Nigeria commercial banks’ lending to the oil and gas sector dropped by 1.33 percent in the second quarter of 2017, according to the latest report by the National Bureau of Statistics (NBS).
According to the sectoral allocation of banking sector credit for the quarter contained in the NBS report, lending to the oil and gas sector stood at N3, 528,162.53 as against 3,575,664.85 in preceding quarter, representing a shortfall of 1.33 percent.
‘‘In terms of credit to private sector, a total of N15.71 trillion worth of credit was allocated by the banks in the quarter under review. Oil & Gas and Manufacturing sectors got total credit allocation of N3.53 trillion and N2.22 trillion respectively to record the highest allocation in the period under review,’’ the report said.
But while the crash in crude oil prices in the international markets could partly be blamed for the banks’ waning interest in financing the black gold, some analysts attributed this drop to their huge exposure to the oil sector through large syndicated loans, most of which were neither hedged against market volatility nor properly collateralised.
A former Team Lead, Oil and Gas Upstream, at Diamond Bank Plc, Mr. Onome Atife, while reacting to the development said, “I don’t think there will be any significant change in loan repayment for the Nigerian banking industry because the prices were benchmarked then in the worst case scenario, at $60 per barrel, while at present prices are still less than that.”
Atife, who now does commercial banking at Fidelity Bank, said there would not be any significant change in oil firms’ ability to repay their loans, “unless the price rises above $60 per barrel and is sustained for some time.”
According to the NBS in its first quarter report, the banking sector credit to oil and gas firms stood at N3.576 trillion, but outstanding loans to the power and energy sector was N472.084 billion.
In the services sector, the NBS stated that total loans to oil and gas and power & energy firms stood at N1.296 trillion and N305.976 billion respectively.
Meanwhile, as at the end of the fourth quarter of 2016, banking sector credit to oil and gas and power & Energy firms in the industry sector stood at N3.587 trillion and N432.3 billion; while in the services sector, oil and gas firms received a total of N1.268 trillion as power and energy firms got N293.993 billion.
According to the NBS, “a total of N16trillion credit was given to the private sector in the first quarter of 2017, with the Services and Industrial sectors receiving about N9.25 trillion and N6.19 trillion respectively to record the highest credit allocation in the period under review.
The banks are not really finding this huge stock of non-performing loans very funny as it is affecting the operations negatively. For Zenith Bank Plc, one of the nation’s leading oil and gas financiers, the cumulative non-performing loans of power, oil and gas companies, rose to N41.49 billion as at the end of 2016, accounting for 58.14 percent of the bank’s total non-performing loans (NPLs).
Giving a breakdown of its total non-performing loans in the energy sector, the bank, in its 2016 Annual Reports and Accounts, stated that oil and gas firms cumulative NPLs stood at N10.82 billion as at the end of December 2016, while power firms’ NPLs accounted for N30.676 billion.
The 2016 figure represents a sharp increase in the energy industry’s non-performing loans in the books of the bank.
In the 2015 financial year, NPLs of power and oil & gas firms stood at N566 million and N1.134 billion respectively. Other banks are also lamenting this unfortunate development which is largely attributed to the poor state of the econony.
The bank’s gross loans to the oil and gas sector rose by 80 per cent from N362.489 billion in 2015 to N654.962 billion in 2016, while NPL attributed to the sector also rose by 854.23 per cent, from N1.134 billion in 2015 to N10.82 billion
But while Nigerian commercial banks are showing less interest in investments in the country’s oil and gas sector, a consortium of Chinese banks have stepped in to invest about N250 billion into the nation’s petroleum industry.
Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr. Maikanti Baru, who gave hints about the fresh inflow into the sector when a delegation of the Nigerian Gas Association led by its President, Mr. Dada Thomas, paid him a courtesy visit in Abuja, recently said they came from the Chinese banks, which have just started investing into the Nigerian petroleum industry for the first time.
He added that the Chinese banks had made commitments to bring in as much money as might be needed to finance oil and gas investments in Nigeria.
“On that occasion, I did challenge the Chinese banks that since they have now come on board, they should move from the back seat to the driver’s seat and they gave me their commitment that they have plans to bring in as much money as we need to execute our projects.
And if the Chinese tell you that they are going to do it, definitely they will do it and we will give them a run for their money.”
Many Nigerian banks are no longer keen on lending to oil and gas companies in the country despite the recent rally in crude prices in the global market.
The banks’ high exposure to the nation’s oil and gas sector had taken a toll on their asset quality following the sharp drop in oil prices that slashed oil firms’ revenues.
Prior to the fall in crude oil prices in mid-2014 from a peak of $115 per barrel, banks gave loans to local oil and gas companies for the acquisition of assets following the rise in divestments by the International Oil Companies including Royal Dutch Shell, Chevron and Total.