Banks Losing Appetite for Oil, Gas Loans

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  • Banks Losing Appetite for Oil, Gas Loans

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, our correspondent has learnt.

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, mostly being divested by the International Oil Companies such as Royal Dutch Shell, Chevron and Total.

According to analysts, most of the country’s commercial banks are exposed to the oil sector through large syndicated loans, many of which are not hedged while some are poorly collateralised.

A former Team Lead, Oil and Gas Upstream, Diamond Bank Plc, Mr. Onome Atife, said, “I don’t think there will be any significant change in loan repayment because the prices were benchmarked then at , in the worst case scenario, $60 per barrel and the current price is 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.”

Asked if banks would still be eager to give loans to oil firms, he said, “It is not a question of whether the price of oil goes up or not; the question is: Where is the economy tending towards? What are the plans of the government? We want to fund the real sector; that is where the government wants to support.

“Funds are being mopped up from the economy by the Federal Government itself because of the high interest rates in treasury bills. People are taking their money from the banks and putting it into treasury bills; so it makes the cost of funds from banks to be higher, and oil companies, traditionally, don’t borrow at very high interest rates. Their loans are dollar-denominated, and there is no dollar in the system.”

Atife said banks would want to fund the local currency transactions, exports, agriculture and the real sector, adding, “That is the direction the Central Bank of Nigeria and the banks are looking at.”

The Head of Energy Research, Ecobank Group, Mr. Dolapo Oni, said oil and gas loans rose to 28.78 per cent of total loans and advances by June 2016, compared to 23.78 per cent in June 2015 and 24.82 per cent in December 2015.

“Most banks have since adopted a cautionary stance to oil and gas loans. The resumption of the Forcados pipeline, which has been down since February 2016, is a major factor that could however counter this stance as local oil companies become dollar liquid,” he said.

Guaranty Trust Bank Plc had also said an improvement in oil sector receipts would provide relief for banks, enhance repayment of obligations and improve asset performance, with oil and gas loans accounting for about 30 per cent of the total banking industry exposure.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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