Energy sector loan hits NGN 4 Trillion

Nigerian banks are battling imminent liquidity crisis over huge exposure and non-performing loans to oil and gas and power sector, which is presently in excess of N4 trillion.

The situation is making it difficult for operators in the oil and gas and power to secure loans for operations.

Head, Energy Research, Ecobank Group, Mr. Dolapo Oni said banks could not release funds to oil and gas industries because there was no fund to release unless they go and raise money in the capital market.

He stated that this year, a lot of banks will go to the market to raise capital “because if they don’t raise capital, there will be nothing to lend”.

Oni said: “Banks don’t have funds to release unless they go the capital market to raise capital. If they don’t raise capital, there is nothing to lend. A lot of banks are exposed to 30-40 per cent of their loan books to oil and gas. The implication of this is that if oil price continues to remain low, most of those banks will start recording losses on those particular assets.

“Currently, we have about 12.8 per cent of all loans that are non-performing in banking industry, and the bulk of that is from the power, oil and gas sector.

“So, it is pushing the banking industry into a region that they are approaching a crisis in terms of non-performing loans. Also, the banks have an issue of foreign exchange (forex) in their hands. Most of the loans are in dollars and these companies that took loans are not getting dollars. So, the banks have dollar issues too.

“Besides, those banks borrowed from their foreign bankers to lend to the oil and gas companies and so, they are finding it difficult to pay their own foreign bankers too. I think for the banks to continue their duties, they need to raise capital or there will be no funds to lend to the oil and gas this year. Next year, things might be a lot easier and we will see banks lending to oil and gas and power sector.

“As at Q3 (third quarter) last year, banks’ exposure to oil and gas and power sector was N4 trillion but as the value of Naira depreciates, the amount of those loans rise because the loans were in dollars. Also, by the time the Central Bank of Nigeria (CBN) comes out with its 2016 report, banks’ exposure to the energy sector may be much higher.”

Oni added that the CBN was not providing enough dollars to the banks, but noted that the apex bank “is having meetings with the banks to see how (they) banks will source more dollars to pay their foreign bankers and other clients”.

“But unfortunately, CBN insists it doesn’t have such dollars,” the banker said.