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Report: Nigerian Banks Still Heavily Exposed to Oil Sector

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  • Report: Nigerian Banks Still Heavily Exposed to Oil Sector

Despite the sustained increase in crude oil price seen this year, the banking sector remains heavily exposed to the oil and gas sector, a report has revealed.

Lagos-based CSL Stockbrokers Limited, a research and financial advisory company, stated this in a report titled, ‘Tier 2 Banks- Emerging Rays of Silver Lining,’.

However, while the report noted that the risk to the oil and gas upstream sector appears to be reducing, it pointed out that Nigeria’s power sector was still boded with high risk due to myriad of problems confronting the sector.

Although, the report did not specify the present value of banking sector exposure to the oil and gas sector, the Central Bank of Nigeria (CBN) had revealed that it constituted about 40 per cent of banks’ loan portfolio.

But the Chief Executive of Financial Derivatives Company Limited, Mr. Bismarck Rewane, while reacting to the report’s findings, attributed the situation to the restructuring of the facilities.

“Banks are now restructuring those facilities,” he added.

These could be part of the reasons why commercial banks have remained apathetic towards lending.

Continuing, the report anticipated that Nigerian banks would not replicate the spectacular performance it witnessed in 2017, after the economy exited a biting recession.

The report stated: “Increasing levels of non-performing loans (NPLs) in the books of some banks in the aftermath of the recession amid poor macro-economic conditions caused most banks to put a rein on credit growth in 2017.

“As at first quarter 2018, the tier-2 banks within our coverage reported decline in loans by an average of three per cent.

“Most banks deployed more funds to the high yielding and less risky fixed income market. However, based on communication from the banks, moderating fixed income yields should compel banks to create more risk assets.”

It projected an average loan growth of about 11 per cent for the tier-2 banks within our coverage and we expect most of the loan growth to take place in the second half of the year.

“We do not expect significant deterioration in asset quality this year as oil prices appear to be favourable and foreign exchange liquidity remains robust following the introduction of the Investors and Exporters’ (I&E) window last year,” it added.

The Nigerian banking sector adopted the International Financial Reporting Standard (IFRS) in 2012.

IFRS 9 prescribes new guidelines for the classification and measurement of financial assets and liabilities, making fundamental changes to the methodology for measuring impairment losses, by replacing the “incurred loss” methodology with a forward-looking “expected loss” model.

For the tier-2 banks, the report noted attempts by many of them to raise debt capital to shore up their capital base, saying it was expected to result in an increase in funding costs this year.

According to it, “The trend in non-interest income growth has been southwards over the last three years during which the CBN implemented a gradual phase-out of commission on turnover (CoT).

“Interestingly, some of the banks, especially the larger ones, have managed to claw back commissions through other channels. The mid-tier banks on the other hand have found it more difficult to do same.

“Card fees also took a hit on account of restriction on dollar card transactions. Nigerian banks were forced to reduce (and in some cases suspend) forex transactions on their Automated Teller Machine cards (debit and credit) in the face of acute dollar shortage precipitated by shrinking petrodollars, tighter FX policies and reduced portfolio inflows.

“Capital adequacy is a persistent issue for a number of Nigerian banks. Regulatory capital ratios were impacted by the depreciation of the naira given the extent of dollar lending in the sector. They were also hit by a sharp rise in impairments in some cases.”

The CBN requires that banks with international subsidiaries maintain a capital adequacy ratio (CAR) of 15 per cent, while banks without international subsidiaries maintain a CAR of 10 per cent. The minimum requirement for systemically important banks is 16 per cent.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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