Betting on Agriculture, Oil & Gas Potential, Banks’ Exposure to Sectors Hit N7.38trn

.Gross credit exposure hit N36.53trn     

 .Loan provisions for Oil & gas sector reach new high

Kayode Tokede

With the oil and gas industry still the mainstay of the Nigerian economy despite global push for lower carbone emmision and the huge potential in agriculture, Nigerian banks’ exposure to both sectors an increased by 20.7 per cent from N6.11trillion in 2021 to N7.38trillion in 2022.

Findings by THISDAY revealed that Deposit Money Banks (DMBs) in 2022 hiked exposure in key sectors post-covid-19 amid a directive by Central Bank of Nigeria (CBN) to sustain lending to the real sector, create jobs and stimulate economic growth.

The banks investigated by THISDAY include; Access Holdings Plc, FBN Holdings Plc, Guaranty Trust Holding Limited (GTCO), Zenith Bank Plc, United Bank for Africa (UBA), FBN Holdings Plc, Fidelity Bank Plc, Stanbic IBTC Holdings Plc, FCMB Group Plc, Union bank of Nigeria Plc, Wema Bank Plc and Sterling Bank Plc.

The 11 Deposit Money Banks’ gross credit exposure reached N36.53 trillion in 2022, an increase of 24.5 per cent from N29.35 trillion in 2021.

However, despite DMBs’ massive lending to both sectors, Nigeria’s Gross Domestic Product (GDP) dropped to 3.52 per cent Year-on-Year (YoY) in 2022 from 3.98 per cent in 2021.

The Oil & gas sector, according to the National Bureau of Statistic (NBS) dropped to 4.34 per cent in real GDP in 2022 compared with 5.19 per cent in 2021, while the agriculture sector, dropped to 2.05 per cent in 2022 and its performance was significantly hampered by severe incidences of flood experienced across the country, accounting for lesser growth relative to the fourth quarter of 2021 which was 3.58 per cent.

During the year under review, the 11 DMBs granted N1.13 trillion gross loans to customers, an increase of 33.3 per cent from N849.52 billion in 2021 and in the Oil & Gas sector, about N6.25 trillion gross loans was granted to customers in 2022, an increase of 19 per cent from N5.26 trillion in 2021.

The breakdown of the top four DMBs lending to the agriculture sector in 2022 revealed that Zenith Bank exposure increased to N265.2 billion from N227.24 billion in 2021, while FBN Holdings lending to customers increased to N153.47billion in 2022, an increase of 136.2 per cent from N64.97billion reported in 2021.

Also, GTCO’s credit exposure to the agriculture sector hit N144.66 billion in 2022, 24.1 per cent increase from N116.58 billion in 2021, while Fidelity Bank lending to agriculture sector closed 2022 at N109.01billion from N71.76 billion in 2021, a growth of 52 per cent.

In the Oil & gas sector,  the Russia/Ukraine war contributed to spike in crude oil prices from $77.97 per barrel in 2021 to $81.29 per barrel in 2022, according to the Organization of the Petroleum Exporting Countries (OPEC). The crude oil prices rose above $100 for the first time since 2014 amid the conflict.

As experienced in recent years, the downstream oil and gas sector remains plagued by operational challenges, such as inadequate infrastructure, foreign exchange liquidity constraints, and most recently, Premium Motor Spirit (PMS) supply shortages.

Further findings by THISDAY revealed that DMBs operating in the country in 2022 reported huge loan provisions for Oil & gas sector as demanded by the CBN prudential guidelines.

Analysis of the banks’ results showed that Access Holdings had the largest exposure to the nation’s mainstream sector in 2022 with about N1.24 trillion as against N1.04 trillion reported in 2021, followed by FBN Holdings that reported N1.22 trillion exposure to Oil & gas in 2022 from N873.56 billion in 2021.

Access Holdings exposure to the downstream sector closed 2022 at N274.7billion from N160.85 billion in 2021, while services in the oil & gas sector stood at N644.59billion in 2022 from N661.8 billion in 2021.

The Holdings also reported N277.71billion exposure to the upstream sector in 2022 from N201.74 billion in 2021 and crude oil refining increased to N47.43billion in 2022 from N11.43billion reported in 2021.

On its part, Zenith Bank exposure to the oil & gas sector increased to N931.04billion in 2022 from N782.41billion in 2021, GTCO reported N697.89 billion exposure in the Oil & gas sector last year from N658.66 billion reported in 2021.

GTCO in a presentation to analysts/investors said, “The Group maintained a well-distributed Loan book with a continuous focus on quality across all target markets and select business segments. Exposure to Midstream Oil & Gas Sector was reduced from 14 per cent to nine per cent was a result of scheduled repayments by obligors in this sector. Additional drawdowns on Anchor Borrower’s Funds (Intervention Loans) translated to an increase in Agriculture sector contribution from 1 per cent to 8 per cent. Growth in Retail loans was 1 per cent

“Exchange rate movement from N435/$1 in Fy-2021 to N461.5/$1 in F2022 led to an increase of the contribution from the Oil and Gas sector to 30 per cent from 28 per cent. The Group continues to make conscious efforts to reduce the concentration risk. 81.6 per cent of the exposures in the Oil & Gas sector are USD denominated and in the Upstream Oil and Gas Total restructured loans stood at N280.5 billion, constituting 16.9 per cent of the Gross Loan portfolio. Of the total restructured loans, 86.6per cent relate to two Obligors – Aiteo and WEMPCO. All restructured loans have been classified appropriately as Stage 2 Facilities.”

Analyst believe DMBs are lending to old associates in  the Oil & gas industry stressing that the ector still has more potential than other sectors in the nation’s economy.

The Vice President, Highcap Securities Limited, Mr. David Adnori attributed increased exposure by banks to Oil & gas to high Return On Investment (ROI).

 According to him, “The high yield in the Oil & gas sector is attractive enough for banks to sustain investment. The only risk there is when the price of crude oil remains low for 12 months. The price hike in 2022 was due to ease of movement and the conflict between Russia/ Ukraine.

“The Covid-19 pandemic had created uncertainty in the oil & Gas sector and since the discovery of ways to tackle the virus, it led to the economy reopening globally and boosting oil production and prices.”

He said DMBs operating in the Oil & gas sector rather focus on individuals than lending to new investors.

He said, “About 44 per cent total banking sector loan actually went into the Oil & gas sector. Some of these banks are smart as they don’t lend to companies in the upstream sector. They only lend to those in the downstream and midstream sector. Actually, there is high risk in the upstream sector which makes them not invest.”

On the sector performance in 2023, analysts at Cordros in a report said, “ We believe 2023 may be the year some semblance of normalcy is restored to the downstream oil and gas sector.”