A Review of the Nigerian Energy Industry

NPL: Sterling Bank grants energy firms N253bn

Sterling Bank
Sterling Bank

*Conoil struggles to pay N19.5bn

12 May 2015, Lagos – Sterling Bank exposures to energy firms in a two year period between 2013 and 2014 stood at also N253.33 billion. The development comes as Conoil Plc, one of the beneficiaries of the loans struggles to pay off about N19.5billion borrowed from the bank during the period, thereby reinforcing the Central Bank of Nigeria, CBN’s fears over the huge debts owed Nigerians banks.

The CBN in a circular to all banks and discount houses, titled, ‘Recovery of delinquent credit facilities,’ signed by Mrs. Tokunbo Martins, Director of Banking Supervision, had expressed concern over the rising trend of non-performing loans, NPLs in the banking sector. The CBN, as result, ordered banks to henceforth, observe prudent credit underwriting and monitoring standards in a bid to ensure that industry NPL ratio does not exceed the prudential limit of five per cent.

Sterling Bank, in its Financial Statement for the year ended December 31, 2014, disclosed that of the N19.5 billion borrowed by Conoil during the period, the oil and gas company was only able to repay N4.245 billion, leaving an outstanding indebtedness of N15.255 billion.

Giving a breakdown of the Conoil loan in 2013, Sterling Bank said the facility was granted in December 5, 2013 and was expected to run through January 29, 2014. Specifically, the overdraft facility, according to the bank, was initially N7.9 billion, with Conoil repaying N1.865 billion, leaving an outstanding balance of N6.035 billion in 2013. In 2014, Sterling Bank extended another N11.6 billion overdraft facility to Conoil, with an outstanding balance of N9.22 billion after the oil firm was only able to repay N2.38 billion.

The bank listed the facility under the related party transaction, with Osunsade Olufunmilola, a director of the bank being the individual linked to the facility in 2014, while Osunsade Olufun-milola’s brother listed as the beneficiary of the loan in 2013. Despite the huge outstanding balances, Sterling Bank still classified both facilities as performing, stating only that it has a negative pledge clause on Conoil’s assets in respect of the loan.

A negative pledge clause is a lending agreement designed to prevent borrowers from pledging the same collateral to multiple lenders or otherwise taking actions that might jeopardise the security of existing lenders. Giving a breakdown of the N253.33 billion loans granted in the 2013 and 2014 financial year to energy firms, Sterling Bank said it gave out N231.316 billion to oil and gas companies and N22.014 billion to power firms.

Further breakdown of energy loans revealed that in 2013, the bank gave out total loans of N108.004 billion, with oil and gas firms receiving N99.733 billion while power firms got N8.271 billion. In 2014, the bank gave out a total of N145.326 billion, with oil and gas firms and N13.743 billion to power companies. Generally, the bank put its total loans to various sectors of the economy at N328.665 billion in 2013, and N380.924 billion in 2014, leading to a total of N709.589 billion.
*Michael Eboh – Vanguard

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