Bank loans to oil & gas sector hit N49 trillion in one year

Nigeria’s oil and gas business is a drug most banks find difficult to resist as new data shows credit allocations to the sector, the lifeblood of Africa’s biggest economy hits N49 trillion in one year.

Nigerian banks find the oil and gas business attractive because of their huge capital outlays, large intraday cash flows (in the case of downstream companies), and sizable foreign currency inflows (in the case of upstream and midstream companies).

Data sourced from the National Bureau of Statistics (NBS) showed oil and gas industry topped all quarters with the highest bank credit allocation of N49 trillion, overriding the manufacturing and general services sectors.

“Banks credits to clients in the upstream sector has remained strong with crude oil trading around $70 in 2021, while those with clients in the downstream reduced their exposure to the sector,” said Johnson Chukwu, managing director and CEO, of Cowry Assets Management Ltd.

Bank credit refers to the amount of credit available to a business or individual from a banking institution in the form of loans. Bank credit, therefore, is the total amount of money a person or business can borrow from a bank or other financial institution.

Chukwu noted that the macroeconomic environment, activities in the oil and gas sector, and oil prices are factors that will determine the positioning of the banks going forward.

The total credit allocated to the private sector in Q1 2021 stood at N62.28 trn. The top three credit allocations went into the oil & gas industrial sector, manufacturing sector, and the general service sector with N11.97trn (19.22percent), N9.82trn (15.77percent), and N5.55trn (8.92percent) respectively.

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Similarly, in Q2 2021, total credit allocation increased by 5.64percent to N65.79trn, with the top three allocations to the oil & gas industrial sector, manufacturing sector, and general service sector recorded at N12.34trn (18.75percent), N10.83trn (16.46percent) and N6.24trn (9.48percent) respectively.

The Q3 2021 credit allocations to the private sector further increased by 2.33percent from the amount recorded in Q2 2021, showing a total of N67.33trn.

Of this amount, allocation to the oil & gas industrial sector stood top at N12.32trn (18.29percent), followed by the manufacturing sector with N11.14trn (16.55percent) and the general service sector with N6.49trn (9.64percent).

In addition, N71.71trn was reported as a credit to the private sector in Q4 2021, indicating a growth rate of 6.52percent from Q3 2021.

Again, the oil & gas industrial sector recorded the highest allocation with N12.48trn (17.40percent), followed by the manufacturing sector with N12.16trn (16.96percent) and the general service sector with N7.08trn (9.87percent).

Adetola Adelu, a financial analyst at Fides Capital Partners, said the oil and gas sector is generally a favourable sector which in most cases makes loan applications from the sector less rigorous because they often get favourable ratings.

Adelu said although most of the players in the oil industry often have a high liquidity ratio, their long-term solvency ratio, interest coverage, and value of productive asset matter as well.

Over time, Nigeria’s oil and gas sector has been a poster child for growth in Nigeria, but its weak linkages with the rest of the economy have created a bizarre situation where the growth of the sector has increased the size of the wallets of sector participants. But this has not led to the required multiple benefits to the larger society, which wants to see a rise in living standards.