₦2.2tr Oil Loans Upset Banks

Central Bank of Nigeria

Nigerian banks have become very stringent in funding oil and gas projects owing to a doubtful balance sheet position and inability of firms to service previous loans worth more than ₦2.2 trillion.

The Guardian Nigeria report continues:

But an industry expert said banks in the country do not have the capacity to fund big-ticket transactions in oil and gas, bad loans notwithstanding.

The source remarked that the banking sector was still undergoing stress test by agents of the Central Bank of Nigeria (CBN) to ascertain their health status, “hence, they may not want to deplete their ratios with further commitments to a volatile oil sector.”

Total capitalization of Nigeria’s banks was estimated at ₦5.3 trillion in March this year. The expert argued that the amount could not fund a single rig project because it costs US$5 million per day to hire a rig.

Oil and gas sector remains one of the biggest debtors of commercial banks. Statistics from the Central Bank of Nigeria (CBN), as of March 2016, put credit allocation to downstream oil and gas operations, natural gas and crude oil refining at ₦2.237 trillion. The CBN data showed that the sector owed commercial banks over ₦2.272 trillion as at December 2015 and over ₦2.299 trillion in February.

On why banks may no longer fund oil projects in the short to medium term, a financial services expert said, “the trouble is that all the big banks have got their fingers burnt; so, they are playing a cautious game.

“Seventy per cent of non-performing loans are incurred from oil and gas-related risk portfolios. So it makes no meaning for banks to rush into the sector, at least for now.”

Banks’ credit to upstream and oil and gas services sub-sector was ₦1.1 trillion in December 2016, ₦1.132 trillion in February and ₦1.032 trillion as at March this year.

The CBN’s quarterly statistical data confirm recent disclosure to The Guardian by the Asset Management Corporation of Nigeria (AMCON) that the majority of the debtors on its debts list were from the oil and gas sector, who, instead of deploying the loans for the purposes for which they were granted, preferred to live ostentatiously as “big boys”.

Reacting to the petroleum sector’s exposure to banks, Managing Director and Chief Executive, International Energy Services Limited, Dr. Diran Fawibe, said the debtors could be classified into downstream and upstream players.

He noted that the “big boys” were more from the downstream sector, attributing their indebtedness to subsidy administration crisis during former President Goodluck Jonathan’s administration and its sudden removal by President Muhammadu Buhari.

“I agree, the downstream sector is heavily indebted to banks because of petroleum products importation. Many of the big boys did not know the subsidy regime would be removed in the manner that it was done because some of them had misused the funds from the banks and gone on a spending spree. And they are now caught up in the mess.”

As for the ‘more prudent’ upstream players, Fawibe said the firms were caught up in asset revaluation due to the crash in the price of crude as well as the devaluation of the naira.

Fawibe further disclosed that the situation got so bad that the upstream sector players, particularly the indigenous ones, made a representation to banks to plead for understanding and the continued extension of loan facilities, but to no avail.

Also, the accumulated US$500 million Nigerian Content Development Fund (NCDF), which is a 1% contribution from oil companies, has not been fully utilized due to the inability of oil firms to meet the loan condition.

Of the thousands of local operators, only Lagos Deep Offshore Logistics Limited (LADOL), Vandrezzer Energy Services Limited and Starz have so far received facilities from the fund.

The fund was set up to tackle liquidity challenges of Nigerian companies by offering a partial guarantee on bank loans and 50% interest rebate on performing loans under the partial guarantee scheme.

Up to 70 per cent of the pool is to be used to provide guarantees for single digit and longer tenure lending by banks and funding institutions to Nigerian service companies seeking to acquire critical assets, while 30% will be applied for direct intervention in critical infrastructure development and training programmes.

The Guardian learnt that the fund, which was under the care of BGL Limited, became inaccessible as banks introduced a few terms and conditions that could not be met by emerging Nigerian companies.