A Review of the Nigerian Energy Industry

Energy firms owe Nigerian banks N2.6trn

17 September 2014, Lagos – Energy firms are owing banks in Nigeria about N2.644 trillion as at end-December 2013, the Central Bank of Nigeria, CBN, has stated.

The amount, according to the CBN in its recently released Financial Stability Report for December 2014, represents 24.21 per cent of the total private sector credit in the period under review.

CBNSpecifically, the CBN report revealed that oil and gas firms borrowed N2.45 trillion from the banks, while power and energy firms borrowed N193.98 billion, representing 1.93 per cent of the total.

Generally, total bank loans and advances to the various sectors of the economy stood at N10.043 trillion, rising by 13.9 per cent from N8.814 trillion recorded at the end of June 2013.

The report said, “Total bank loans and advances to the various sectors of the economy grew by 13.9 per cent to N10.043 trillion at end-December 2013. The oil and gas sector recorded the highest growth rate, with a share of 24.4 per cent, followed by manufacturing 12.9 per cent and the general sector 11.6 per cent.

“The share of the agricultural sector declined to 3.7 per cent, from 4.0 per cent in the first half of 2013.”

The CBN, however, warned that “The continued dominance of short-term deposits constrained the ability of banks to lend long term loans and especially to the real sector, which typically has a preference for longer loan maturities. Thus, the observed mismatch portends refinancing and re-pricing risks for the system.”

In view of the loans given out by the banks, the CBN stated that Non-Performing Loans, NPL, decreased to 3.23 per cent, compared with 3.65 per cent at end-June 2013, reflecting an improvement in the quality of banks’ assets, remaining within the regulatory threshold of five per cent.

According to the CBN, total NPLs increased by 0.72 per cent to N324.13 billion at end-December 2013, from N321.80 billion at end-June 2013.

The CBN said, “Furthermore, credit concentration remained a concern as the top 50 and 100 borrowers constituted 31.88 and 40.51 per cent, respectively, of gross credit at end-December 2013. This compares with 32.57 and 40.76 per cent, respectively, at end-June 2013, indicating a marginal decrease in credit concentration.

“Liquidity risk remained subdued during the review period as all banks exceeded the minimum required ratio of 30 per cent and the industry maintained an average of 50.63 per cent.

“The downside risk, however, was the cost of liquidity management in order to contain inflationary pressure and to protect the naira exchange rate.”

Going forward, the CBN warned that the continued decline in oil revenues due to challenges in the oil sector, among other factors, could elevate market risks in 2014.

“Measures taken by the CBN, however, helped in moderating the rates towards the end of the reporting period.

“Notwithstanding the stable rates, the continued decline of foreign reserves and decrease in oil receipts due to challenges in the oil sector, coupled with possible foreign portfolio investment reversals following the tapering of the US quantitative easing programme, could elevate market risk,” the report stated.

In its projections for 2014, the CBN said, “For the Nigerian economy, real Gross Domestic Product, GDP, growth is expected to remain strong at 7.3 per cent in 2014, up from the 6.4 per cent recorded in 2013.

“Similarly, real GDP growth in the non-oil sector is expected to remain strong, driven largely by agriculture, trade and services, while activities in the oil sector are projected to recover in 2014.”
*Michael Eboh – Vanguard

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