Oil firms’ debts threaten Nigerian banks -Report

* Crash in global crude oil prices, supply glut, storage crisis cited as factors

Alexander Davis | ConsumerConnect
The wide-ranging negative impacts of the Coronavirus pandemic affecting several economies around the world coupled with the global oil crisis has caused a historic crash in crude oil prices are currently affecting Nigeria’s indigenous crude oil-producing firms.

The discomforting situation is also believed to pose a serious threat to Nigerian banks as of now.

Bloomberg reports that these independent oil-producing firms, which pump some 400,000 barrels of crude oil per day (about a fifth of the country’s crude oil output), risk causing some liquidity crisis among some of the local banks that finance their businesses.

ConsumerConnect learnt that some of the indigenous oil firms going through this financial crisis include Shoreline, Aiteo Group, Eroton Exploration & Production Company, Seplat Petroleum Development Company, and others.

Report says the independent oil-producing firms account for about 90% of the $8 billion owed to the financial institutions, including local banks.

While a portion of those loans were hedged at $50 per barrel, a greater percentage of them were not, thereby raising the risk of default by the oil firms, the report noted.

Data from the Central Bank of Nigeria (CBN), it was gathered, showed that “about a third of loans by the Nigerian banks were given to oil firms, although some of their transactions are hedged.”

On the rationale for the development in the oil industry, the report stated that the impact of the Coronavirus pandemic, coupled with the oil market crisis, has induced global crude oil prices crash far below the projected price year 2020.

While the Brent crude sold at slightly above $21 per barrel Sunday, April 26, Nigeria’s headline crude, Bonny Light, sold for slightly above $16 per barrel.

Earlier, the Bonny Light was sold at a hugely discounted price of $10 per barrel due to the supply glut in the market and the issue of storage crisis.

This will greatly affect the ability of the independent oil producers to meet up with their debt obligations to local banks, as they will need crude oil to sell between $35 and $40 per barrel in order to stay in business.

Kola Karim, Chief Executive Officer (CEO) of Shoreline Group, said: “Government needs to come up with the independents and the other oil producers, a financial rethink of the funding mechanics for the industry, if not we’ll see a total collapse which in turn will drag down the banks.”

Some industry analysts are of the opinion that if this low crude oil price persists for about six months, a full-blown crisis may be experienced in the banking sector.

Already, Nigerian banks are said to be complaining about the N1.4 trillion debt they are owed.

This is because the situation is making it difficult for them to meet regulatory cash reserve targets required by the CBN.

Kindly Share This Story