Nigerian lenders exposure to oil & gas still high at 22.5% despite sector’s NPL history

A sectorial breakdown of Nigerian banks’ credit to the private sector in the second quarter of 2017 indicates that the oil and gas sector still account for a chunk of total credit despite a history of non-performing loans.

Data released by the Nigerian National Bureau of Statistics (NBS) for Q2 2017 at the weekend showed that the oil and gas sector accounted for N3.53 trillion of the N15.71 trillion advanced to the private sector, representing about 22.5 percent of banks’ loan portfolio.

However, the 22.5 percent exposure represents about N1 trillion decline or 6.3 percent year-on-year from N4.5 trillion or 28.77 percent recorded as at end-June 2016.

The 2017 second quarter exposure is materially higher than the N3.31 trillion at end-December 2015

The oil and gas sector in the past one and half years has been a source of risk to many lenders as obligors, especially in the upstream industry, which has over 50 percent of credit to the sector, found it difficult to repay loans as global oil market nosedived.

Most of the loans were booked when the price of oil was around $140 per barrel. However, when oil fell to below $40 per barrel, the obligors began to find it difficult to meet repayment obligations.

Consequently, the banks were forced to restructure most of the facilities and adopted a cautionary stance to oil and gas loans.

However, the resumption of the Forcados pipeline in May 2017, which has been down since February 2016, is a major factor that may have countered their cautionary stance as local oil companies become dollar liquid.

Analysts say an improvement in oil sector receipts would provide relief for banks, enhance repayment of obligations.

Specifically, analysts who spoke to businessamlive said for the sector to still command over 20 percent of banks’ loan portfolio indicates that most of the restructured facilities are either paying out or the banks still see a bright outlook for the industry as dollar liquidity is improving as well as marginal rebound in prices at the international oil market in the second quarter.

Although the WTI crude oil market was bearish for most of last week, prices at between $47.5 to $49 per barrel are seen to be way better that the $44 for most of the first quarter.

The manufacturing sector, despite posturing as not been given enough credit, came second with N2.22 trillion loans and advances from the banks.

The agriculture sector came a distant third with loans worth N501 billion, while power sector got advances of N466 billion. Mining and quarrying got the least credit with a paltry N11.4 billion.