The oil and gas sector took a lot of loans that they could not pay back, thereby raising banks’ exposure to non-performing loans (NPLs), a Dataphyte review of financial statements of banks has shown.
The 2022 financial statements of the Guaranty Trust Bank show that N21.6 billion was recorded as NPLs from firms in the oil and gas sector (midstream and downstream).
An NPL occurs when the borrower fails to pay scheduled payments for a specified period.
In the case of GTB, the NPLs stood at 5.19 percent of total loans disbursed. With a total sum of N1.92 trillion loaned in 2022, N102.3 billion was recorded as NPL, with the oil and gas sector taking 21.21 percent of the total.
Though the United Bank for Africa plc did not state the value of its NPLs for 2022, it however noted that 16 percent of the total unpaid loans for the year was held by the oil and gas sector.
For Zenith Bank, the oil and gas sector had a share of 44.3 percent of the NPLs, representing N78.66 billion. The total NPLs for the bank stood at N177.3 billion for the 2022 financial year.
In 2022, Ecobank Nigeria recorded $179.7 million as NPLs, with the oil and gas sector accounting for 35 percent of the total, equating to $62.8 million or N28.8 billion.
A review of Fidelity Bank’s half-year financial statements shows that the oil and gas sector accounted for N4.817 billion of the bank’s total NPLs or 8.9 percent of its total NPL.
For WEMA Bank, oil and gas industry accounted for N5.109 billion of the total NPLs for a half-year period.
Troubled oil and gas sector
Financial viability of oil and gas has been a cause for concern among players in the industry. Global oil prices have fluctuated in the last eight years, and the local petrol market has been stymied by subsidies and lack of competition.
The Petroleum Industry Act, recognising this challenge, has put forward several ways in which oil and gas companies may be profitable and sustainable.
But most of the PIA provisions are not being implemented.
Financial results by banks therefore accentuate concerns around the sector’s viability.
Different Dataphyte reports have also pointed out the issue of financial solvency of oil and gas companies with operations in Nigeria.
At various times, oil and gas companies have owed the country itself money running into trillions of naira, reflecting the financial problems facing the sector.
The regulator, Nigerian National Petroleum Company (NNPC) Limited, has struggled itself. It has commercialised and registered with the Corporate Affairs Commission, hoping for better revenue and profitsm but its refineries aren’t making money.
Experts react
A policy analyst, Samuel Atiku, opined that the challenge facing oil and gas companies was mainly due to their inability to sell petroleum products. Atiku said that local and international ban on movements and subsidy issues were also hurting the ability of oil and gas companies to meet their obligations.
“Although we can say that the Nigerian economy is beginning to diversify, banks’ investments are still heavily tilted towards the oil and gas sector. COVID-19 affected many oil and gas companies, which may have made them unable to meet their obligations.”
He noted that government interventions at some point helped these companies to stay afloat until 2021 when these interventions dried up.
“When these interventions dried up, the companies started cutting cost or diversifying their business interests, but the reality in the absence of government intervention began to dawn on them, leading to issues such as inability to meet obligations.”
He further noted that the domestic economy, the exchange rate environment and the international environment had not been favourable to the companies, leading to them defaulting on their loans.
The policy expert stated that the monetary authorities should work on the stability of exchange rates to ensure a better exchange rate regime.
Advocating for a stronger monetary policy, he said, “There should be a regulatory framework around the banks. The portfolio of debts in banks is not well diversified to go beyond just the oil and gas sector and the government. We need to place an eye on the loans to ensure that these non-performing loans do not create any risk.”
Atiku opined that the country must also consider another economic driver rather than focus on the oil and gas sector alone.
He warned that the country would not afford the Asset Managemenr Company of Nigeria (AMCON) taking over companies due to non-performance of loans.
An oil and gas policy expert, Henry Adigun, noted that the government should be consistent with its policies. According to him, inconsistencies of policies often led to the inability of businesses to fulfill their financial obligations.
A Dataphyte report had detailed important issues the president-elect should consider to revitalise the oil and gas sector in the country, including removal of petrol subsidies, fulfilment of joint venture obligations, among others.
Adigun opined that subsidy payments to companies had been a serious concern in the oil and gas sector.
On the way forward, the policy expert advocated for consistency of government policies, noting that this would ensure revitilisation of companies in the oil and gas sector.
An Anambra State-based economist, Ms Oluchi Ezenwaka, stressed that no market would function when the government was still interfering in it. She noted that the petrol and gas markets were still underegulated.
“The petrol industry does not sell products at market prices. In the gas sector, there is deregulation, yet there have been periods when the government interfered to cut down prices. Such situations often discourage investors. So, the first step is to deregulate the market to enable players sell at market prices and meet their obligations. Two, you must also create the environment for businesses to succeed. You don’t multiply taxes and expect businesses to thrive,” she noted.