Banking sector may shun loan requests from oil firms in 2017

Oil production falls by 0.41mbpd in June, threatens 2018 budget

The reduced fortunes of a number of indigenous oil companies in Nigerian may have prompted the banking sector to shut the loan window on them for 2017.

Already, there are fears that loans earlier extended to the sector is running into toxic column, a possibility that is said to be staring the bankers in the face.

As at end of third quarter of 2016, banks’ loan commitments to the oil sector were said to be about $2.5 billion, from both the onshore and offshore liquidity facilities of 15, out of the 23 banks whose reports were received by the Central Bank of Nigeria (CBN) for the year.

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Included among the banks were Zenith, First Bank, UBA, GTB, Access Bank and IBTC and three investment banks.

Five of the banks reportedly entered into some venture partnership with foreign banks, among them are the PNB and SocGenerale of France, leading to extension of about $500 million to an oil firm that has affiliation with a company involved in oil exploration in Lagos.

Also, First Bank was said to have been involved in loan disbursement to two Port Harcourt-based oil companies running into several millions of dollars, while Zenith and UBA had collectively expended about $700 million to five oil firms, which recently won oil bloc bidding of the NNPC.

Though most of the loans were believed to have had strong coverage by both the relevant authorities and backed up with adequate collateral, there are still concerns in many quarters that if care is not taken, the banks may lose, while other sectors of the economy may be the worst hit since loan applications could not be attended to.

However, most oil firms may not meet the repayment deadlines of the loans, given the near zero-profit margin that were recorded in 2016, following stopages caused by hostilities in the Niger Delta, which also caused collateral damages on their oil facilities in the region.

But CBN spokesman, Isaac Okorafor, said loan advancement is a prerogative responsibility of banks, while the apex bank merely gives guidelines to them.

A retired director with Union Bank, Chief Silas Udeaka, said there should be a review of the banking policy, which tends to favour giving out loans to only the sectors with huge outlets at the cost of small enterprises.

“Nigeria’s hope of competing with other countries lies on its ability to pay more attention to the startups as is done in most developing economies, with Pakistan as a case study.”

He said the banks’ lay too much emphasis on the oil sector which was not to the best interest of the economy.

But the oil sector may continue to play some dominant role in the Nigerian economy as the country still relies on oil revenue providing about 80 per cent fundings for its budgets.

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