Despite the dwindling global oil Prices, five commercial banks’ exposure to the oil & gas sector hits N2.2 trillion in 2016, reflecting an increased investment at the detriment of Non-Performing Loans and rising loan loss provision in the banking sector.
The exposure to the oil & gas sector of these banks in 2015 was at N1.4 trillion, representing an increase of 54.2 per cent or N758.8 million over that of 2015.
Our findings revealed that most of the Tier-1 banks in 2016 increased their exposure to the oil & gas sector.
An energy expert, founder and lead analyst at EnergyDatar, Mr. Chijioke Mama, said some areas in the oil & gas industry are still lucrative. According to him, “Despite the dwindling global oil prices, there are some areas in that sector that are still attractive. When you talk about the recent drop in oil prices, its impacts is mostly upstream. The downstream business in Nigeria is still an attractive and profitable business area.
“Petroleum products consumption in Nigeria has continued to grow aggressively for the past five years and even most recently. We are presently consuming about 50million liters per day. So I believe it still make sense to finance or acquire assets in the downstream sector, as we have seen with some recent transaction, involving mobile downstream and NIPCO.
“The only hitch is that foreign exchange has affected product importation since both banks and exporters cannot access adequate forex but that’s for that. Product retail, distribution and refining are still viable areas worthy of financing.
“When you talk about banks continued financing of the upstream projects in spite of low prices, some of these financial institutions may be involved in these projects by virtue of commitments that reach way back before commodity price fall.
“So there may be an obligation to continue. It’s just to restructure the finance to accommodate present realities but not an outright abandonment. So you have to look at what you call “increased exposure” on a case by case basis to understand the justification for continued funding.”
According to findings also revealed that the banks for 2016 provide N167 billion for loan loss provision, an increase of 168per cent over N62 billion in 2015.
The managing director, Highcap Securities Limited, Mr. David Adonri, explained that the country’s present recession has impacted on loans provided by banks.
According to him, “Nigeria’s economy is in recession. Any economy that experiences negative Gross Domestic Product (GDP) is in recession. If we are in recession, it means that Nigeria is having economy crisis and it is expected to impact negatively on banks banks’ loans.
“As a result of the recession this year, bad loans in the banking sector have increased because companies that borrowed those loans have failed to pay back. Banks are doing the right thing by making provision for these bad loans.
“Since those loans are nothing performing and it is doubted if those loans can be recovered, banks are forced to charge the losses from their profits. If those loans are recovered in future, they will be written back as profit.
“The rate at which loans have become delinquent is much higher now because of effect of recession on earnings of enterprises that have borrowed from banks.”
He noted that as the economy moves out of recession, some of those delinquent loans would start performing and it is expected by banks to rewrite them into their profit.
Also commenting, chief executive officer, Enterprise Stockbrokers Limited, Mr. Rotimi Fakayejo, said impairment charges on financial assets in the banking industry would continue to grow as banks struggled with fiscal and monetary challenges.
He said, “We do not have infrastructure for business to thrive and cost of doing business is now high. A lot of these banks are having it difficult to lend but they must lend.”
