Public Debt of the Federal Government (End-Period).......
5.10 External Public Debt Outstanding.........
5.11 External Debt Service Payments....
6.1
Gross Domestic Product at 1990 Constant Basic Prices....
6.2
Gross Domestic Product at Current Basic Prices...........
6.3
Gross Domestic Product (Expenditure Approach) at 1990
Purchasers' Price.................................................................................................
6.4
National Income at Constant Market Prices.......
6.5
Index of Agricultural Production by Type of Activity ...
6.6
Nigeria: Estimated Output of Major Agricultural Commodities........
6.7
Indices of Average World Prices (cif) of Nigeria's Major
Agricultural Export Commodities......................................................................
6.8
Indices of Average World Prices (cif) of Nigeria's
Major Export Commodities...............................................................................
6.9
Average Prices of Selected Cash Crops.............
6.10 Index of Industrial Production.......................
6.11 Index of Manufacturing Production (Base Quarterly Average 1990 = 100)..
6.12 Index of Principal Mineral Production.......
6.13 Energy Consumption (Tonnes of Coal Equivalent (TCE))........
6.14 Consumption of Petroleum Products (Tonnes)..........
6.15 Nation-Wide Housing Construction Index (HCI) Classified by Type.......
6.16 Composite Consumer Price Index.........
6.17 Urban Consumer Price Index.........................
6.18 Rural Consumer Price Index..................
6.19 Selected Social Indicators .........
7.1
Balance of Payments Analytical Statement (Naira Million).........
7.2
Balance of Payments Analytical Statement (US$ Million).......
7.3
Visible Trade..................
7.4
Imports by Major Groups.......
7.5
Imports by S.I.T.C. Section........
7.6
Non-Oil Imports by Country of Origin......
7.7
Direction of Oil Exports.................
7.8(a) Non-Oil Exports by Products in 2004............
132
133
134
135
142
143
144
145
147
148
149
150
151
152
153
154
155
156
158
159
160
161
162
163
164
165
166
167
168
169
170
171
172
173
Page: xiv
7.8(b)
7.9
7.10
7.11
8.1
Top 100 Exporters in Nigeria for the Year 2004 ........

Flow of Cash Grants to Nigeria by Origin..............
Exchange Rate Movement.................
Total External Assets .....
Changes in World Output and Prices.............
174
176
177
178
179
Page: xv
LIST OF FIGURES
1.1
1.2
2.1
2.2
2.3
2.4
2.5
4.1(a)
4.1(b)
4.1(c)
4.2
4.3
4.4
4.5
4.6
4.7
5.1
5.2
5.3
5.4
5.5
6.1
6.2
6.3
6.4
6.5
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
Old Organisational Structure of the CBN in 2003..................................................... xxv

New Organisational Structure of the CBN in 2004.................................................... xxvi
Growth in Monetary Aggregates, Output and Prices..................... 11
Growth in Domestic Credit.................... 11
Open Market Operations................ 12
Currency in Circulation, 2004................ 18
Distribution of Loans Under the ACGSF in 2004 by Value .................. 24
Movements in Monetary Aggregates................. 38
Movements in Domestic Credit (2003).................. 39
Movements in Domestic Credit (2004).................. 40
Movements in Aggregate Credit................ 40
Movements in Inter-Bank Call Rates..................... 44
Demand for Treasury Bills in the Primary Market in 2004................... 46
Treasury Bills Issues and Subscriptions................. 46
Treasury Bills Issues and Subscriptions in 2004................ 47
Demand for Treasury Bills at Open Market Operations.................... 48
Federation Account: Composition of Revenue (N' Billion)................... 54
Composition of Federal Government Retained Revenue in 2004............. 55
Composition of Federal Government Expenditure in 2004............... 56
Federal Government Capital Expenditure in 2004................ 56
Functional Classification of FGN Capital Expenditure in 2004................ 57
Index of Agric Production (1990 = 100).................... 64
Average Prices of Selected Cash Crops (Naira per tonne)................. 65
Index of Industrial Production (1985 = 100).................. 67
Energy Consumption (Tonnes)................... 70
Composite Consumer Price Index (2003 = 100)............................ 73
Balance of Payments (% of GDP)...................... 80
Imports by Major Groups in 2004...................... 81
Non-Oil Imports by Origin ....................... 81
Number of Months of Import Equivalent of External Reserves................ 82
Non-Oil Exports by Product.................. 83
Direction of Crude Oil Exports.................. 84
Bureaux-de-Change (Average and End Period) Exchange Rate.................... 85
IFEM/DAS Average and End Period Exchange Rate................ 86
Page: xvi
LIST OF APPENDICES
A1
A2
A3
B1
B2
B3
Balance Sheet as at December, 2004..........................

st
Income and Expenditure Account for the Year Ended 31 December, 2004.............
Statement of Cash Flows for the Year Ended 31st December, 2004...............
Statement of Accounting Policies..........................................
Notes to the Financial Statements..........
Auditors' Report.............................
181
182
183
184
187
199
Page: xvii
PROF. CHARLES C. SOLUDO

Governor, Central Bank of Nigeria
STATEMENT BY THE GOVERNOR

1.
It is a pleasure for me to present this first

Annual Report and Statement of
Accounts of the Central Bank of Nigeria
(CBN) since my assumption of office as
the 9th Governor of the CBN on May 29,
2004. As in the previous years, the
Report covers the operations of the
Bank and the major economic
developments in the Federal Republic of
Nigeria in 2004.
2.
Let me start by paying a special tribute

to my distinguished predecessors and
especially to Chief Joseph O. Sanusi, the
immediate past Governor for his
numerous achievements during his
tenure in office (1999- May 2004).
Chief Sanusi launched the Project
1
EAGLES initiative in 1999, with the
objective of restructuring and
refocusing the Bank on its core
mandates. I have ratcheted up the
implementation of the Project and
positive results have started to emerge.
Let me also congratulate my colleagues
Dr. Shamsuddeen Usman and Mr.
Ernest Ebi whose appointments as
Deputy Governors were renewed for a
second term and Mr. Tunde Lemo and
Mrs. Wahir Mshelia for their
appointment as Deputy Governors.
3.
banking as well as the fulfillment of

the Bank's vision and mission. Our
goal is to quickly restructure and
strengthen the CBN to be the best
Central Bank in Africa, and to
engineer the emergence of Nigeria
as the Africa's financial centre. In
2004, we aggressively embarked
upon several reforms at the
institutional and policy levels to
realize the set goals, and to
reposition the CBN as the premier
economic policy and regulatory
institution rather than a project site.
4.
This Report summarizes several of

the key outcomes of our reforms as
well as better economic
performance resulting from
improved macroeconomic
management. Even this Report has
witnessed major changes in both
structure and content. There is now
an 'Executive Summary'
Chapterwhich succinctly
summarizes the key aspects of the
Report.
5.
Aside from the restructuring of the

CBN under the 'Project EAGLES',
we embarked upon two fundamental
institutional changes---- the banking
sector reforms, and the take-over
and aggressive restructuring of the
Nigerian Security Printing and
Minting (NSPM) Plc. These reforms
are critical to the realization of two
of the Bank's four major functions.
As I outlined in my inaugural address to

the Management and staff of the CBN,
our collective challenge is to take the
CBN to higher levels consistent with the
demands of the 21st Century central
Page: xxi
6.
The Bank commenced a monumental

reform of the banking system whose
performance in the past two decades had
been characterized by fits and starts. The
major objective of the reform is to
consolidate, deepen and enhance
financial sector stability and
competitiveness. To this end, a 13-point
reform agenda for the banking sector
was rolled out on July 6, 2004. The
agenda, among other things, required
banks to meet a new minimum 7.
6capital base (shareholders' fund) of
N25 billion by the end of December,
2005 (preferably through mergers and
acquisitions). We are optimistic that the
emergence of a well capitalized banking
industry will promote faster
development of the Nigerian economy.
7.
During the year also, the Bank acquired

the Nigerian Security Printing and
Minting (NSPM) Plc, with the objective
of transforming it into a world class
company. It is envisaged that the
company's operational efficiency will
improve to enable it meet Nigeria's
security printing needs, as well as those
in the West and Central African subregions. We have set a very ambitious
target to stop importing finished
currency notes by end December, 2006.
8.
At the macro-level, the Bank's

implementation of monetary policy in
2004 under the framework of the
National Economic Empowerment and
Development Strategy (NEEDS),

produced the desired results of
sustaining price stability and noninflationary growth. The key
macroeconomic targets were
achieved--- the first time such a
result was achieved in almost two
decades.
9.
Overall, the Annual Report is

structured in three parts and contains
eight chapters. It also includes a
robust Executive Summary which
can serve as a quick reference
material for the very busy reader.
Suffice it to state however that
reading the Executive Summary will
not be a good substitute for reading
the entire Report.
I therefore,
strongly encourage the public to
peruse the entire Report and make
constructive suggestions on how
best we can improve the structure
and presentation in order to make it
more reader friendly. The public is
invited to contact me at:
(governor@cenbank.org), for
constructive suggestions on the
Report and on how to enhance the
Bank's transparency, efficiency and
effectiveness of monetary policy
making.
10.
Finally, I wish to sincerely thank the

Board, Management and the entire
Staff of the Bank for their tireless
and invaluable contributions during
Page: xxii
the year. We can only build the Central

Bank of our dream through team work
and I thank all of you for the strong
support and hard work. By the grace of
God, we shall continuously improve
upon the reforms and our performance
in the future. I must also thank the
Presidency, the National Assembly
(especially the Committees on Banking
and Currency), the Economic
Management Team, the Bankers'
Committee and all key stakeholders of
the Nigerian economy for their
unflinching support and cooperation
during the year.
Prof. Charles Chukwuma Soludo
Governor
April, 2005.
Page: xxiii
Figure 1.1
Old Organisational Structure of the CBN in 2003
Board of
Directors
Governor
Deputy
Governor
(Policy)
Deputy
Governor
(Operations)
Deputy
Governor
(Financial Sector
Surveillance)
Deputy
Governor
(Corporate
Services)
Corporate
Strategy
Banking
Operations
Bank
Examination
Admin. Services
Governors
Office
Information
Technology
Branch
Operations
Banking
Supervision
General Services
Debt
Conversion
Secretariat
International
Economic
Relations
Currency
Operations
Development
Finance
Human
Resources
Internal Audit
Research
Finance
Other Financial
Institutions
Legal
Secretarys
Trade and
Exchange
Foreign
Operations
Performance
Improvement
Figure 1.2
New Organisational Structure of the CBN in 2004
Board of
Directors
Governor
Deputy
Governor
(Operations)
Deputy
Governor
(Corporate
Services)
Deputy
Governor
(Financial Sector
Surveillance)
Deputy
Governor
(Policy)
Banking
Operations
Information
Technology
Development
Finance
Economic
Policy
Corporate
Secretariat
Currency &
Branches
Operations
Human
Resources
Banking
Supervision
Research &
Statistics
Strategy &
Performance
Finance
Procurement &
Support Services
Other Financial
Institutions
Trade &
Exchange
Internal Audit
Foreign
Operations
Office of the
Governor

ANNUAL REPORT AND STATEMENT OF ACCOUNTS
ST
FOR THE YEAR ENDED 31 DECEMBER, 2004
Executive Summary
1.
This Report provides an overview of the
operations of the Central Bank of Nigeria
(CBN) and major outcomes for the economy in
2004.
2.
It is structured in three parts. Part I
reports on the activities of the CBN in 2004,
i n c l u d i n g i t s m o n e t a r y, f i n a n c i a l ,
developmental and organizational policy
stance. The Performance of the Economy in
2004 is presented in Part II. International
Economic and Financial Developments which
impacted on the economy during the year, are
highlighted in Part III. Overall, the Report
contains 8 chapters. The highlights of the report
are as follows:
THE CBN BOARD AND ITS ACTIVITIES
3.
On May 29, 2004, the
Governor/Chairman of the Board, Chief (Dr)
J.O. Sanusi, CON, retired and was succeeded by
Professor Charles C. Soludo. In addition, two
Deputy Governors, Mr. O. S. Oduyemi and
Alhaji Mahey R. Rasheed, OFR, retired during
the year and were succeeded by Mr. Tunde
Lemo and Mrs. Wahir D. A. Mshelia.
The CBN Board of Directors held 7
regular and 7 extra-ordinary meetings in 2004.
The Committee of Governors also held 20
meetings, while the Governor's Consultative
Committee held 13 meetings. Furthermore, the
Committee of Departmental Directors held 12
regular meetings, while the Internal Audit
Committee held 4 meetings during the year.

The Monetary Policy Committee
(MPC) met eleven (11) times, while the
Financial Sector Surveillance Committee
(FSSC) met nineteen (19) times in 2004, to
deliberate on issues relating to monetary
and financial sector policies. The MPC
issued monthly communiqu on its
deliberations and policy decisions.
CBN OPERATIONS
4.
The audited financial statement of
the CBN showed a sharp decline in both
revenue and expenditure in 2004 compared
with 2003. In 2004, total revenue was N87.6
billion, compared with N122.7 billion in
2003, while total expenditure fell from
N94.1 billion in 2003 to N74.5 billion in
2004. The 28.6 per cent decline in revenue
was attributable to the operation of a single
treasury account by the Federal
Government, which resulted in a decline of
interest charges on Ways and Means
Advances. Other factors included, a decline
in interest income from foreign investments
due to the prevailing low interest rate in the
international capital market and the
strengthening of the naira, vis--vis the
dollar, which led to a foreign exchange
revaluation loss of N8.8 billion, as against a
revaluation gain of N29.8 billion in 2003.
Conversely, the 20.8 per cent drop in
expenditure was attributable to more
Page: xxvii
prudent financial management, including the

suspension of capital expenditure. Overall, the
operations of the CBN resulted in a surplus of
N9.2 billion, representing a decline of 63.3 per
cent, compared with the outcome in 2003. The
sum of N7.6 billion was transferred to the
Federal Government, while the balance was
transferred to general reserves, in accordance
with the provisions of Part II, section 5(3) of the
Central Bank of Nigeria Act, 1991, as amended.
5.
The CBN Monetary Policy framework
remained unchanged in 2004. The targeting of
monetary aggregates and the management of
the exchange rate system, via the retail Dutch
Auction System (DAS), were sustained as in
previous years. The CBN, as a member of the
Economic Management Team of the Federal
Government, participated in the preparation of
the National Economic Empowerment and
Development Strategy (NEEDS) document in
2004. Among other things, NEEDS sets out the
medium-term macroeconomic framework for
the management of the Nigerian economy and
the CBN made a major input in this regard. The
published version of the NEEDS document was
launched by the President on May 29, 2004. The
CBN also performed its developmental
functions by deepening the Agricultural Credit
Guarantee Scheme Fund (ACGSF); enhancing
capacity building programmes; and fostering a
stable macroeconomic environment in which
trade and investment could thrive.
6.
The effectiveness of monetary policy
was enhanced in 2004 as a result of the prudent
fiscal operations of the three tiers of
government, especially the Federal
Government. Thus, the demand pressure at the
foreign exchange market moderated and the
end-December, 2004 rate of inflation,

dropped substantially. The level of external
reserves rose significantly from its endDecember, 2003 level of US$7.5 billion to
US$16.96 billion at end-December, 2004.
The significant increase was largely due to
the following factors:
(a)
the high price of crude oil in the
international market
(b)
increased crude oil production,
following OPEC's quota increase for
Nigeria;
(c)
the adoption of a fiscal rule by the
three tiers of government which resulted in
the savings of US$5.9 billion windfall; and
(d)
the pursuit of a non-accommodating
monetary policy by the CBN.
Developments in the money market
were generally mixed. The spread between
banks' weighted deposit and prime lending
rates remained unacceptably wide at 11.0
per cent, as a result of the high-cost structure
of the banks. The CBN sustained its high
tempo of surveillance on banks and nonbank financial institutions during the year in
order to sustain a stable and safe banking
system. Overall, banks' performance rating
showed that 10 banks were rated as sound,
51 banks were rated as satisfactory, 16
banks were rated as marginal and 10 banks
were rated as unsound. This performance
represented a deterioration when compared
with banks' performance in 2003. Against
this background, a 13-point banking sector
reform agenda was rolled out with the aim
Page: xxviii
of consolidating the banking sector and

preventing the occurrence of systemic distress.
In its effort at enhancing the efficiency of the
payments system during the year, the CBN
introduced a new clearing and settlement
system with the appointment of seven (7)
settlement banks to clear negotiable
instruments on behalf of other deposit money
banks and for themselves. As part of its
communication strategy, the CBN also
organised monetary policy seminars, and held
interactive sessions with key stakeholders, in
order to promote transparency in its monetary
policy formulation and anchor expectations.
7.
Significant success was achieved in
monetary targeting in 2004. The CBNs tight
monetary policy stance, complemented by the
prudent fiscal operations of the Federal
Government, resulted in the relative stability in
the financial sector. Growth in monetary
aggregates was within the programmed target
during the year. Specifically, broad money (M2)
increased by 14.0 per cent as against the growth
target of 15.0 per cent for 2004 and the 24.1 per
cent increase recorded in 2003. Narrow money
stock (M1) grew by 8.6 per cent, against the
target of 10.8 per cent and the increase of 29.5
per cent in the preceding year. Aggregate bank
credit to the economy increased by 12.0 per
cent, arising wholly from the increase in private
sector credit as claims on the government sector
declined during the year. Credit expansion to
the private sector was 26.6 per cent, compared
with the target of 30.0 per cent. The expansion
was boosted because the Federal Government
borrowed only N46.5 billion from the banking
system, as against N91.3 billion in 2003. Banks'
weighted deposit and lending rates generally
declined in response to the low public sector

demand for bank credit.
ECONOMIC REPORT
Fiscal Operations of The Federation
8.
The significant increase in the price
of crude oil in the world market impacted
positively on the fiscal operations of the
Federal Government in 2004. Total
federally-collected revenue increased by
51.5 per cent over the level in the preceding
year to N3,901.5 billion. Revenue from oil
accounted for 86.0 per cent of the total
revenue, while non-oil revenue accounted
for the balance. Federal Government
retained revenue, at N1,234.6 billion,
increased by 20.7 per cent in nominal terms
over its level in 2003 and represented 14.9
per cent of GDP. The fiscal operations of the
Federal Government resulted in an overall
notional deficit of N142.0 billion or 1.7 per
cent of GDP, compared with N202.7 billion
or 2.8 per cent of GDP in 2003. The notional
deficit occurred as a result of the observance
of the fiscal rule on oil benchmark price,
which resulted in US$5.9 billion savings by
the three tiers of government. The
consolidated government debt stood at
N6,260.6 billion at end-December, 2004,
while debt service was estimated at N442.5
billion.
The Real Sector
9.
Domestic output, measured in 1990
prices, grew by 6.1 per cent, compared with
10.2 per cent in 2003. The growth in 2004
was, however, driven by the non-oil sector,
compared with output growth in 2003
which was oil-sector driven. All sectors
Page: xxix
contributed to the growth recorded in 2004, but

agriculture, construction/housing, the services
and mining sub-sectors, were the major drivers
of growth in 2004. The performance in the
agricultural sector was enhanced by sustained
government support and good weather
conditions.
Purchases under the strategic grains
reserves system shored up prices and reduced
price fluctuations, thus enhancing confidence in
farmers. The improved performance in the
mining sub-sector was also attributable to the
increase in Nigeria's OPEC quota.
Manufacturing output declined in 2004 by 1.0
per cent due to low aggregate demand,
smuggling, deficient infrastructural facilities,
and the high cost of production. Inflation rate at
end-December 2004 decelerated to 10.0 per
cent from 23.8 per cent at end-December 2003,
following the adoption of a non-expansionary
fiscal and monetary policy and growth in nonoil GDP especially, food crops. However, on a
12-month moving average basis, the rate of
inflation rose marginally from 14.0 per cent to
15.0 per cent in 2004, owing to the lingering
effect of the liquidity surfeit during the first half
of 2004.
With regard to the welfare of Nigerians,
the result of a Nigeria Living Standard Survey
2003/2004 revealed a decline in the incidence
of poverty from an estimated 70.0 per cent in
2000 to 54.4 per cent in 2004.
prices, coupled with prudent fiscal policy

impacted positively on the current account
position. The current account recorded a
surplus equivalent to 16.6 per cent of GDP,
compared with 15.2 per cent in the
preceding year. The deficit in the capital and
financial account narrowed from N1,206.5
billion in 2003 to N228.4 billion in 2004. In
nominal terms, the end-period naira
exchange rate, vis--vis the US dollar, under
the retail Dutch Auction System (DAS),
appreciated by 3.1 per cent. However, the
year average naira exchange rate
depreciated by the same margin of 3.1 per
cent, in 2004, while at the Bureaux-deChange (BDC), it appreciated by 0.8 per
cent. The level of external reserves
increased by 127.0 per cent from the level of
US$7.5 billion as at end-December, 2003 to
US$16.96 billion at end-December 2004.
The increase in reserves arose from the
positive terms of trade shock and the
significant inflow of autonomous foreign
exchange. For instance, autonomous inflow
of foreign exchange amounted to US$10.1
billion in 2004, and for the first time
surpassed the value of foreign exchange
sold by the CBN in the DAS, which
amounted to US$9.5 billion. That level of
external reserves could finance 18.4 months
of imports, compared with 8.5 months in
2003.
The External Sector

10.
The performance of the external sector
improved significantly as the overall balance of
payments position swung from a deficit of
N162.8 billion or 2.3 per cent of GDP in 2003,
to a surplus of N1,128.4 billion or 13.7 per cent
of GDP in 2004. The sustained high crude oil
The International Economy

11.
The world output was estimated to
have grown by 5.0 per cent in 2004,
compared with 3.2 per cent in the preceding
year. The impressive growth was attributed
to the global economic recovery, led by the
United States of America and the emerging
Page: xxx
markets in Asia. Developments in the world

economy in 2004 were characterized by high
energy and commodity prices and the
depreciation of the US dollar vis--vis other
major currencies. The global consumer price
inflation rose in 2004, due largely to the
accommodative monetary policies adopted in
most parts of the world. The issues that
dominated discussions and deliberations in
international fora in 2004 were: cost of energy,
especially oil; the strengthening of the IMF's
surveillance activities; enhancing the voice and
participation of the developing countries in the
Breton Woods institutions; progress in the
implementation of the poverty reduction and
growth facility; the strengthening of
multilateral trade rules; and reduction of trade
distortion subsidies, notably in agriculture. At
the continental level, the Assembly of
Governors of the Association of African Central
Banks, deliberated at its meetings on the
African Monetary Cooperation Programme and
the establishment of an African Central Bank by
2015, as against the initial target period of 2021.
At the sub-regional level, the convergence
council of the West African Monetary Zone met
in Conakry, Guinea, on September 2, 2004, to
review the progress of member countries in
meeting the convergence criteria. During the
meeting, the Council recommended that the
West African Monetary Institute (WAMI)
should undertake a study to ascertain the fiscal
sustainability and external viability of the West
African Monetary Zone (WAMZ) and to
recommend a realistic date for the
establishment of the West African Central
Bank. Overall, no country was successful in
meeting all the primary convergence criteria in
2004.
STRUCTURAL REFORM AND

OTHER ACTIVITIES OF THE CBN
12.
A re-assessment of Project
1
EAGLES was undertaken to refocus the
project for greater efficiency and
effectiveness. In that regard, the number of
departments in the CBN was reduced from
23 to 17 in 2004. Also, the Strategic
Business Unit plan for the period 2004 to
2009 was completed. The implementation
of the other elements of the re-engineering
Project, including the deployment of the
Oracle Enterprise Resource Planning with
its components, progressed in 2004.
13.
The Governor held two interactive
sessions with staff in which he discussed,
among other issues, his vision for the CBN.
A total of three hundred and eightyone (381) staff, comprising one (1)
executive, three hundred and sixty-one
(361) senior, and nineteen (19) junior staff
were employed during the year. The CBN,
however, lost the services of thirty-six (36)
members of staff through death.
In
addition, a total of five hundred and one
(501) staff left the CBN through mandatory
or early retirement, termination, dismissal,
etc. The staff strength of the CBN, therefore,
fell from five thousand, eight hundred and
st
seventy one (5,871) as at 31 December
2003 to five thousand, seven hundred and
fifteen (5,715) by end-December 2004.
In line with the policy of motivating
its workforce for greater efficiency, the
CBN sustained the momentum in staff
development during the year. To this end,
/1The acronym EAGLES stands for Efficiency, Accountability, Goal
orientation, Leadership, Effectiveness and Staff motivation.
Page: xxxi
the CBN sponsored training programmes

within and outside the country, including
participation at seminars, workshops, and
conferences. A total of six thousand, eight
hundred and seventy-four (6,874) participants
benefited from the various training
programmes2. Out of this number, 1,014 were
executives, 4,570 were senior staff, while 1,290
were junior staff.
14.
In 2004, the CBN was involved in a
number of activities and projects aimed at
strengthening the Bank's legal and regulatory
framework as well as enhancing the overall
effectiveness of the nations financial system.
The activities included the following:
(i) A comprehensive review of the CBN Act
and the Banks and Other Financial
Institutions (BOFI) Act;
(ii) A review of Other Financial Sector
Legislations;
(iii) The preparation and adoption of a Bill for
the establishment of a body for the
management of the non-performing risk
assets of banks; and
(iv) The prosecution of cases involving the
Bank and third parties.
As a result:
The reviewed CBN and BOFI Acts were
presented to the National Assembly for
consideration. The Senate eventually
passed the two Bills by adopting most of the
proposals presented by the CBN. However,
the House of Representatives was yet to
commence consideration of the draft

amendment bill.
One of the major components of the
B a n k s r e f o r m a g e n d a i s t h e
establishment of an Asset Management
Company (AMC).
The main objective of the company
is the acquisition, management,
restructuring and disposal of the risk
assets of banks. Following the approval
of the CBN/NDIC Executive
rd
Committee on Supervision in the 3
quarter of 2004, a draft bill for the
establishment of the AMC was
prepared. In order to ensure its quick
passage into law, the Bank forwarded
the bill to the Honourable Attorney
General of the Federation for the
consideration of the Federal Executive
Council and presentation to the National
Assembly as an Executive Bill.
The CBN participated in the activities of
a National Committee which was
inaugurated, in May 2004, by the
Honourable Attorney General of the
Federation to address the obsolescence
of most of the financial legislations in
Nigeria.
A number of court cases involving the
CBN were decided in the course of the
year while some were settled out of
court, through the adoption of the
Alternative Dispute Resolution (ADR)
mechanism.
Of the 145 cases decided in 2004,
judgement/ruling was given in favour of
/2 Some staff benefited from multiple training during the year.
Page: xxxii
the CBN in139; only one was resolved

against the CBN while five were settled out
of court.
15.
In order to enable the CBN and the
NDIC capture and process data on monetary
conditions, the implementation of the enhanced
Financial Analysis and Surveillance System (eFASS) was accelerated.
Also, the implementation of a Real Time
Gross Settlement (RTGS) System, to
reinvigorate the Payments System reached an
advanced stage of completion. The
implementation of the Globus Banking System,
which would handle all banking-related
activities performed by the CBN, progressed
substantially.
The communications infrastructure of
the CBN was enhanced through the use of the
Satellite Wide Area Network, Local Area
Network and the Intranet (Banknet). Overall,
the CBN made significant progress in
modernizing its information and
communications technology (ICT)
infrastructure.
16.
The CBN sponsored special projects in
some federal universities through grants. As at
st
31 December 2004, the CBN had approved

and disbursed the sum of N445.0 million to
twenty-four federal universities, since its
capacity building programme commenced
in 1998. One project each was
commissioned at the following federal
universities: University of Benin, Benin
City; Ahmadu Bello University, Zaria;
University of Calabar, Calabar; Bayero
University, Kano; and Nnamdi Azikiwe
University, Awka. The CBN also disbursed
the sum of N60.5 million to the Economic
and Financial Crimes Commission (EFCC)
for its ICT project during the year, to assist
the Commission fight economic and
financial crimes. Similarly, the sum of
N10.0 million was approved and disbursed
to the Investment and Securities Tribunal
(IST) for its library project. In addition, the
CBN gave a grant of N50.0 million to two
Committees of the National Assembly,
namely, the Senate Committee on Banking,
Insurance and Financial Institutions and the
House Committee on Banking and
Currency, which have oversight functions
on the CBN. The grant was for capacity
building and logistics support to facilitate
legislative processes.
Page: xxxiii
A Table of Selected Macroeconomic and Social Indicators

Indicator
2000
2001
2002
2003 1/
2004 /2
5.4
11.3
2.9
2.2
36.1
***
7.3
14.5
6.9
4.6
5.2
4.3
2.2
39.6
11.3
7.2
16.5
18.9
3.5
-5.7
7.9
2.1
44.3
15.6
9.1
12.2
12.9
10.2
23.9
4.5
2.3
45.6
13.6
12.0
23.8
14.0
6.1
3.3
7.5
2.5
45.0
15.3
16.2
10.0
15.0
Federal Government Finance (% of GDP)

Overall Fiscal Balance
-2.3
Primary Balance
3.0
Retained Revenue
13.1
Total Expenditure
15.4
Domestic Debt Stock
19.8
External Debt Stock
68.1
-4.3
4.2
15.4
19.6
19.6
61.2
-5.5
0.4
13.1
18.6
21.3
72.0
-2.8
5.5
13.9
16.7
18.1
61.1
-1.7
6.9
14.9
16.7
16.7
59.2
Money and Credit (Growth Rate %)

Net Domestic Credit
Net Credit to Government
Credit to Private Sector
Narrow Money (M1)
Broad Money (M2)
-25.3
-170.1
30.9
62.2
48.1
79.9
95.2
43.5
28.1
27.0
64.6
6,320.6
19.7
15.9
21.6
29.1
58.4
18.4
29.5
24.1
12.0
-17.9
26.6
8.6
14.0
6.9
15.7
0.5
5.2
-10.5
1.3
-2.3
15.2
13.7
16.6
Domestic Output and Prices

Real GDP Growth (Growth Rate %)
Oil Sector
Non-oil Sector
Oil Production (mbd)
Manufacturing Capacity Utilisation (%)
Gross National Savings (% of GDP)
Gross Fixed Capital Formation (% of GDP)
Inflation Rate (%) (Dec-over-Dec)
Inflation Rate (%) (12-month moving average)
External Sector
Overall Balance (% of GDP)
Current Account Balance (% of GDP)
Capital and Financial Account Balance
(% of GDP)
External Reserves (US $ million)
Average Crude Oil Price (US$/barrel)
Average AFEM/DAS Rate (N/$1.00)
End of Period AFEM/DAS Rate (N/$1.00)
Average Bureau de Change Exchange
Rate (N/$)
-8.6
9,910.4
28.6
101.7
110.1
-4.5
10,415.6
24.5
111.9
113.5
-11.6
7,681.1
25.0
121.0
126.9
17.4
7,467.8
29.2
129.3
137.0
111.1
133.0
137.8
141.4
140.8
Social Indicators
GDP at Current Mkt Prices (N billion)
GDP at Current Mkt Prices (US$' billion)
GDP per Capita (N) 3/
GDP per Capita (US$) 3/
Population (million)
Population Growth Rate (%)
Life Expectancy at Birth (Years)
Adult Literacy Rate (%)
Incidence of Poverty 4/
4,547.1
44.7
39,851.5
388.1
115.2
2.8
54.0
57.0
70.0
5,187.9
46.4
44,228.0
390.3
118.8
2.8
54.0
57.0
***
5,465.3
45.2
45,317.8
369.0
122.4
2.8
54.0
57.0
***
7,191.1
55.6
57,992.3
440.7
126.2
2.8
54.0
57.0
***
8,553.3
64.1
67,137.2
493.2
129.9
2.8
54.0
57.0
54.4
-2.8
16,955.0
38.5
133.5
132.9
1/Revised; 2/Provisional; 3/ Revised, using GDP at current market prices as against 1984 Purchasers' value; and 4/The
incidence of poverty in Nigeria was projected to increase from 65.6 per cent in 1996 to 70.0 per cent in 2000. However, the
result of a Nigeria Living Standard Survey of 2003/2004 from FOS, showed that incidence of poverty declined to 54.4 per cent
in 2003/2004.
Page: xxxiv
PART ONE
ACTIVITIES OF THE
CHAPTER 1
MONETARY, FINANCIAL AND OTHER POLICY STANCE IN 2004
he Central Bank of Nigeria (CBN) in 2004 pursued its primary objective of maintaining
price and macroeconomic stability, which is consistent with the broad targets under the
National Economic Empowerment and Development Strategy (NEEDS). Consistent with
these objectives, monetary policy was anchored on monetary targeting and the mopping up
of excess liquidity, aimed at ensuring a non-inflationary macroeconomic environment. The
CBN also pursued its developmental functions, especially in financing agriculture via the
Agricultural Credit Guarantee Scheme Fund. The CBN also assisted capacity building
programmes in the banking industry and Nigerian universities.
1.1
Monetary And Financial Policy

Stance
The focus of CBN Monetary Policy
remained unchanged in 2004. The targeting of
monetary aggregates and retail Dutch Auction
System (DAS) were sustained as in previous
years. The CBN, as a member of the economic
management team of the Federal Government,
participated in the drafting of the National
Economic Empowerment and Development
Strategy (NEEDS) document in 2004. The
document sets out the medium-term
macroeconomic framework of the Nigerian
economy. Under the NEEDS programme,
monetary and growth targets, which were
consistent with the objective of price stability
and sustainable growth, were stipulated (Table
1.1).
Sustained effort was made at the micro
level to complement the core mandate of the

CBN which was aimed at growing the
economy and reducing poverty. In this
regard, the CBN encouraged the promotion
of the Small and Medium Scale Enterprises,
through the instrumentality of the Small and
Medium Industries Equity Investment
Scheme (SMIEIS) and the Agricultural
Credit Guarantee Scheme (ACGS).
Specifically, the framework which
would allow the participation of
Community Banks (CBs), in addition to the
Deposit Money Banks (DMBs) in the
ACGS, was completed, while a baseline
study which would provide a
comprehensive database for Small and
Medium Industries (SMIs), investors and
financiers, also reached the completion
stage.
Page:
Table 1.1
Key Policy Targets
2003
2004
(In Per Cent)

(i)
Growth in broad money (M2 )
15.0
15.0
(ii)
Growth in narrow money (M1 )
13.8
10.8
(iii)
Growth in aggregate bank credit (net)
25.7
24.5
(iv)
Growth in bank credit (net) to Government
-150.3
29.9
(v)
Growth in bank credit to private sector
32.3
30.0
(vi)
Inflation rate
9.0
10.0
(Vii) Growth in real GDP
5.0
5.0
1.1.1
Liquidity Management
Consistent with its monetary targeting
framework, the CBN focused on liquidity
management to achieve the objective of
maintaining price and macroeconomic stability.
The primary instrument for liquidity
management was the open market operations
(OMO), which was conducted daily, using
short-term government securities of varying
tenors. The OMO was complemented by cash
reserve requirements (CRR) and discount
window operations, including repurchase
agreements (repos), with discount houses
playing the role of principal dealers in the
market. Also, the subsisting minimum liquidity
ratio of 40.0 percent for all banks was retained.
The CBN reviewed and fine-tuned the
framework for the issuance of the National
Savings Certificate (NSC). The certificate is
intended to promote and encourage a savings
culture, especially among the low income
groups and, ultimately, to help address the

problem of liquidity surfeit in the banking
system on a more sustainable basis.
1.1.2
Interest Rate Policy

The Minimum Rediscount Rate
(MRR), represents the nominal anchor rate
in the money market, and was retained at
15.0 per cent in 2004. Overall, the objective
was to maintain an interest rate regime
which was positive in real terms, as well as
reduce the spread between deposit and
lending rates. The Interest Drawback
Programme (IDP), which was introduced in
2002 to mitigate the high cost of borrowing
by farmers under the ACGS without
undermining financial intermediation, was
sustained in 2004.
1.1.3
Financial Sector Surveillance

To address the perennial problem of
systemic distress in the banking industry,
1/ Targets for 2004 are as revised in the NEEDS document.
Page:
the required minimum capital adequacy ratio

for banks was raised from 8.0 per cent to 10.0
per cent with effect from January 1, 2004.
However, the ratio of 6.0 per cent was retained
for discount houses. Similarly, the CBN rolled
out a 13-point reform agenda, which is

aimed at recapitalizing and consolidating
the banking industry for efficient service
delivery.
Box 1: Some Elements of Banking Sector Reform:

1.
The requirement that the minimum capitalization for banks should be N25 billion with
full compliance by December 31, 2005;
2.
The phased withdrawal of public sector funds from banks, starting in July 2004;
3.
The consolidation of banking institutions through mergers and acquisitions;
4.
The adoption of a risk-focused, and rule-based regulatory framework;
5.
The adoption of zero tolerance in the regulatory framework, especially in the area of
data/information rendition/reporting;
6.
The automation process for the rendition of returns by banks and other financial
institutions through the enhanced Financial Analysis and Surveillance System (eFASS);
7.
The establishment of a hotline, confidential internet address (Governor@cenbank.org)

for all those wishing to share any confidential information with the Governor of the
Central Bank on the operations of any bank or the financial system;
8.
The strict enforcement of the contingency planning framework for systemic banking
distress;
9.
The establishment of an Assets Management Company as an important element of

distress resolution;
10.
The promotion of the enforcement of dormant laws, especially those relating to the
issuance of dud cheques, and the law relating to the vicarious liabilities of the Board
members of banks in cases of failings by the bank;
11.
The revision and updating of relevant laws, and the drafting of new ones relating to the
effective operations of the banking system;
12.
Closer collaboration with the Economic and Financial Crimes Commission (EFCC) in
the establishment of the Financial Intelligence Unit (FIU), and the enforcement of the
anti-money laundering and other economic crime measures; and
13.
The rehabilitation and effective management of the Nigerian Security Printing and
Minting (NSPM) Plc to meet the security printing needs of Nigeria, including the
banking system which constitutes over 90 percent of the NSPMs business.
Page:
Furthermore, the policy of a dual cash

reserve requirement (CRR), meant to act as an
incentive for banks to lend to the real sector, was
abolished while a single rate of 9.5 per cent was
adopted for all banks. This was aimed at
ensuring sound and healthy balance sheets for
banks.
classified as either shipped on Board

or clean on Board to be issued by the
Master of the carrying vessel or his
agent, or the Carrier or his agent;
Authorised Dealers were required to
ensure that documentation on
transactions, including documents
forwarded to the CBN for approvals-inprinciple, were authenticated and
certified as genuine;
1.1.4 Payments and Clearing System Policy

In recognition of its pivotal role in the
financial system, the architecture of the
payments system was further strengthened in
2004. To this end, a new clearing and settlement
arrangement, comprising seven settlement
banks, became operational in April 2004. Also,
the CBN embarked on a policy of cheque
standardization during the year.
Consequently, the magnetic ink
character recognition (MICR) Technical
Committee initiated action towards the
implementation of a cheque printer
accreditation scheme. The development of the
Real Time Gross Settlement (RTGS) system
and the GLOBUS banking application
progressed.
1.2
External Sector Policy

The major objectives of external sector
policy in 2004 were the maintenance of a stable
exchange rate regime and the achievement of
balance of payments viability. Following the
relative stability achieved in the foreign
exchange market in 2003, the retail Dutch
Auction System (DAS) was retained as the main
mechanism for foreign exchange management
and exchange rate determination in 2004. Some
other measures adopted to facilitate
international trade transactions included:
The Bill of lading/Airway bill/Waybill
required for imports to Nigeria was
Authorised Dealers were permitted to

deal in autonomous funds in their own
right, subject to compliance with the
advised Open Position Limits.
However, they were not allowed to
purchase autonomous funds, including
inter-bank funds, in the market on behalf
of a customer without a duly
documented underlying transaction
from the customer; and
The maximum amount which bureauxde-change could sell was US$2,500.00.
1.3
Other Policy Objectives
1.3.1 Developmental Programmes

The following developmental and
corporate social responsibility programmes
were retained in 2004:
The Agricultural Credit Guarantee
Scheme Fund (ACGSF),
Supervision/monitoring of the
utilization of credit to beneficiaries
under the ACGSF and SME II,
The Small and Medium Industries
Equity Investment Scheme (SMIEIS),
and
Page:
The Rediscounting and Refinancing

Facility (RRF) at concessionary interest
rates to provide temporary financing to
Deposit Money Banks (DMBs) that had
committed their resources by way of longterm credit to the productive sectors of the
economy.
1.3.2 Corporate Social Responsibility
Grants to Nigerian universities and other
agencies,
Economic and financial data

management and dissemination to
interested stakeholders,
Library services,
Research and technical services,
Sponsorship of sporting activities in the
country, and
Collaborative studies with relevant
agencies.
Page:
CHAPTER 2
APPRAISAL OF MONETARY POLICY AND OPERATIONS OF THE CBN
he credible monetary policy which was pursued in 2004, coupled with the prudent fiscal
operations of the three tiers of government, produced the desired results as growth in
monetary aggregates, for the first time in a decade, hit the prescribed targets. This salutary
monetary condition, along with other fiscal measures, such as the transparent procurement
process (due process) requirement, the fiscal rule on oil benchmark price which resulted in a
US$5.9 billion savings by the three tiers of government had a moderating effect on the
demand pressure in the foreign exchange market. This, and the substantial increase in the
level of external reserves following a sustained rise in the price of crude oil in the
international market, led to the nominal appreciation of the end-period naira exchange rate
in all segments of the foreign exchange market. Furthermore, the December-over-December
inflation rate fell to 10.0 per cent. However, the oligopolistic and cost structure of the
banking system remained a challenge to the efficiency of the financial market generally, and
the pricing of money market assets in particular. This led to the unacceptable wide spread
between deposit and lending rates. In order to enhance the efficiency of the payments system,
the CBN introduced a new clearing and settlement system with the appointment of seven (7)
settlement banks. The development of the GLOBUS banking application and the Real Time
Gross Settlement (RTGS) system reached advanced stages during the year. Also, a 13-point
reform agenda was rolled out with the aim of recapitalizing and consolidating the banking
industry in order to address the perennial problem of systemic distress in the industry.
2.1
Monetary and Credit Developments

For the first time in more than a decade,
the growth rates of major monetary aggregates
were below the prescribed targets in 2004. This
was due largely to the effectiveness of monetary
policy, complemented by the fiscal discipline of
the Federal Government. The broad measure of
money supply (M2) grew by 14.0 per cent,
representing 1.0 percentage point below the
prescribed target. Similarly, narrow money (M1)
grew by 8.6 per cent, which was 2.2

percentage points below the prescribed
target of 10.8 per cent. The moderate growth
in broad money was due largely to the
modest increase in aggregate banking
system credit (net) to the domestic
economy, especially the contractionary
effects of the fall in net credit to government
and, other assets (net) of the banking
system.
Page:
Table 2.1
Outcomes of Monetary, Financial and Other Targets
M2
M1
Aggregate Credit (net)
Credit (net) to Federal
Government
Credit to Private Sector
Inflation rate (Dec-over-Dec)
Inflation rate (12-MMA)
Growth in GDP 1/
Accretion/Depletion of External
Reserves (US $ Million)
Stock of External Reserves (US$ Billion)
Exchange rate N/US$ (end-period) 3/
2003 1/
2004
Target
Actual
Target
Actual
(In per cent unless otherwise stated)
15.0
24.1
15.0
14.0
13.8
29.5
10.8
8.6
25.7
29.1
24.5
12.0
-150.3
32.3
9.0
9.0
5.0
58.4
18.4
23.8
14.0
10.2
29.9
30.0
10.0
10.0
5.0
-17.9
26.6
10.0
15.0
6.1
-300
7.19
***
213.3
7.47
137.0
-500.0
7.69
***
-9,487.2
16.96
132.9
1/Revised
2/(+) sign indicates depletion,
(-) sign indicates accretion to reserves.
3/Target exchange rate is market determined
Table 2.2
Credit Developments ( N billion)
Aggregate Credit (net)
Credit (net) to
Fed. Gov.
of which:
Central Bank
DMBs
Credit to Private
Sector
of which:
Central Bank
DMBs
2003
1,803.9
2004
2,020.2
591.9
485.7
293.5
298.4
-6.1
491.8
1,212.0
1,534.4
8.7
1,203.2
15.2
1,519.2
Page: 10
Figure 2.1
Growth in Monetary Aggregates, Output and Prices
60
50
40
30
20
10
0
2000
2001
Real GDP
2002
2003
Inflation Rate
2004
Broad Money
Figure 2.2:
Growth in Domestic credit
150
100
50
0
-50
-100
-150
-200
2000
2001
Econ.
2.1.1 Open Market Operations (OMO)

Two hundred and forty-five (245) OMO
auctions were conducted in 2004, compared
with one hundred and three (103) in the
preceding year. The commencement of daily
OMO auctions on November 26, 2003
contributed to the huge increase. Total bids and
2002
Govt.
2003
2004
Priv. Sector
sales rose by 22.9 and 38.9 per cent in 2004

to N1,136.3 billion and N1,099.6 billion,
respectively, from N924.6 billion and
N794.5 billion in 2003. The increased
demand reflected partly the persistence of
excess liquidity in the banking system.
Page: 11
Figure 2.3:
Open Market Operations
1200
1000
N billion
800
600
400
200
0
2001
2002
Bids
2.1.2
Interest Rate Developments

Available data indicated that banks'
deposit and lending rates, with the exception of
the savings deposit rate, trended downward in
2004. The decline in the rates was attributable to
the low demand for bank credit by the public
sector following the enhanced revenue profile
of government during the year. Banks' weighted
average savings deposit rate, which stood at 3.2
per cent in December 2003, however, rose
slightly to 3.3 per cent in June and further to 4.4
per cent by the end of the year. The weighted
average rates on time deposits of various
maturities declined from a range of 8.8-14.8 per
cent in December 2003 to 7.5-12.2 per cent in
the first half of the year, and further to 7.0-12.8
per cent at end-December, 2004.
The weighted average prime and
maximum lending rates also declined from 19.6
and 21.6 per cent in December 2003 to 18.9 and
20.4 per cent respectively, at end-December,
2004. Consequently, the spread between the
2003
2004
Sales
weighted average deposits and maximum

lending rates rose slightly to 10.9
percentage points in 2004, from 10.8
percentage points in 2003. The margin
between the weighted average savings and
maximum lending rates, however,
contracted from 18.4 percentage points at
end-December 2003 to 16.0 percentage
points by 2004.
The weighted average inter-bank
call rate, which stood at 12.1 per cent in
January, peaked at 15.9 per cent in April, but
fluctuated downwards to 12.1 per cent at
end-December 2004. The development
reflected the impact of the steady flow of
funds disbursement from the Federation
Account, Joint Venture Cash Calls and the
low credit demand by the public sector
which moderated the interest rates in all
segments of the market during the year.
The average Nigerian Treasury Bill
(NTB) issue rate, which stood at 14.5 per
Page: 12
cent at end-December 2003, fell to 14.0 per cent

in March 2004, but stabilized at about 14.4 per
cent in the second half of the year. The relative
stability in the rate could be attributed to the
Minimum Rediscount Rate (MRR) which had
remained unchanged during the year (Table
2.7).
2.2
Institutional Developments
There was no new application for
banking licence. Thus, the number of
outstanding applications for banking licence
remained at twenty-four (24).
The CBN made efforts to strengthen the
credit appraisal procedures and monitor overexposures in banks, through the mechanism of
the Credit Risk Management System (CRMS).
Sixty-seven (67) banks rendered returns to the
CBN, compared with sixty-nine (69) in the
preceding year. The database had 32,070
borrowers with outstanding loans of N1.0
million and above, as at 31st December 2004,
compared with 28,886 borrowers at end-2003.
The total number and value of outstanding
credit reported by banks stood at 32,120 and
N1,247.2 billion, respectively at end-December
2004, compared with 42,146 and N1,147.2
billion, respectively as at end-2003.
The development of the Enhanced
Financial Analysis and Surveillance System (eFASS) progressed during the year. The new eFASS, which incorporates all institutions that
submit returns to the CBN will enhance the
survelliance capability of the CBN when finally
launched. The CBN made considerable
progress in its efforts at sanitizing the Other
Financial Institutions (OFIs) sub-sector. There
were 753 Community Banks (CBs) in operation
in 2004. By end-December 2004, 533 CBs had
had their operating licences regularized by the
CBN. In addition, 3 CBs, namely: Landgold
Community Bank Limited; IPMAN

Community Bank Limited and Southwest
Community Bank Limited were granted
approvals-in-principle. Overall, the number
of CBs that had rendered statutory returns to
the CBN increased from 564 in 2003 to 615
in 2004.
In the primary mortgage institutions
(PMIs) sector, final operating licences were
granted to FBN Mortgages Limited and AG
Home Savings and Loans Limited. In
addition, an approval-in-principle was
granted to Adamawa Savings and Loans
Limited. Seventy-one (71) PMIs rendered
statutory returns to the CBN in 2004.
Similarly, 10 bureaux-de-change
(BDCs) were cleared to trade in travellers'
cheques (TCs), bringing the number of
BDCs that participated in the TCs market to
24, from 14 in 2003. Two new BDCs were
granted operating licences during the year,
while three approvals-in-principle were
granted.
Five new finance companies (FCs)
received their final operating licences
during the year. Furthermore, two
approvals-in-principle were granted to KC
Finance and Investment Limited and Kowa
Finance Limited.
2.2.1
Growth and Structural Changes

The total number of banks in
operation in 2004 remained at eighty-nine
(89), the same as in 2003. Twenty-three (23)
additional bank branches and cash offices
were approved for banks during the year,
bringing the total number to 3,492 in 2004.
However, the total number of bank branches
and cash centres opened for business as at
end-December 2004 was 3,100.
Page: 13
The number of PMIs that operated in the

country in 2004 stood at eighty-three (83), from
eighty-one (81) in 2003. The number of BDCs
and FCs that operated in 2004 were 293 and
109, respectively. Seventy-one (71) PMIs, 615
CBs, 77 FCs and 274 BDCs rendered statutory
returns to the CBN in 2004, compared with 72,
564, 75 and 85 OFIs, respectively that rendered
returns in 2003.
2.2.2
Legal and Regulatory Developments

The precarious condition of the banking
system during 2004 called for urgent action by
the regulatory authorities in order to forestall
the re-emergence of systemic distress. To that
end, the CBN drew up a 13-point agenda to
reform and reposition the Nigerian banking
industry to effectively play its role in the
domestic economy and compete internationally.
A key element of the 13-point agenda
was the requirement for banks to shore up their
capital base (paid-up capital and reserves
unimpaired by losses) to a minimum of N25.0
billion by the end of December 2005. The
strategies for banks to achieve this objective
included: merger/ acquisition, raising fresh
funds from the capital market, private
placements and rights issue. In order to ensure
the successful implementation of the
consolidation programme, the CBN issued a
number of circulars and guidelines covering:
the definitions of capital base and reserves;
acceptable consolidation options; incentives to
be given by the CBN to banks that consolidate;
legal and accounting issues; corporate
governance; social safety net; and an amnesty
for past mis-reporting. Furthermore, the CBN
put in place free consultancy services to
facilitate consolidation, including the
inauguration of a Technical Committee on

Banking Sector Consolidation and the
establishment of a Help Desk at the CBN,
Lagos.
As at end-December, 2004, about
nine groups had indicated their intention
towards consolidation; some of the banks
had raised funds from the capital market;
while others were at various stages of
implementing the requirement from all
indications, the capital market had
demonstrated a strong capacity to absorb
huge investment flows through it since the
banking industry's reform was introduced in
July, 2004.
2.2.3
Monitoring Banking Sector

Soundness
The assessment of the operational
performance of banks revealed mixed
developments. The rating of licensed banks,
using the CAMEL parameters, revealed that
ten (10) banks were sound, fifty-one (51)
were satisfactory, sixteen (16) were rated
marginal and ten (10) banks were rated
unsound in 2004. However, the
performance of banks since 2001 has
exhibited a deteriorating trend as the
number of satisfactory banks has declined
steadily from 63 in 2001 to 51 in 2004. In
the same vein, the number of banks that
were marginal has increased from 8 in
2001 to 16 in 2004. Unsound banks have
increased from 9 in 2001 to 10 in 2004. The
marginal and/or unsound banks have
exhibited such weaknesses as
undercapitalization, illiquidity, weak/poor
asset quality, poor earnings, etc (Table 2.3).
Page: 14
Table 2.3
Rating Of Banks Using The CAMEL Parameters
Category
Sound
Satisfactory
Marginal
Unsound
2001
10
63
8
9
Number
2002
2003
13
11
54
53
13
14
10
9
The total assets of the industry grew by

23.0 per cent to N3,393.0 billion at endDecember 2004. Further analysis showed that,
of the N1,463.0 billion outstanding credit, 21.6
per cent was non-performing, while insider
credit accounted for 6.3 per cent. Analysis of the
sources and uses of inter-bank funds showed
that aggregate placements and takings stood at
N102.0 billion and N54.0 billion, respectively,
resulting in net takings of N48.0 billion. The
ratio of inter-bank takings was 3.0 per cent.
2.3
Surveillance Report on the Activities

Of Financial Institutions
The on-site and off-site supervision of
licensed banks and other financial institutions in
2004 was undertaken by the surveillance
departments of the CBN. The surveillance
activities during the year involved the
wholesale examination of fifty-nine (59)
deposit money banks, five (5) discount houses
and eight (8) offshore outfits of some Nigerian
banks. The routine examinations covered
prudential regulations; foreign exchange
operations; anti-money laundering controls and
know-your-customer (KYC) directives. The
examinations were aimed at determining the
extent to which banks had complied with the
2004
10
51
16
10
banking rules and regulations as well as

their financial condition. The CBN also
conducted follow-up examinations on some
financial institutions to determine their
compliance with the CBN
recommendations contained in previous
examination reports.
The prudential examinations
revealed various lapses in some of the
institutions, including: undercapitalization,
weak internal control systems, granting of
credit with inadequate collateralization,
poor asset quality, violation of the single
obligor limit, and weak corporate
governance. Specifically, in 2004, 54 banks
contravened various CBN regulations and
guidelines 99 times, as against 37 banks that
contravened 66 times in 2003. Sanctions
were appropriately imposed on the erring
institutions.
The routine examinations of foreign
exchange operations of the banks revealed
various breaches, including: noncompliance with open position limits,
failure to repatriate interest earned on FEM
funds, non-distribution of the naira proceeds
repatriated on letters of credit transactions to
eligible customers, excess charges by banks
Page: 15
on foreign exchange transactions, recycling of

airline tickets for invisible trade transactions,
disbursement of foreign exchange without
complete documentation, and failure to render
specified returns to the CBN.
Anti-money laundering and KYC
examinations revealed that banks violated
various provisions of the law. These violations
included: non-disclosure of reportable
transactions, late or incomplete and nonrendition of returns, inadequate training of staff
on money laundering counter-measures and
combating financing of terrorism, and
inadequate customer identification. Also,
follow-up examinations during the year
revealed that some banks failed to comply with
some of the recommendations contained in
previous examination reports. Special
examination on the level of compliance with the
provisions of the guidelines on inward money
transfers revealed that some banks breached the
provisions. The offences included: deduction of
arbitrary charges and commissions from the
amount payable to beneficiaries, application of
exchange rates that were lower than the CBN
rates in the conversion of foreign currencies,
splitting of remittances to evade reporting of the
transactions under Section 2 of the Money
Laundering Act, and payment to beneficiaries
without the stipulated identification. The errant
banks were appropriately sanctioned for each of
these offences.
Analysis of banks' prudential status
showed that nine (9) banks failed to meet the
required minimum capital adequacy ratio
(CAR) of 10.0 per cent as at end-December
2004. Of this number, six (6) banks recorded
negative CAR. Fourteen (14) banks failed to
meet the prescribed minimum liquidity ratio of
40.0 per cent, while two (2) banks had

negative liquidity ratios.
The CBN maintained a policy of a
uniform cash reserve requirement (CRR) of
9.5 per cent. As at end-December 2004, the
application of this prudential ratio resulted
in a net credit of N8,526.0 million to the
banks.
Many banks exceeded the
prescribed loan to deposit ratio of 80.0 per
cent. As at end-December 2004, forty (40)
deposit money banks (DMBs) or 45.0 per
cent recorded a loan to deposit ratio of over
100.0 per cent, while two (2) and three (3)
banks recorded ratios of 200.0 per cent and
300.0 per cent, respectively.
In the Other Financial Institutions
sub-sector, the CBN intensified its on-site
and off-site surveillance activities in pursuit
of the goal of achieving overall soundness in
the financial system. Consequently, on-site
examination of 185 community banks, 34
finance companies, 16 primary mortgage
institutions, 3 development finance
institutions, and 1 bureau-de-change were
c o n d u c t e d d u r i n g t h e y e a r. T h e
examinations also involved capital
verification exercises and appraisals of
audited accounts and periodic returns,
among others.
Prudential examinations showed
that, of the 71 PMIs that rendered returns in
2004, 26 complied with the minimum
mortgage assets to total assets ratio of 30.0
per cent, while 53 met the prescribed
minimum liquidity ratio of 20.0 per cent.
However, 63 exceeded the stipulated capital
adequacy ratio of 10.0 per cent.
Page: 16
2.3.1
Fraud and Forgery

The incidence of fraud and forgeries
worsened in 2004. There were a total of 1,175
reported cases of attempted fraud and forgeries
involving N9.6 billion, US$7.8 million, and
Euro18,492.0 in 2004, compared with 1,036
reported cases of attempted fraud and forgeries
involving N3.6 billion, US$3.5 million, DM120
and Euro 895.0 in 2003. Out of this number of
incidents, 518 cases were successfully executed
by the perpetrators and resulted in losses to
banks amounting to N2.6 billion,
US$608,721.13 and Euro18,492.0 in 2004,
compared with 369 cases of fraud and forgeries
which were successfully perpetrated and
resulted in losses to banks that amounted to
US$271,882.0 and Euro 895.0 in 2003.
2.3.2
Public Complaints Desk

During the year, the Ethics and
Professionalism sub-Committee of the
Bankers Committee handled complaints
among banks, and between banks and their
customers. As in the preceding years, most of
the complaints bordered, among others, on
excess charges by banks; manipulation and
fraudulent practices on customers' accounts;
conversion of investment funds; irregular
clearing of customers' cheques, and non-refund
of wrong debit to customers' accounts, etc.
2.4
2.4.1
The Payments and Clearing System
Institutional Arrangements
The architecture of the payments,
clearing and settlement system received a boost
in 2004. To this end, the Federal Government
granted in 2004, approval for the CBN to take
over the management of the Nigerian Security
Printing & Minting (NSPM) Plc, through a
substantial increase in the CBN's ownership of
the company's share capital from 2.3 to 77.0

per cent. In order to reposition the company
for efficiency and effectiveness, a reputable
team of management consultants, was
appointed, in November 2004, to undertake
a comprehensive assessment of the NSPM
Plc. This was with a view to identifying the
operational management and financial
problems affecting the company. The
consultants were also to articulate a
comprehensive business plan and strategy
over the short, medium and long-term as
well as recommend other actions necessary
to improve the operational performance and
profitability of the company. It was
expected that the CBN would, through
initial public offer (IPO), sell 50.0 per cent
of the authorised share capital of the
company to the general public, after
managing the NSPM for a minimum of three
(3) and a maximum of five (5) years.
In order to enhance the efficiency of
the payments system, a new clearing and
settlement system was introduced on 1st
April, 2004. The new settlement system
involved the appointment of seven (7)
settlement banks to clear instruments for all
DMBs in the country. The settlement banks
were selected on the basis of the following
objective criteria: volume of items cleared
(should not be less than 2.5 per cent of
national volume for a period of six months);
value of items cleared (should not be less
than 2.5 per cent of national value for a
period of six months); branch network in at
least 22 CBN locations; and a deposit
requirement of N15.0 billion as settlement
collateral. The seven settlement banks were:
First Bank of Nigeria Plc; United Bank for
Africa Plc; Union Bank of Nigeria Plc;
Page: 17
Afribank Nigeria Plc; Standard Trust Bank Plc;

Guaranty Trust Bank Plc; and Zenith
International Bank Plc.
Furthermore, the development of the
Real Time Gross Settlement (RTGS) system
and the GLOBUS banking application
progressed during the year. The RTGS
customization was concluded while the
GLOBUS application was at an advanced stage
of completion.
billion were issued to deposit money banks

during the year. Thus, the value of currency
in circulation at end-December 2004 stood
at N545.7 billion, with notes constituting
99.9 per cent of the total, while the volume
of notes was 4.0 billion pieces. The level of
currency in circulation reflected an increase
of 8.6 per cent over its level in 2003. The
currency structure is shown in Table 2.4(a).
The Federal Government had in
1999, approved the issuance of four higher
denomination notes, namely, N1000, N500,
N200 and N100 notes. All but the N1000
note have been issued. The process of
issuing the N1000 bank note commenced in
the last quarter of 2004.
2.4.2
The Issue of Legal Tender

The clean notes policy of the CBN was
sustained in 2004. To this end, the processing of
bank notes received priority attention. Currency
notes of various denominations worth N400.8
Figure 2.4:
Currency in Circulation, 2004
600
Nbillion
500
400
300
200
CIC
COB
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
100
V/CASH
Page: 18
Table 2.4(a) Currency Structure

2003
Coins
N1
50K
25K
10K
1K
Sub-Total
Notes
N 500
N 200
N 100
N 50
N 20
N 10
N5
Sub-Total
Total
Value
(Nmillion)
443.4
218.2
43.3
12.6
0.4
717.9
Volume
(million pcs)
443.4
436.4
173.2
126.0
40.0
1,219.0
252,500.5
127,378.6
63,618.4
23,021.7
26,036.5
6,583.0
2,665.4
501,804.1
502,522.0
505.0
636.9
636.2
460.4
1,301.8
658.3
533.1
4,731.7
2.4.3
Cheque Clearing
The clearing activities involving
cheques recorded a further increase in 2004,
reflecting some improvements in the payments
system architecture, the banking habits of users,
2004
Value
(N 'million)
445.4
218.6
43.3
12.6
0.4
720.3
300, 128.1
153,265.0
55,590.8
8,721.6
20,186.1
3,401.5
2,719.3
545,012.4
545,732.7
Volume
(million pcs)
445.4
437.2
173.2
126.0
40.0
1,221.8
602.3
766.3
555.9
174.4
1009.3
340.1
543.9
3,992.2
as well as public confidence in the system.

The volume and value of cheques cleared
through the system rose by 11.7 and 23.2 per
cent to 13,997,898 and N10,996,0 billion,
respectively in 2004.
Table 2.4 (b) Volume and Value of Cheques Cleared

2003
Clearing System
Lagos Clearing
House
Abuja Clearing
House
Others
Volume
( N billion)
12,526,643
6,679,654
(53.3%)
842,088
(7.3%)
5,004,901
(40.05%)
Value
( N billion)
8,928.4
5,132.8
(57.59%)
1,156.5
(28.5%)
2,639.2
(29.6%)
2004
Volume
( N billion)
13,997,898
7,122,056
(50.9%)
1,006,194
(6.7%)
5,869,648
(41.9%)
Value
( N billion)
10,996.0
5,744.2
(52.2%)
1,135.4
(13.0%)
4,116.4
(37.4%)
Figures in bracket represent percentage of total
Page: 19
Also, the volume of cheques cleared

through the Lagos Clearing House rose by 6.6
per cent over its level in 2003 to 7,122,056,
while its value rose substantially by 11.9 per
cent to N5,744.2 billion. The volume and value
of cheques cleared through the Lagos Clearing
House represented 50.9 and 52.2 per cent,
respectively of the total, while cheques cleared
through Abuja accounted for 7.2 and 10.3 per
cent of the total volume and value of cheques
cleared in the system, respectively. Thus,
Lagos, Port Harcourt and Abuja were the most
active clearing centres during the year.
Furthermore, two clearing sessions commenced
at the Lagos Clearing Zone in the year. The
clearing cycles of T+2 (local) and T+5 (up
country) were sustained in 2004. A same-day
float was maintained for inter-bank settlements.
All the six clearing centres which were supplied
with magnetic ink character recognition
(MICR) equipment in 2003 commenced
operation during the year. However, the
clearing system was still faced with the problem
of lack of standardization of cheques, reflected
in the high MICR reject rate (41.2 %) recorded
during the year (Table 2.4 (b) ).
2.4.4
Large Value Inter-bank Funds

Transfer (LVIFT)
There was a modest improvement in the
flow of financial resources in the inter-bank
funds transfers segment of the financial market,
as the volume and value of large-value transfers
increased in 2004. The volume and value of
LVIFTs rose by 13.3 and 46.5 per cent,
respectively, above the 2003 levels to 145,449
and N19,562.3 billion during the year,
reflecting some improvements in the
infrastructure and efficiency of the payments
system.
2.4.5
Use of e-Money Products

The use of electronic money (eMoney) products gained wider acceptability
as both the volume and value of transactions
increased. Transactions in the smart card
segment increased in both volume and value
terms, by 18.9 and 23.5 per cent,
respectively, above the levels in the
preceding year to 1,055,653 and N61.3
billion, respectively. Similarly, Automated
Teller Machine (ATM) transactions
increased substantially during the year. The
volume and value of ATM transactions was
up by 323.6 and 260.2 per cent, respectively
above the levels in 2003. The increased
activities in the e-Money segment was
attributed to: growing awareness and
increasing public confidence in the system,
opening of more points-of-sale (POS), and
increased operating efficiency due to
competition in the banking industry.
2.5
Foreign Operations
Total sales of foreign exchange at
the Dutch Auction System (DAS) amounted
to US$9,523.8 million, compared with the
US$9,640.6 million in 2003. The sales
represented a daily average of US$26.1
million, compared with a daily average of
US$26.4 million recorded in the preceding
year. The CBN purchased a total of US$77.0
million from the market resulting in net
sales of US$9,446.3 million, reflecting a
decline of 1.6 per cent from the net sales in
2003. The moderate demand pressure in the
foreign exchange market reflected the
relative effectiveness of monetary policy,
complemented by a prudent fiscal policy.
In tandem with the moderate
demand pressure, the end-period
Page: 20
naira/dollar exchange rate appreciated in

nominal terms in all the segments of the foreign
exchange market during the year. The endperiod exchange rate at the DAS, which was
N137.00 per US dollar at end-December, 2003,
appreciated by 3.1 per cent to N132.86 per US
dollar at end-December 2004. Similarly, the
end-period exchange rates at the bureaux-dechange appreciated to N138.71 per US dollar, in
December 2004 from N150.42 per US dollar at
end-December, 2003. Thus, the bureaux-dechange/DAS premium narrowed to 5.5 per cent
in 2004 from 9.8 per cent in 2003.
Sales of Travellers' Cheques (TCs)
through the authorized dealers amounted to
US$173.1 million, compared with US$242.9
million in the preceding year. Of the total sales
of TCs by the authorized dealers, Travelex
accounted for 88.7 per cent.
In 2004, thirty-six (36) letters of credit
(L/Cs), valued at US$175.77 million
( N23,290.7 million), were established in
transactions under Documentary Credit,
compared with 93 L/Cs valued at US$ 178.8
million (N25,607.7 million) in the preceding
year. One hundred and four (104) L/Cs valued at
US$375.72 million (N42, 976.7 million) were
extended during the year, compared with one
hundred and fourteen (114) L/Cs valued at
US$487.9 million (N42,315.5 million) in 2003.
Total drawings on L/Cs amounted to US$133.3
million (N17,785.5 million), compared with US
$168.9 million (N21,715.8 million) in the
preceding year.
The total value of transactions through
the West African Monetary Agency (WAMA),
between January and December 2004, stood at
WAUA 0.13 million (N23.78 million), the same
value as in 2003. There was neither an inflow
from, nor an outflow to other central banks
within the region during the year.
2.6
Other Developmental Functions

of the CBN
2.6.1
The Small and Medium Industries

Equity Investment Scheme
(SMIEIS)
As at end-December 2004, the
cumulative sum of N28.8 billion had been
set aside by eighty-two (82) banks under the
SMIEIS, compared with N20.1 billion as at
end-December, 2003. As at end-December,
2004 the cumulative sum of N8.5 billion
had been invested by banks, compared with
N7.1 billion in the previous year. The value
of investments made by banks in 2004
amounted to N1.4 billion, compared with
N4.7 billion recorded in 2003.
An analysis of the cumulative
investments showed that the aggregate
volume and value of investment, as at endDecember, 2004, stood at 168 and N8.5
billion, respectively. The share of the real
sector was 68.0 per cent (114 projects) and
66.0 per cent (N5.5 billion), respectively.
Investments in the services sector accounted
for 32.0 per cent (54 projects) and 34.0 per
cent (N2.95 billion) respectively. A further
breakdown showed that 81 investments
were made in the manufacturing sub-sector
(including printing and publishing) and
accounted for 48.0 per cent and 44.0 per cent
of total number and value of projects,
respectively.
Since the investment of N8.5 billion
represented only 29.5 per cent of the total
fund set aside, the pace of disbursement had
been very slow. The CBN, conducted a
study of the Scheme in August 2004 to
assess its impact and determine the factors
responsible for the slow pace in the
disbursement of SMIEIS funds, and the
findings are summarised in box 2.
Page: 21
Box 2: Findings of the SMIEIS Study

The study covered 93 out of the 121 enterprises that had accessed the SMIEIS
funds from inception. The survey achieved a response rate of 80.6 per cent.
Analysis of the survey results revealed improvements in the operations of the
beneficiaries, which could be attributed to a number of factors, including
improved macroeconomic environment and improved access to SMIEIS
funds. Overall, the average manufacturing capacity utilization rate of
respondents had improved after accessing SMIEIS funds. Correspondingly,
the number of persons employed by the enterprises rose by 72.0 per cent from
1,261 before SMIEIS to 2,169 in July 2004. Furthermore, about 46.7 per cent
of the enterprises which operated single shifts before access to SMIEIS funds
reported double shifts by July 2004 (after access to SMIEIS funds).
The composition of the boards and management of the funded
enterprises changed significantly after accessing the SMIEIS facility. On the
average, the boards consisted of five members of which three represented the
enterprises and two represented the banks. The average management team was
five with the banks having at least a representative. The effects of the
involvement of banks in the management of the beneficiary projects were
generally favourable. The importation of expertise and an increased level of
professional advice to the businesses were recorded by about one-third
(32.6%) of the enterprises as the most important effect of SMIEIS. About a
quarter (25.53%) of the enterprises stated that banks' involvement in the
management of the SMIs improved management techniques and operational
procedures. Enhanced and regular business supervision, leading to financial
prudence and discipline, was also reported by the enterprises.
The study also identified the constraints on funds disbursement which
included a low level of awareness; reluctance of banks to make long-term
investment; banks' desire to acquire a controlling interest in the enterprises;
delays and the high cost of incorporating businesses; the high cost of preinvestment activities; the preference by Nigerian entrepreneurs for soleownership; the restrictive range of activities covered under the Scheme; and
the continued poor state of physical infrastructure, especially, epileptic
electricity and water supplies.
Page: 22
2.6.2
The SME II Loan Scheme

Repayments under the World Bank
SME II loans amounted to US$10.6 million
(N1.42 billion) in 2004, compared with US$9.9
million (N1.3 billion) in the preceding year. A
total sum of N1.1 billion was received in
repayments from one of the participating banks,
compared with N5.2 million received in 2003.
The lower amount received in 2004 was due to
the fact that all the projects under the viable
participating banks had fully repaid their loans
by February 2004. The cumulative SME funds
invested in Nigerian Treasury Bills and
awaiting transfer to the World Bank stood at
N524.3 million as at end-December 2004.
2.6.3
The Agricultural Credit Guarantee

Scheme Fund (ACGSF)
The ACGSF recorded modest progress
in 2004. Three DMBs joined the Scheme during
the year, bringing the number of participating
banks to eleven (11), up from eight (8) in the
preceding year. Also, five (5) of the six hundred
and sixty nine (669) eligible community banks
(CBs) joined the Scheme during the year.
Following the Board's approval for the CBs to
participate in the Scheme, a training programme
to build capacity was organized for three

hundred and eighty-five (385) CBs' desk
officers in the six geo-political zones of the
country in 2004.
The initiatives to enhance the
activities of the ACGSF received a boost
during the year, as the Secretariat succeeded
in getting four (4) additional Memoranda of
Understanding (MOU) signed, under the
Trust Fund Model, by Total Oil Company
and governments of Nassarawa, Katsina and
Ondo States. The breakdown of the various
state governments and oil companies that
have so far adopted the model and the
amount set aside and deposited with deposit
money banks of their choice are shown in
table 2.5.
Notwithstanding the modest
achievements during the year, the Scheme
faced a number of challenges, including the
non-payment of the outstanding balance of
Federal Government's share capital of
N0.75 billion, the non-passage of the
Amendment Bill to the Act establishing the
Scheme by the National Assembly, as well
as the rapidly changing economic
environment.
Table 2.5.: Performance under the Trust Fund Model

No.
1
NAME OF STAKE
HOLDER
AMOUNT PLACED
( N M)
PARTICIPATING
BANK
DATE MOU
WAS SIGNED
2002
Jigawa
50.0
Kogi
30.0
BON, FBN, HBN,

IB, TEB
FBN
Nassarawa
10.0
FBN
19/2/04
Katsina
250.0
BON, FBN, HNB, IB,
1/6/04
Ondo
100.0
OMEGA BANK
15/6/04
Benue
15.0
Yet to be signed
Lagos
8.0
Yet to be signed
Kaduna
100.0
Yet to be signed
C. River
15.0
Imo
100.0
FBN
Yet to be signed
SPDC MISCARD
5.0
FBN/CDB
2001
Agip Green Card
5.0
UBA
2003
Total card
20.0
UBA
2004
27/11/03
Yet to be signed
Page: 23
The paid-up share capital of the Fund

remained at N2.25 billion as at end-December
2004. The CBN had fully paid up its share of
N1.2 billion. The total resources of the ACGSF
as at end-December 2004 stood at N4.4 billion.
This amount included all the accrued earnings
on previous investments made in Nigerian
Treasury Bills in six tranches with the paid-up
share capital.
During the year, 35,035 loans valued at
N2.1 billion were guaranteed under the ACGSF,
compared with 24,273 loans valued N1.1 billion
in the preceding year, representing increases of
44.3 and 90.9 per cent, respectively.
Further analysis showed that in terms of
volume and value of loans guaranteed during
the year, borrowings by farmers ranging from
N20,001 to N50,000, dominated. This
category of borrowers, with 12,776 loans,
accounted for 36.5 per cent of the total. Table
2.6 shows the distribution by category, volume
and value of loans under the ACGSF.
Analysis by type of activity, showed

that credit to the food crop sub-sector
dominated as 33,011 loans valued at N1.85
billion, accounted for 94.2 and 88.9 per cent
of the total number and value, respectively.
Livestock trailed food crops with 1,588 and
N191.6 million or 4.8 and 9.2 per cent of the
total, respectively.
Analysis by category of borrowers
showed that individual borrowers
dominated under the Scheme as in the
previous years. The number and value of
loans guaranteed to this category of
borrowers stood at 34,912 and N2.0 billion,
representing 99.6 and 96.5 per cent of the
total, respectively.
Figure 2.5:
Distribution of loans under the ACGSF in 2004
by Value of Loans
0.3%
0.8%
0.6%
9.0%
Table 2.6
Distribution of Loans under the
ACGSF in 2004
Category
Volume
89.3%
Value in
Nmillion
N20,000
and below
10,443
(29.8)
173.5
(8.3)
N20,001- N50,000
12,776
(36.5)
474.3
(22.8)
N50,001 - N100,000
7,320
(20.9)
631.0
(30.3)
Above N 100,000
4,189
(12.0)
803.4
(38.6)
Figures in parenthesis represent percentage of total
Food crop
Livestock
Cash crops
Others
Fishery
The total volume and value of fully

repaid loans in 2004 stood at 26,208 and
N1,171.7 million, representing increase of
21.0 and 28.7 per cent, respectively, above
the levels in the preceding year.
The improved performance of the
Scheme was attributed to the impact of an
aggressive campaign undertaken by the
newly constituted Board of the ACGS
Page: 24
during the year, the entry of community banks

into the Scheme as well as the success of the
Trust Fund Model.
From the inception of the Scheme to
end-December 2004, the cumulative volume
and value of fully repaid loans stood at 397,422
and N7.6 billion, respectively. Similarly, a total
of 278,104 loans valued at N4.5 billion have
been fully repaid as at end-December 2004.
This represented repayments of 70.0 and 60.0
per cent, respectively.
As at end-December 2004, a total of
2,061 outstanding claims valued at N98.0
million had been approved by the Board of
ACGSF and disbursed to the participating
banks under the Scheme.
2.7
2.7.1
Other Activities of the CBN
Board of Directors and Other

Committees
On May 29, 2004, the
Governor/Chairman of the Board, Chief (Dr.)
J.O. Sanusi, CON, retired and was succeeded by
Professor Charles C. Soludo. In addition two
Deputy Governors, Mr. O.S. Oduyemi and
Alhaji Mahey R. Rasheed, OFR, retired during
the year and were succeeded by Mr. Tunde
Lemo and Mrs. Wahir D. A. Mshelia.
The CBN's Board of Directors held 7
regular and 7 extra-ordinary meetings in 2004.
The Committee of Governors also held 20
meetings, while the Governor's Consultative
Committee held 13 meetings. Furthermore, the
Committee of Departmental Directors held 12
regular meetings, while the Internal Audit
Committee held 4 meetings during the year.
The Monetary Policy Committee
(MPC) met eleven (11) times, while the
Financial Sector Surveillance Committee
(FSSC) met nineteen (19) times in 2004 to

deliberate on issues relating to monetary
and financial sector policies. The MPC
issued monthly communiqu on its
deliberations and policy decisions.
2.7.2 Restructuring of the Central
B a n k o f N i g e r i a ( P ro j e c t
EAGLES) 1
The implementation of the CBN's
re-engineering process, code named project
EAGLES, continued in 2004. A reassessment of the project was, however,
undertaken during the year in order to
sharpen its objectives and re-focus its
direction for the anticipated transformation
of the banking industry. To this end, a master
plan was drawn up for the implementation
of the outstanding phases of the project. In
that regard, the number of departments in
the CBN was reduced from 23 to 17 in 2004.
Furthermore, the strategic business unit
(SBU) plan, covering the period 2004-2009,
was completed during the year.
As part of the re-engineering
process and in recognition of the need to be
more customer-focused through
improvements in service delivery, the CBN
adopted the policy of strategic alliance (SA)
as a tool that drives customer satisfaction. In
addition, the implementation of the other
elements of the re-engineering project
included the deployment of the Oracle
Enterprise Resource Planning (ERP) with
its components; the e-FASS, the GLOBUS
banking application and the Real Time
Gross Settlement (RTGS) system-all of
which progressed during the year.
/1 The acronym EAGLES stands for Efficiency, Accountability, Goal
orientation, Leadership, Effectiveness and Staff motivation.
Page: 25
2.7.3
Monetary Policy Forum

During the year, the CBN organized a
Governor's interactive session with key
stakeholders on interest, exchange and inflation
rates. It also organized a seminar with the
theme: Enhancing the Efficiency of the
Payments System.
The Fourth Annual Monetary Policy
Conference with the theme: Consolidation of
Nigeria's Banking Industry was held in
November 2004. The Conference deliberated
on the conceptual framework, country
experiences on banking consolidation via
mergers and acquisitions.
There was a general consensus that
consolidation offered a less painful option in
averting systemic banking distress and a better
tool for strengthening the financial system in
order to grow the domestic economy than other
possible options. The Conference identified
certain challenges likely to be faced by the CBN
in implementing the reform programme. Some
of the challenges included, resistance to
ownership dilution on the part of operators for
fear of loss of control, culture incompatibility,
and unemployment concerns.
2.7.4 Staff
The Governor held two interactive
sessions with Bank staff in which he discussed,
among other issues, his vision for the Bank.
A total of three hundred and eighty-one
(381) staff, comprising one (1) executive, three
hundred and sixty-one (361) senior and
nineteen (19) junior staff were employed during
the year. The CBN, however, lost the services of
thirty-six (36) members of staff through death.
In addition, a total of five hundred and one (501)
staff left the Bank through mandatory or early
retirement, termination, dismissal, etc. The
staff strength of the Bank, therefore, fell

from five thousand eight hundred and
st
seventy one (5,871) as at 31 December
2003 to five thousand seven hundred and
fifteen (5,715) by end-December 2004.
2.7.5 Training
In line with the policy of motivating
its workforce for greater efficiency, the
CBN sustained the momentum in staff
development during the year. To this end,
the CBN sponsored training programmes
within and outside the country, including
participation at seminars, workshops, and
conferences. A total of six thousand, eight
hundred and seventy-four (6,874)
participants benefited from the various
2
training programmes . Out of this number,
1,014 were executives, 4,570 were senior
staff while 1,290 were junior staff.
Similarly, nineteen (19) members of staff
went on study leave with pay, while one (1)
staff was on study leave without pay during
the year.
2.7.6 Sports
The CBN sponsored various
sporting competitions during the year. Such
competitions included soccer and lawn
tennis tournaments. The finals of the 26th
edition of the CBN Senior Open Tennis
Championship was played on the 21st of
August 2004 at the National Stadium,
Lagos. A large number of players from
within and outside the country participated
in the championship. The competition was
held in four categories, namely, Men's
Singles, Men's Doubles, Ladies Singles, and
Ladies Doubles.
/2 Some staff benefited from multiple training during the year.
Page: 26
The finals of the 20th edition of the All

Financial Institutions' Football Competition
was played at the Ahmadu Bello Stadium,
Kaduna on Saturday, 9th of October 2004.
Union Bank Football Club won the gold medal
while the silver and bronze medals were won by
the Central Bank of Nigeria and Bank of the
North football clubs, respectively.
Furthermore, the Governor's Cup
Competition in football for all CBN Branches
was held during the year. At the finals played at
the Nnamdi Azikiwe Stadium, Enugu on the
19th of June, 2004, the gold medal was won by
the CBN, Ibadan Branch, while Kaduna and
Abeokuta Branches won the silver and bronze
medals, respectively.
The CBN Primary School's 21st annual
Inter-house Sports Competition was
successfully held on the 16th of December
2004.
2.7.7
Corporate Social Responsibility

The CBN sponsored special projects in
some federal universities through grants. As at
st
31 December 2004, the CBN had approved the
sum of N445.0 million to twenty-four federal
universities, since the capacity building
programme commenced in 1998. One project
each was commissioned at the following federal
universities: University of Benin, Benin City;
Ahmadu Bello University, Zaria; University of
Calabar, Calabar; Bayero University, Kano; and
Nnamdi Azikiwe University, Awka. The CBN
also disbursed the sum of N60.5 million to the
Economic and Financial Crimes Commission
(EFCC) for its information and
communications technology (ICT) project
during the year to assist the Commission fight
economic and financial crimes. Similarly, the
sum of N10.0 million was approved and
disbursed to the Investment and Securities
Tribunal (IST) for its library project. In

addition, the CBN made grants totalling
N50.0 million to two Committees of the
National Assembly, namely, the Senate
Committee on Banking, Insurance and
Financial Institutions and the House
Committee on Banking and Currency,
which have oversight functions on the CBN.
The grants were for the capacity building
programmes of the Committees and to
provide logistics support for their legislative
processes.
2.7.8
CBN Primary School

Pupil enrolment at the CBN Primary
School as at end-December 2004 dropped to
800 from 870 in 2003, representing a
decrease of 8.8 per cent. However, the
number of teachers stood at 32, the same as
in the preceding year. The pupil/teacher
ratio therefore, improved as it fell to 22:1
from 27:1 in 2003.
2.7.9 Development of CBN Headquarters
and Branch Offices
The construction and partitioning of

the new Head Office Building, located in the
Central Business District of Abuja was
completed and fully occupied. The
temporary Head Office at Garki presently
accommodates the CBN Abuja Branch and
the CBN Cooperative Society.
The projects on branch extension in
Kano, Enugu, and Port Harcourt continued
during the year. The Kano Branch project
was at the final stage of completion. The
designs of the proposed Katsina and Uyo
branches were completed during the year.
However, the design for the Gombe and
Awka branches were yet to be made.
Page: 27
2.7.10 Computerization Programme

The implementation of the Enterprisewide applications and the Management and
Security (EMS) projects to drive the reengineered business processes progressed
during the year. The enterprise-wide
applications project consists of four major
applications, namely: the Oracle Enterprise
Resource Planning (ERP), the GLOBUS
banking system, the Real Time Gross
Settlement (RTGS) system and the Enhanced
Financial Analysis and Surveillance System (eFASS). While the Oracle ERP system will
automate most of the core re-engineered
processes, including human resources, financial
management, inventory, currency management,
asset management, etc, the GLOBUS
application will handle all banking-related
activities of the CBN. The RTGS system will
assist the processing of large value payments on
a real-time basis. The e-FASS, which was
developed for the CBN and the Nigeria Deposit
Insurance Corporation (NDIC), will strengthen
the supervisory process of the two financial
institutions. The EMS has seven (7)
components, including e-mail, system services,
directory services, network security, etc.
2.7.10.1 Library Operations
There was a substantial increase in the
volume of books, journals and other sundry
library materials consulted by the staff.
The breakdown of activities in 2004
showed that 31,533 materials were consulted,
compared with 28,112 in the preceding year.
The number of books procured stood at 3,775,
compared with 2,707 in 2003. Journal titles
subscribed to during the year stood at 403 while
the number of local and foreign magazines
received was 13,900.
The Library recorded 958 visitors

during the year, compared to 500 in 2003. In
order to improve its electronic service
delivery, the library upgraded, during the
year, its two major applications software;
the Graphical Library Automation System
(GLAS) and the Docuware.
2.7.11 Legal Services
In 2004, the CBN was involved in a
number of activities and projects aimed at
strengthening the Bank's legal and
regulatory framework, as well as enhancing
the overall effectiveness of the financial
system. The activities included the
following:
(i)
A comprehensive review of the CBN

and Banks and Other Financial
Institutions (BOFI) Acts;
(ii)
A review of Other Financial Sector

Legislations;
(iii)
The preparation and adoption of a

Bill for the establishment of a body
for the management
of nonperforming risk assets of banks; and
(iv)
The prosecution of cases involving

the Bank and third parties.
The reviewed CBN and BOFI Acts

were both presented to the National
Assembly for consideration.
The Senate eventually
passed the two Bills, based largely
on the proposals presented by the
CBN.
Page: 28
The House of Representatives is

yet to commence consideration of the
draft amendment Bill.
resolved against the CBN while five

were settled out of court.
2.8
One of the major components of the

CBNs Reform Agenda is the
establishment of an Asset Management
Company (AMC).
The main objective of the
company would be the acquisition,
management, restructuring and disposal
of the risk assets of banks. Following
approval by the CBN/NDIC Executive
rd
Committee on Supervision in the 3
quarter of 2004, a draft bill for the
establishment of the AMC was
prepared. In order to ensure its quick
passage into law, the Bank forwarded
the bill to the Honourable Attorney
General of the Federation for the
consideration of the Federal Executive
Council and presentation to the National
Assembly as an Executive Bill.
The CBN participated in the activities of
National Committee, which was
inaugurated in May 2004 by the
Honourable Attorney General of the
Federation, to address the obsolescence
of most of the financial legislations in
Nigeria.
A number of court cases involving the
CBN were decided in the course of the
year while some were settled out of
court, through the adoption of the
Alternative Dispute Resolution (ADR)
mechanism. Of the145 cases decided in
2004, judgement/ruling was given in
favour of the CBN in 139; only one was
The CBN Accounts
2.8.1 Income and Appropriation

The audited financial statement of
the CBN showed a sharp decline in revenue
and expenditure in 2004, compared with
2003.
In 2004, total revenue was N87.6
billion, compared with N122.7 billion in
2003, while total expenditure fell from
N94.1 billion in 2003 to N74.5 billion in
2004. The 28.6 per cent decline in revenue
was attributable to the operation of a single
treasury account by the Federal
Government, which resulted in a decline of
interest charges on Ways and Means
Advances. Other factors included: a decline
in interest income from foreign investments
due to the prevailing low interest rate in the
international capital market, and the
strengthening of the naira vis--vis the
dollar, which led to a foreign exchange
revaluation loss of N8.8 billion, as against a
revaluation gain of N29.8 billion in 2003.
Conversely, the 20.8 per cent drop in
expenditure was attributable to more
prudent financial management, including
the suspension of capital expenditure.
Overall, the operations of the CBN resulted
in a surplus of N9.2 billion, representing a
decline of 63.3 percent compared with the
outcome in 2003. The sum of N7.6 billion
was transferred to the Federal Government,
while the balance was transferred to general
reserves, in accordance with the provisions
of Part II, section 5(3) of the Central Bank of
Nigeria Act, 1991, as amended.
Page: 29
2.8.2
The CBN Balance Sheet
2.8.2.1 Total Assets

There was a substantial increase in the
total assets of the CBN in 2004. Total assets
increased by 70.0 per cent to N3,157.1 billion,
compared with the increase of 17.6 per cent in
the preceding year. The rise reflected mainly the
substantial increase in the foreign assets of the
CBN (132.7 per cent), which more than offset
the decline in domestic assets, particularly
government securities and rediscounts and
advances, which declined by 18.0 and 20.1 per
cent, respectively, during the year (Appendix
A1).
2.8.2.2 Total Liabilities

The corresponding increase in the
total liabilities of the CBN was reflected in
the substantial increase of 180.0 per cent in
deposit liabilities, particularly 'other
accounts', and government deposits with the
CBN which increased by 443.0 and 76.2 per
cent, respectively, as well as the increase of
8.6 per cent in currency in circulation. The
effects of the increase were, however,
moderated by the decline in other liabilities
and trade debts. The CBNs paid-up capital,
however, remained unchanged at N3.0
billion while the general reserves rose by 3.3
per cent to N46.2 billion.
Page: 30

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CENTRAL BANK OF NIGERIA

FOR THE YEAR ENDED

Central Bank of Nigeria

ISSN 1597 - 2976

be proactive in providing a stable

AS AT 31ST DEC., 2004.

PROF. CHARLES C. SOLUDO

MALLAM BASHIRU TUKUR

APOSTLE H. I. ALILE. OFR

DR. SHAMSUDDEEN USMAN, OFR

MR. ERNEST C. EBI

MR. S. INIE AKONO

MR. TUNDE LEMO

DR. (MRS.) UCHE AZIKIWE, KSP, MFR

MRS. WAHIR D. A. MSHELIA

DR. HARUNA U. SANUSI

MEMBERS OF THE BOARD OF DIRECTORS OF THE

Mr. A.O. Olatujoye

Special Advisers to the Governor

Personnel and Admin. Matters

31ST DECEMBER, 2004

MONETARY, FINANCIAL AND OTHER POLICY STANCE IN 2004........

APPRAISAL OF MONETARY POLICY AND OPERATIONS OF THE CBN......

PART TWO: ECONOMIC REPORT

GENERAL SURVEY OF THE ECONOMY................

THE FINANCIAL SECTOR..........................

THE REAL SECTOR.............

THE EXTERNAL SECTOR.......

PART THREE: THE INTERNATIONAL ECONOMY

INTERNATIONAL ECONOMIC AND FINANCIAL DEVELOPMENTS.......

The West African Institute for Financial and

Summary of State Governments' Finances in 2004...

Top 100 Exporters in Nigeria for the Year 2004 ........

Old Organisational Structure of the CBN in 2003..................................................... xxv

Balance Sheet as at December, 2004..........................

PROF. CHARLES C. SOLUDO

STATEMENT BY THE GOVERNOR

It is a pleasure for me to present this first

Let me start by paying a special tribute

banking as well as the fulfillment of

This Report summarizes several of

Aside from the restructuring of the

As I outlined in my inaugural address to

The Bank commenced a monumental

During the year also, the Bank acquired

At the macro-level, the Bank's

Development Strategy (NEEDS),

Overall, the Annual Report is

Finally, I wish to sincerely thank the

the year. We can only build the Central

CENTRAL BANK OF NIGERIA

Committee held 4 meetings during the year.

prudent financial management, including the

end-December, 2004 rate of inflation,

of consolidating the banking sector and

declined in response to the low public sector

contributed to the growth recorded in 2004, but

prices, coupled with prudent fiscal policy

The External Sector

The International Economy

markets in Asia. Developments in the world

STRUCTURAL REFORM AND