The global crash in crude oil prices could put Nigeria’s biggest banks in a precarious situation as the 68 percent decline in oil prices in Q1 casts an uncomfortable light on lenders’ loan portfolio overconcentration in the oil sector.
As at the beginning of the year, Tier-one banks had an oil exposure of over N4.33 trillion, meaning banks could be forced to make trillions in loan loss provisions and impairments as bonny light oil prices have fallen from around $66 at the start of the year to as low $25 per barrel. The impact of which will lead to weaker earnings in 2020 if the oil loans, especially the upstream oil loans are fully provided for.
The oil price war between Saudi Arabia and Russia which sent bonny light crude oil price tumbling down from around $67 at the start of the year to $21.23 market close on yesterday could spell gloom and doom for deposit money banks with large risk assets to government and the oil sector.
First Bank with a total gross loan of NGN1.66 trillion as at Q3 2019 had up to 51.1% of its loan portfolio at risk according to figures obtained from its investor presentation report. This is because as at the end of Q3 2019, 41.2% of gross loans allocated were to oil companies while another 9.9% was to government with oil companies having contributed 28.6% to total NPL as at Q3 2019.
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Meanwhile, GTB with a total gross loan of NGN1.57 trillion according to its 2019 investor presentation report may have up to 50% of its loan portfolio at risk today because as at the end of FY 2019, 45% of gross loans allocated were to oil companies while another 5% was to government. NPL in 2019 was NGN102.4 billion with oil companies contributing 24% to total NPL
According to the Zenith’s investor presentation document, the bank had a total gross loan of NGN2.46 trillion at the end of FY 2019. The bank may now have up to 40% of its loan portfolio at risk today because as at the end of FY 2019, 25.2% of gross loans allocated were to oil companies while another 14.7% was to government. The bank’s NPL in 2019 was NGN105.8 billion and oil companies contributed 30.75% to total NPL
Access Bank with a total gross loan of NGN3.06 trillion may have up to 33.6% of its loan portfolio at risk today. This comes after 26.8% of gross loans allocated were to oil companies while another 6.8% was to government in FY 2019. The country’s largest bank by assets NPL in 2019 stood at NGN188.5 billion with oil companies having contributed 47.2% to total NPL according to the lender’s investor presentation document for FY 2019.
However, UBA with a total gross loan of NGN1.99 trillion as at Q3 2019 may have up to 34.3% of its loan portfolio at risk today according to its investor presentation report. This because as at the end of Q3 2019, 23.5% of gross loans allocated were to oil companies while another 10.8% was to government. Oil companies and government as at Q3 2019 had contributed 55% to total NPL.
All these point to the fact that oil companies already contribute between 24 percent to 55 percent of NPLs in Tier 1 banks could see a spring of loan defaults in the coming months, further compounding the woes of banks who have been forced to operate skeletally since the COVID 19 outbreak in Nigeria and the ensuing statewide lockdown in Lagos.
Analysts fear that this could mean that tier-one banks could see a significant rise in NPLs and lower profitability in 2020 if there is no significant rebound in crude oil prices and oil price crash triggers series of loan defaults as the global pandemic coronavirus continues to slow down economic activities.
