Despite insecurity challenges and uncertainty in the global market, a total of 10 banks’ exposure to the Oil & gas and agriculture sectors grew by 11.2 per cent to N5.16 trillion in 2021 from N4.644trillion reported in 2020.
Analysis of the banks’ 2021 audited financial statement revealed that exposure to the country’s economy mainstay grew marginally by 7.5 per cent to N4.39 trillion from N4.08 trillion in 2020, while exposure to agriculture sector hits N774.84billion in 2021 from N561.45billion in 2020.
The banks are; Access bank Plc, Guaranty Trust Holdings Plc (GTCO), United Bank for Africa (UBA) Plc, Zenith Bank Plc, and Fidelity Bank Plc.
Others include; Wema Bank Plc, Sterling Bank Plc, FCMB Group Plc, Stanbic IBTC Holdings Plc and Union Bank of Nigeria Plc.
Findings revealed that banks operating in the country in 2021 made huge loan provisions for Oil & gas, agriculture, manufacturing, among other key sectorsas demanded by the CBN prudential guidelines.
A breakdown revealed that out of the 10 banks, Access Bank, followed by Zenith Bank maintained the lead in lending to both sectors.
According to the 2021 audited results, Access Bank exposure to four sectors in the Oil & gas sector grew by 6.4 per cent to N1.04 trillion in 2021 from N973.97 billion in 2020.
Access Bank’s exposure to the Oil & gas- downstream sector grew by 17.7 per cent to N160.85billion in 2021 from N136.63billion in 2020, while gross loans and advances to customers in the Oil & gas- services dropped by 32.2 per cent to N401.83billion in 2021 from n593.06billion in 2020.
In addition, the bank’s exposure in the Oil & gas- upstream gained significantly by 102 per cent to N461.7billion from N228.93billion in 2020, while exposure to crude oil refining dropped by 26 per cent to N11.42billion in 2021 from n15.35billioni in 2020.
On the other hand, Access Bank exposure to the agriculture sector dropped by 7.2 per cent to N43.25billion in 2021 from N46.6billion in 2020.
As Zenith Bank’s exposure to the Oil & gas sector rose by 3.4 per cent to N782.4billion in 2021 from N756.94billion in 2020, exposure to agriculture sector grew significantly by 25 per cent to N227.24billion in 2021 from N182.13billion in 2020.
Analysts expressed that underlined impact of COVID-19 virus led to slump in oil demand adding that banks’ in 2021 exposure to the sector was based on cautious lending to key operators in the upstream sector.
They noted the banks’ exposure to agriculture highlighted their approach to mitigate concentration risk.
Analyst at PAC Holdings, Mr. Wole Adeyeye said banks were not lending during the pandemic in 2020, stating that the ease of movement the following year obliged them to lend to both sectors.
He noted that the CBN’s 65 Loan-to-Deposit (LDR) also mandated banks to lend across the sectors, according to CBN’s prudential guidelines.
With the ease on COVID-19 lockdown, the performance of the Oil & gas sector witnessed steady increase to $77.97 per barrel as at December 31, 2021 from $51.35 per barrel, according to the Organization of the Petroleum Exporting Countries (OPEC).
The global oil prices had slump to around $12.41 per barrel in April 14, 2020 from $67.12 early last year as countries shut down businesses to stop the spread of the virus.
In April 2020, the global prices turned negative for the first time after oil producers ran out of space to store the oversupply of crude left by the COVID-19 crisis, triggering an historic market collapse which left oil traders reeling.
However, the country’s economy continued to show signs of progress, with real Gross Domestic Product (GDP) growth remaining positive. The GDP advanced by 3.98per centyear-on-year in fourth quarter (Q4) 2021, the fifth consecutive quarter of economic expansion.
The growth continued to be driven by the non-oil sector that gained 4.73 per cent with main positive contributions from the agriculture sector that appreciated by 3.58per cent, and financial services, 24.14per cent.
On the other hand, the oil sector shrank 8.06per cent in Q4 2021, reflecting lower oil output as the average daily crude oil production stood at 1.5 million barrels per day (mbpd), down from 1.57 mbpd in Q3 and 1.56 mbpd a year ago.
Despite a recovery in oil prices, Nigeria has struggled to meet its production targets due to operational challenges and insecurity coming from pipeline vandalism.
On a quarterly basis, GDP increased 9.63 per cent, following an 11.07per cent jump in the third quarter. For the full year 2021, Nigeria grew by 3.4per cent the fastest expansion since 2014, better than Central Bank of Nigeria (CBN) estimate of three per cent.
Speaking with THIDAY during the weekend on banks’ lending to Oil & gas sector, the Group Chairman/CEO at International Energy Services Limited, Dr Diran Fawibe said the sector remains a significant sector in Nigeria’s economy, stressing that financial instructions cannot ignore the Oil & gas sector despite the domestic and foreign risks.
According to him, “I can only hope banks do their risk assessments in terms of exposure to oil & gas companies. Years ago, there were toxic assets in the oil & gas sector, most especially in the downstream sector. However, there are no oil & gas companies that can finance projects without the help of financial institutions to finance these projects.
“For major oil & gas companies, they have the pedigree to access funds in the international market but independent companies do not have much muscle and they depend on banks. If local banks are not granting funds to local companies, how do you expect them to survive? It is for banks to make sure these loans are properly paid back.”
The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf said the ease in COVID-19 restrictions further enhanced banks lending to oil & gas sector amid steady increase in crude oil price.
He explained that, “In 2020, average crude oil price was around $72/ barrel and in 2021, it was above $72/ barrel. The global economy collapsed in 2020 but with the increase in vaccinations, the momentum in the economy picked up and demand for energy increased, which makes the sector attractive in 2021. We noted more lending in the upstream sector and banks were expected to lend amid observing exercise in lending to new customers.”
Analysts at United Capital Research in a report stated that: “Looking ahead, we expect the Agricultural sector to remain at the forefront of Nigeria’s diversification plan. Thus, we expect the Federal government to sustain its fiat-led interventions in the sector to drive growth.
“We expect an improved FG policy response, particularly on long-standing issues such as land use, farming methods, and farming input quality. As the pandemic abates globally and locally, we expect growth in the Nigerian Agriculture sector to improve.”
