Financial Energy Review
The debts owed to Nigerian banks by oil and gas operators as well as power companies have risen above N6tn, the latest data obtained from the Central Bank of Nigeria have shown.
The energy firms increased their bank debts to N6.14tn as of June 2021 from N5.94tn at the end of 2020.
The N6.14tn represents 28.05 per cent of the N21.89tn loans advanced to the private sector by the banks as of June 2021, according to the sectoral analysis of banks’ credit by the CBN.
Oil and gas firms, which received the biggest share of the credit from the banks, increased their debt by N140bn to N5.32tn by June 2021 from N5.18tn in December 2020.
The debt owed by power firms to the banks rose to N823.28bn in June 2021 from N763.22bn in December 2020, the CBN data showed.
Oil firms operating in the downstream, natural gas and crude oil refining subsectors owed N3.99tn as of June 2021, up from N3.93tn at the end of last year, while those in the upstream and services subsectors owed N1.33tn as of June 2021, up from N1.25tn at the end of 2020.
Power generation firms and independent power producers increased their total debt to N482.30bn in June 2021 from N443.37bn in December 2020, while transmission and distribution firms owed banks N340.98bn, up from N319.85bn as of December 2020.
The slump in oil prices in 2020 as a result of the coronavirus pandemic hit many oil and gas companies hard, forcing them to slash their capital budgets and suspend some projects.
The International Monetary Fund said in February that while it welcomed the resilience of the Nigerian banking sector, it called for continued vigilance to contain financial stability risks.
The IMF noted that COVID-19 debt relief measures for bank clients should remain time-bound and limited to those with good pre-crisis fundamentals.
The Monetary Policy Committee of the CBN said in its last meeting that banks’ non-performing loans ratio at 5.70 per cent in June 2021 showed progressive improvement, compared with 6.4 per cent in June 2020.
The committee, however, urged the central bank to sustain its tight prudential regime to bring NPLs below the five per cent prudential benchmark.
The MPC applauded the continued resilience of the banking system in the face of severe shocks to both the domestic and global economies.
“Members noted management’s effort in maintaining a reasonably low level of non-performing loans ratio, even though aggregate credit moderated slightly. The committee encourages Nigerian banks to extend more credit to consumers and firms to enhance consumption and production activities necessary to strengthen the recovery,” it said.
A global credit rating agency, Moody’s Investors Service, said in a recent report that Nigerian banks’ loan quality would weaken in 2021 as coronavirus support measures implemented by the government and the central bank last year, including the loan repayment holiday, were unwound.
According to the report, the banks face higher asset quality risks as coronavirus support measures are withdrawn amid large single-name and sectoral concentrations and as banks hold a large volume of foreign currency loans.
