25 March 2016, Lagos — An academic has warned that unless something urgent is done, there is the possibility of a number of Nigerian banks going bankrupt due to their exposure to the energy sector.
Speaking at the just concluded Sixth African Petroleum Congress and Exhibition (CAPE VI) in Abuja, a Professor of Economics at the University of Ibadan, Adeola Adenikinju, disclosed that many energy companies are presently not producing.
This, he said, had hampered their ability to service their loans from banks, and warned: “If nothing is done there is that possibility of banks going bankrupt. Some of the banks are exposed to the energy sector, oil sector and electricity sector. Now, some of those companies are not producing and the interests on the loans are increasing, making it more difficult for them to service those debts. These would put those banks in deep problem.”
Adenikinju, who is also the Director, Centre for Petroleum, Energy Economics and Law, CPEEL, at the University of Ibadan, also called for “a proper study to see how deep the problem had become before it becomes a systemic problem or crisis.”
He, however, urged the Federal Government to consider setting up an intervention fund that would assist energy companies in repaying their debts to the banks.
“Maybe the Federal Government has to step in to help them out, like what it did to the electricity sector. The sector was given money, which did not directly go to the electricity companies. It was partly to clear the loan that they borrowed from the banks so that the banks will not collapse.”
In addition to the huge indebtedness, Adenikinju also noted that the decline in oil prices would lead to a slowdown in the developments of new oil and gas projects, causing a sharp decline in investments in the energy industry and a massive layoff of workers.
According to him, many assets acquired during the asset divestiture by the International Oil Companies, IOCs, are not producing due to oil price volatility, and in turn also led to the growing inability of the National Oil Company, NOC, to meet cash calls commitments.
* Michael Eboh & Grace Udofia – Vanguard