Oil & gas sector: Despite price volatility, Banks exposure increases to N12.08tn
Amid increasing crude price fluidity , a total of 10 banks’ exposure to the Oil & gas sector rose to N12.08 trillion in 2023, a measure of about 80 percent increase from N6.71 trillion reported in 2022.
In the obverse, the 10 banks’ gross credit concentration in agriculture, real estate, general commerce, information technology, among others was said to have stood at N64.21 trillion in 2023, about 64.4 per cent increase from N39.06 trillion in 2022.
Brent crude oil price averaged $83 per barrel in 2023, down from $101 per barrel in 2022, as global markets adjusted to new trade dynamics, with crude oil from Russia finding destinations outside the EU, and lower than expected demand.
Analysts have argued that the noticeable slowdown in the prices of crude oil and awkward growth in oil production had a negative effect on Nigeria’s foreign exchange reserves.
For the Organisation of the Petroleum Exporting Countries (OPEC) basket price, crude oil price closed 2023 at $78.44 per barrel from $81.29 per barrel it closed 2022.
The banks with this high exposure according to EnergyDay’s findings are; Access Holdings Plc, Guaranty Trust Holding Plc (GTCO), United Bank for Africa (UBA) Plc, Zenith Bank Plc and FBN Holdings Plc.
The list also included; Fidelity Bank Plc, Wema Bank Plc, FCMB Group Plc, Stanbic IBTC Holdings Plc and Sterling Financial Holdings Company Plc.
The Investigations also revealed that banks conducting operations in the country in 2023 financial year made huge lendings available to oil & gas, among other key sectors as demanded by the Central Bank of Nigeria (CBN) prudential guidelines.
A breakdown of this has shown that r out of the 10 banks, FBN Holdings, followed by Zenith Bank and GTCO are the only three Tier-1 banks with lending to oil & gas sector in 2023 financial year above N2 trillion. Mark.
According to the 2023 audited results, FBN Holdings exposure to Oil & gas sector stood at N2.19 trillion in 2023, about 79 per cent increase from N1.22 trillion reported in 2022 financial year.
The Holdings loans and advances to customers retail portfolio in the oil & gas sector stood at N2.53 billion in 2023 from N153.46 billion in 2022, while loans and advances to customers – Corporate Portfolio in the oil & gas sector was at N2.18 trillion in 2023 from N1.22 trillion reported in 2022.
Zenith Bank’s exposure to the Oil & gas was at N2.1 trillion in 2023, a growth of 127 percent from N931.05 billion reported in 20222.
The sector contributed nearly 30 percent to Zenith Bank’s N7.06 trillion loans and advances to customers in 2023.
GTCO joined the list of top three banks’ lending to oil & gas with an exposure of N2.29 trillion in 2023, a growth of 57.4 percent from N1.45 trillion reported in 2022.
GTCO in a presentation to analysts and investors stated that the group continued to maintain a well-distributed loan book with a specific focus on asset quality across select business segments.
The Group explained that, “Exchange rate movement from N461.5/$1 in 2022 to N907.11/$1 in 2023 resulted in an increase in the contribution of the oil & gas sector to the gross loan portfolio at bank level, from 41 per cent to 49 per cent in-spite of scheduled repayments and conscious effort at reducing the concentration risk within this sector.
“Exposures to the upstream, midstream, downstream, and natural gas oil & gas sector increased from 30 per cent, nine per cent, two per cent, and 0 percent to 31 percent, 14 per cent, three per cent, and three per cent, respectively between 2022 and 2023.
“Contribution of other sectors aside from manufacturing which increased to 18 per cent from 13 percent either declined or remained flat on account of the increased contribution of the oil & gas sector to the to the gross loan portfolio i.e., information, telecoms and transport sector contribution dropped to six per cent from eight percent, Individual to nine per cent from 13 percent, Government to two per cent from four per cent. 66.6 percent of the exposures in the oil & gas sector are USD-denominated and are significantly concentrated in the upstream oil and gas, thus subject to exchange rate volatility.
“The total restructured loans stood at N386.2 billion in 2023 significantly influenced by Naira devaluation increasing from N280.5 billion in 2022 and constituting 14.8 percent of the gross loan portfolio. 90 percent of the restructured loans relate to one obligor and all the restructured loans have been appropriately classified as Stage 2 Facilities.”
Analysts expressed that the lingering war between Russia and Ukraine affected Nigeria’s crude oil inflow in the international oil market with a dip in demand from the once-dependable Asian market like India.
They added that banks’ in 2023 exposure to the sector was based on cautious lending to key operators in the upstream sector.
Despite a recovery in oil prices, Nigeria has struggled to meet its production targets due to operational challenges and insecurity coming from pipeline vandalism.
The oil sector expanded for the second consecutive quarter in Q1-2024, though slower at 5.12 per cent y/y (Q4-2023: 12.11 per cent y/y ! Q1-2023: -4.21 per cent y/y).
The slowdown was due to a modest improvement in domestic oil production compared to the corresponding period of the prior year (1.57 mb/d vs Q4-2023 :1.55 mb/d: Q1-2023: 1.51 mb/d).
