Dwindling Oil Prices: Banks in a dilemma over loan restructuring

09 February 2016, Lagos – Following the dwindling prices of crude oil in the international market, some of the Nigerian banks that funded deals in the oil and gas industry are in a dilemma on how to restructure the loans without extending the repayment period beyond the duration of the licences granted by the federal government on the assets.

*Diamond Bank.

*Diamond Bank.

THISDAY gathered that with the drop in oil prices, most of the financing arrangements that were structured based on $70 to $100 per barrel oil would now have to be restructured to extend the repayment period.

The Group Managing Director and Chief Executive Officer of Diamond Bank Plc, Mr. Uzoma Dozie had told THISDAY that the drop in the price of crude oil would not discourage the banks from financing exploration and production (E & P) activities, provided that enough reserves and other fundamentals are in place throughout the life of the loan.

According to him, if the assets have enough reserves to repay the loan at very low oil price, the banks will have to restructure the loans to longer terms.

“For us, what it means is that if we are supposed to be paid in five years, we are going to be paid in eight years. But the most important thing is that there is enough reserves to enable them pay the banks because for those companies, the assumption is that they will grow the production and they will have enough reserves to give the banks the confidence that they can increase their cash flow and continue to invest and re-invest even at low oil price,” he had said.

THISDAY however gathered that concerns have been raised that with the extension of the duration of the loans, some of the licenses on the assets may even expire before the loans are repaid, thus jeopardising the banks’ chances of recouping the loans.

Speaking on this development at a recent technical meeting of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos, the Vice President in charge of Corporate Banking at FCMB, Mrs. Ronke Jibodu acknowledged that the drop in oil prices was the biggest problem facing the banks.

According to her, the oil and gas industry is a sector where the banks would like to play, adding that FCDMB’s portfolio in the sector is about $500 million.

“And a large part of this portfolio is not performing because of the drop in oil price. We have to restructure some facilities but for how long are we going to restructure? What if the leases will expire in 2019? If the leases expire, what happens to our cashflow?” she said.

She further revealed that there was also mismatch funding in the power sector, adding that it will be difficult to get funding to support the oil and gas industry.

“These are some of the realities we are facing as financial institutions. It is true that AMCON took away some of the loans from us but we still need to support the sector. So, these are the realities and what next?” She added.

This Day

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