GTBank, Zenith, Access, 2 others’ exposure to Oil & Gas hits N2.2trn in 2016

Zenith Bank

….total bad loans provision rose to N167bn


Unfazed by the fluctuations in the global oil sector, five commercial Banks granted N2.2 trillion credit to the oil & gas sector in 2016, reflecting an increased support to the industry seen by the lenders as the only viable in the current recessionary period.

This development, analysts said could increase Non-Performing Loans and also push up loan loss provision in the banking sector.

The same banks’ exposure to the sector in 2015 was at N1.4 trillion, making the 2016 credit an increase of 54.2 per cent or N758.8 million over that of 2015.

Managing director of Nigeria Deposit Insurance Corporation (NDIC) Umaru Ibrahim, had early this year at the National Assembly expressed concern about the rising incidence of non-performing loans (NPLs) in banks.

“The 25 deposit money banks had a total portfolio of N18.53 trillion of which N1.85 trillion or 10 percent were NPLs”.

“Of the NPLs, N740 billion or 40 percent constituted insider/Directors related loans. These are far above regulatory threshold of 5 percent for the lenders” Ibrahim told federal lawmakers.

According to our correspondent’s investigation, most of the Tier-1 Banks (Zenith Bank Plc, Access Bank Plc, Guaranty Trust Bank Plc and United Bank for Africa Plc) in 2016 increased their exposure to the Oil & Gas sector.

Guaranty Trust Bank exposure to the Oil & Gas sector in 2016 gained nearly 37 per cent to N576 billion from N421.35 billion in 2015.

Zenith Bank exposure moved from N362 billion to N654.96 billion while Access Bank credit to the sector gained 45 per cent to N498.68 billion from N344.6 billion recorded in 2015.

Furthermore, United Bank for Africa investment in that sector increased by 77.6per cent from N204.5 billion to N363 billion in 2016.

Access Bank particularly invested in all the Oil & Gas sector that include Downstream, upstream, midstream and Crude oil refining.

Stanbic IBTC Holdings Plc, the only Tier-2 considered, recorded 2.6 per cent decline in total exposure to the oil and gas sector, including mining industry exposure at N65.6 billion in 2016 from N67.35 billion in 2015.

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 are 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.”

The National Bureau of Statistic (NBS) said oil & gas production reduced in 2016, attributable to vandalism in the Niger Delta region.

According to NBS, “For the full year 2016, oil production was estimated to be 1.833 million barrel per day, compared to 2.13 million barrel per day in 2015.

“This reduction has largely been attributed to vandalism in the Niger Delta region. As a result, the sector contracted by -13.65per cent; a more significant decline than that in 2015 of -5.45per cent. This reduced the oil sectors share of real Gross Domestic Product (GDP) to 8.42per cent in 2016, compared to 9.61per cent in 2015.”

A managing director of a bank told InsideBusiness that with the current interest rates, the oil and gas sector remains the only viable industry which the banks could support in this period. Other sector, he said are not getting good returns on their investments currently.

“The rate is at 26 percent which is killing to businesses. It is not profitable to give out loans because no business is moving now”.

“Banks only give out loans to businesses like oil and gas that they can quickly pay back once they take delivery of fuel and sell”.

“We must must be sure the money is coming from somewhere before we can give out loans. That is what the industry has become” he said.

Increase in loan loss provision

Meanwhile, as the banks exposure go up, so also is the loan loss provision, prompting the above financial institutions iin 2016 to provide N167 billion for loan loss, an increase of 168 per cent over N62 billion in 2015.

So far in the banking industry, United Bank for Africa has the highest proportion of loan loss provision of the five considered commercial banks

The lender’s provision gained 447.9 per cent from N5.05 billion of 2015 to N27.68 billion in 2016.

Guaranty Trust Bank trailed with N65.29 billion loan loss provision, indicating an increase of 426.2 per cent from N12.4 billion in 2015.

This impairment charges made by banks is on the heels of macroeconomic challenges due to dwindling crude oil prices, and recognition of impairment charges on some specific commercial banking businesses.

Others include, Zenith Bank with an increase of 106 per cent loan loss provision from N15.67 billion to N32.35 billion in 2016.

Access Bank and Stanbic IBTC Holdings loan loss provision moved by 54 per cent and 32per cent from N14 billion and N14.9 billion to N21.95 billion and N19.8 billion in 22016 respectively.

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 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 loans.

“As a result of 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 not performing and it is doubted if those loans can be recovered, banks are forced to charge the losses from their profit. 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 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 Infrastructures 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.

“Now that we have interest rate at 14 per cent, we are going to have more impairment charges expect Central Bank of Nigeria reduces interest rate and Government provides infrastructures for businesses to thrive.”

A group of Researcher at InvestmentOne said, the difficult macro environment, foreign exchange scarcity, in addition to the disruptions to oil production (negatively impacting the quality of loans to Oil & Gas companies), may see Non-Performing Loans (NPL) increase further.

“This may keep loan impairment charges high in the immediate as banks try to maintain adequate NPL coverage,” the Lagos based Research firm added.