Nigeria’s oil and gas sector holds 28% of bank credit in Q1 2024

The total banking sector credit to the Nigerian economy more than doubled year-on-year rising to about N53 trillion at the end of the first quarter of 2024.

This is according to the latest data from the Central Bank of Nigeria (CBN) showing the banking sector’s lending to different sectors of the economy.

Based on the data, the oil and gas sector dominates with about 28 percent of total lending, having over N14.7 trillion in debt in the period under review.

This compares to just N6.8 trillion in the same period in 2023, highlighting the impact of exchange rate depreciation.

Nigerian banks’ total sectorial credit topped N53.2 trillion in 2024, which is 76 percent higher than the N30.3 trillion reported in the same period in 2023. It also represents a 20 percent increase from N44.5 trillion recorded at the end of 2023.

It was further observed that Nigeria has a low credit to Gross Domestic Product (GDP) ratio of 22 percent, which is far lower than the 70 percent recorded in South Africa.

In the first three months of 2024, about N8.7 trillion have been borrowed from banks in Nigeria.

The oil and gas sector led the pack with about N10.9 trillion in lending to the upstream sector and another N3.8 trillion to the service sector, which means that the sector has about N14.7 trillion in debt from banks as of March 2024.

The size of lending to the oil and gas sector has dominated banking sector credit for decades as commercial banks tie the foreign currency earnings capabilities of the sector as a derisking factor.

Loans to this sector are largely denominated in foreign currency and may have been impacted by the exchange rate devaluation.

The CBN data shows that while debt to the upstream sector increased by about N2.6 trillion, the downstream sector accumulated N440 billion in fresh credit in Q1 2024.

This further shows that oil and gas firms operating in the upstream sector are the bigger beneficiaries of banks’ credit in Nigeria.

According to the CBN data, other top beneficiaries of bank credit are in the general sector and manufacturing sector.

While the general sector holds about 17 percent of total bank credit, the manufacturing sector holds about 16 percent.

Firms in the general sector recorded an increase of N4.9 trillion in three months, having about N8.8 trillion in bank credit by March 2024.

The manufacturing sector recorded a more subdued increase of about N1 trillion in three months, having a total sectorial credit of N8.7 trillion, which is about 53 percent higher than the N5.6 trillion recorded a year earlier.

The sector has often trailed the oil and gas sector despite representing about 10 percent of Nigeria’s Gross Domestic Product (GDP).

Further observed that although agriculture was the biggest contributor to the GDP at 21.07 percent, has a total bank credit of N2.58 trillion, which is about 5 percent of total credit.

Other critical sectors like real estate, power and mining have access to low bank credit, despite being key sectors of the economy.

While Upstream operations include identifying, extracting, or producing materials, downstream operations include the post-production of crude oil and natural gas, bringing products to consumers.

The oil and gas sector contributed 6.38 percent to the GDP in Q1 2024. However, it attracted no foreign capital within this period.