A Review of the Nigerian Energy Industry

Banks allay fears over exposure to oil sector

18 February 2015, Lagos – As concerns over banks’ exposure to the oil and gas sector heighten as a result of the drop in oil prices, operators of deposit money banks (DMBs) have called for calm, saying that Nigerian banks are adequately capitalised to withstand the situation.

Godwin Emefieli, CBN Governor.
Mr. Godwin Emefiele, CBN Governor.

Analysts had predicted that a drop in oil prices may open a new wave of consolidation in the Nigerian oil and gas sector, even as they estimated that some companies may not be able to repay their debts.

They had also stated that development in the international oil market has introduced some near-term uncertainty both for investors and oil companies alike in the sector.

But the Managing Director/Chief Executive Officer, Guaranty Trust Bank Plc (GTBank), Mr. Segun Agbaje explained that a stress-test that was done by the Central Bank of Nigeria (CBN), showed that banks operating in the country can withstand the shock.
Agbaje added: “We must remember that it is not only Nigerian banks that finance oil. All over the world, people finance oil. Oil is not different from any other commodity.

“If you finance in the upstream for as long as you have reserves, you can always elongate the tenor of your loans if you find that it is not sufficient.”

The GTBank boss argued that some of the concerns over the drop in oil prices were “overblown,” revealing that the stress-test that was done by the central bank was with crude price at about $50 to $55 per barrel respectively.
“The books of the banks are in fairly decent shape,” he added.

Corroborating Agbaje’s views, the Director, Banking Supervision, CBN, Mrs. Tokunbo Martins pointed out that despite all the headwinds, both global and domestic, the banking industry remains safe, sound and resilient.
According to her, all the ratios for the industry remain satisfactory.

“For the industry at large, all the banks were on average, above the regulatory minimum. So, the banking industry is safe, sound and resilient.

“We have always been criticised in this country that the capital level that are required of our banks are very high, compared to other parts of the world,” she explained.

Martins stated that “very high capital level is really for a time like this when unexpected losses come. In the past two weeks, there seems to have been a rebound and we don’t know what might happen later.

“In recent times it has been hovering between $57 and $60 per barrel. But what I am trying to say is that the capital level of our banks is high enough to accommodate the unexpected. So, I don’t think there is too much cause for concern.”

The CBN recently postponed an earlier directive that deposit money banks should strengthen their capital buffers in order to mitigate shocks as a result of their exposure to the oil sector.

The decision, according to the central bank, was to ensure that the on-going implementation of the Basel II/III capital adequacy framework is not dislocated.
Nevertheless, the banking sector regulator had urged banks to put in place adequate risk mitigating techniques for the management of their oil and gas risk exposures.


– This Day

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