Banking sector loan exposure to oil and gas sector at 26 percent

By Moses Obajemu

Nigeria’s banking system exposure to the oil and gas industry stood at 26 percent as at April 2020, indicating that over 25 percent of the industry’s total loan portfolio went to the oil and gas industry.

Edward Adamu, deputy governor of the Central Bank of Nigeria (CBN) and member of the Monetary Policy Committee, disclosed this in his personal statement at the recent meeting of the MPC.

According to Adamu, the banking industry is heavily exposed to the oil and gas industry, adding that the banking industry is also vulnerable as a result in terms of foreign currency exposure which stood at 41 percent as at April this year.

“Related to this source of vulnerability is the foreign currency exposure of the industry which stood at approximately
41.0 per cent in April 2020. Low oil prices translate directly to low resources in the oil and
gas sector and reduced foreign exchange inflow to the economy. Therefore,
protecting the financial system remains a priority going forward”, he said.

He notes that though key banking system Financial Soundness Indicators (FSIs)–capital adequacy ratio,
non-performing loans (NPLs) ratio, earnings, have thus far been quite
robust, the industry is not insulated from the adverse impacts of
the global economic and financial weakening arising from COVID-19 and soft oil prices.

On how to ensure adequate supply of foreign exchange in the foreign exchange market, Adamu said it will be helpful to sustain and deepen extant foreign exchange management policies including strategic
interventions in all segments of the FX market to ensure adequate liquidity, incentivizing autonomous inflows and prioritizing supply for imports of end products and intermediates that cannot be sourced locally.

“In this connection, i urge periodic review of the list of items that are valid/not valid
for funding from the official market. “, he added.

Another member of the MPC who is also a deputy governor of the CBN, Aisha Ahmad, notes that the
resilience of the banking industry notwithstanding, the industry remains exposed to shocks from
spillover effects of the Coronavirus pandemic on macroeconomic conditions.

“This underscores the importance of regulatory measures to mitigate the effects of
the crisis, such as granting forbearance to banks to temporarily restructure loans for businesses and households most affected by Covid-19 and the global Standing Instruction policy to limit NPLs”, she said.